Markets Today: Bound for glory (for now anyhow)

Ever had one of those moments when you start the day and you have a rather weird moment to start the day?

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Ever had one of those moments when you start the day and you have a rather weird moment to start the day? Well it happened this morning. One of the first things I check after opening the screens is the iron ore price and I had to look several times this morning to make sure I wasn’t in another universe. But there it was: $63.74/t, up a cool $9.99/t, +18.59%! “Must be a wrong feed”, I thought, but here it was. Given some credence by the fact that Dalian iron ore futures rose 5.88% yesterday, while Chinese steel rebar futures rose 7.97%, all after the weekend’s official growth announcements from China.

It was followed by big rises in BHP and RIO shares overnight and unsurprisingly turbocharged the AUD/USD that had been trading quietly through the Asia session around 0.7400/0.7420, even drifting off a touch. It took off and headed up though the NY session to over 0.7480, now consolidating just below that level into the opening of local trade this morning. The LME base complex was little changed, but oil was bid up aggressively further, Brent trading at $40.80, up 50.6% from its Jan 20 low and higher by 5.35% today, adding another layer of support to the commodity currencies.

Also more focus on yet more comments from BoJ Governor Kuroda, talking of the possibility of further monetary easing, even though he recognised the negative spill over to banks’ earnings. His retort to that was to beat deflation and thus ultimately lift earnings. Little change in the yen, though it has actually strengthened in recent trade this morning.

Not too much data to report form overnight with the Fed’s composite Labour Market Conditions Index change for Feb on the softer side, printing at -2.4 against a forecast +1. The USD has been on the defensive with the commodity currencies on a hot streak. Fed Governor Lael Brainard and Vic Chair Stan Fischer have been speaking and from almost polar opposite perspectives, Brainard very cautious but Fischer speaking of re-emerging inflation. Brainard emphasised downside risks and urged rate policy caution. She said while there are reasons to expect continued gains in employment, expectations of stabilising foreign economies and an eventual rise in inflation back to 2%, “However, there are risks around this baseline forecast, the most prominent of which lie to the downside,” she said.

Fischer was mainly speaking about the history of economic thought but spoke of signs that the relationship between low unemployment and inflation might be re-awakening now. “The link has never been very strong, but it exists, and we may well at present be seeing the first stirrings of an increase in the inflation rate — something that we would like to happen”. US bonds edged higher, along with oil.

Coming Up

There are some big releases in our time zone that the market will be paying close attention to. Locally, there is RBA Deputy Governor Lowe speaking hot on the heels of last week’s RBA Board meeting, GDP, the push higher in the AUD, and more. His formal topic is “Resilience And Ongoing Challenges” and so another set of observations on the overall progress of the Australian economy through its mining/non-mining structural change would be one avenue to pursue under such a topic. That speech starts at 9.50 AM Adelaide time. The other big release is the NAB Business Survey for February. No hints! Just a reminder that January’s survey revealed business conditions eased from 6 (revised down from 7) to 5, while business confidence was steady, at 2 (revised down from 3).

The other main item of scheduled interest in the broader Asia time zone is China’s trade report for February, due at 1pm Melbourne time. A possible revision to Japan’s Q4 GDP – expected to be nudged down to -1.5% q/q from -1.4% – is also worth a look at 10.50AM.

Tonight there is the US NFIB Small Business Survey, watched for its overall index reading (it’s off its highs of late 2014 but has been little changed overall since mid-last year) but what small business are reporting on the ground around employee compensation. The January readings were especially noisy, but the trend has been higher overall, at least as far as what the smaller end of town in the US has been reporting on actual compensation. Canadian housing starts and building permits are also due, a release the C$ market pays close attention to.

Overnight

On global stock markets, the S&P 500 was -0.40%. Bond markets saw US 10-years +2.81bp to 1.90%. On commodity markets, Brent crude oil +5.24% to $40.76, gold-0.2% to $1,268, iron ore +18.6% to $63.74. AUD is at 0.7468 and the range was 0.7393 to 0.7485.

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