Markets Today: Down, down

Don’t be alarmed. It’s not that markets have spat the dummy, but rather US equity markets are down, having opened high, with bond yields also lower. In the currency space the USD has been softer, Euro, Sterling and the CHF stronger. The Aussie has been steady-to-lower, though hugging 0.77, supported by the soggy big buck.

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It’s not been any surprising weakness in the US data that’s lead to USD-selling. US Housing Starts/Building Permits for January (coming in the wake of post-election rises in Treasury yields and mortgage rates to which they follow), the Philly Fed, and weekly jobless claims releases all beat street consensus overnight, but these did not bring back support to the dollar during the session.

Main board US stock indexes have been drifting lower, including after a press conference from President Trump who was vowing to spend up on the military and stating that his team was running like a “fine-tuned machine” rejecting perceptions to the contrary.  “I see stories of chaos. It’s the exact opposite”, he said.

There has been some central bank news from both sides of the Atlantic in the form of the ECB meeting minutes from their January 18-19 meeting and Bloomberg TV interviews from Atlanta Fed President Dennis Lockhart (a non-voter this year) and Fed Vice Chair Stanley Fischer.  While Lockhart said he could be persuaded that a March hike might be appropriate, Fischer was much more open-ended and general in his comments.  He said that “I don’t want to give you numbers on two or three, but this is consistent with what we had thought should be happening around now — that is that we’d be moving closer to the 2 percent inflation rate, and that the labor market would continue to strengthen.”  If those two things happen, we’ll be on the path that we more or less expected.”

He was emphasising “gradual”, saying that if rates reach anything like the levels of previous years then it will be a matter of “years”.  Keeping hopes of a near term hike alive, he did say that wages have “started happening”.  Next month’s payrolls will be important in the lead up to the March 16 meeting with 10bps currently in the curve for March, a 40% chance, so still less than 50%.

(If you hadn’t noticed, we’ve enhanced the data table on p2 of the pdf to now include market pricing for the next RBA and Fed meetings, at the bottom right.)

The ECB minutes of its Jan meeting highlighted that they would continue with the stimulus to the end of the year (through and beyond the elections) and that they were not jumping at shadows (my words) over the recent uptick in CPI, given the kick from energy and not internal subdued price pressures.

As for the AUD, it had been bought into yesterday’s employment numbers, up to around 0.7730, but a mixed report (weaker full-time) took the gloss off the report and buying interest faded.  It’s been flat still overnight, though not retracing too much.  Bulk commodity prices have been lower overnight, iron ore down $0.99, met coal down $2.  Base metals softer mostly, while gold has ticked up $8.50 with stock soggy.

Coming Up

A time for consolidation and circumspection for the US dollar over the next 24 hours with the US reporting season now virtually done with and with very little as far as market moving data is concerned for the next few sessions.  There is only the Leading Index out of the US tonight.  Perhaps there will be more interest in the weekly US Baker-Hughes oil rig count numbers that have been pushing higher for quite some weeks now with US oil production knocking on the door of 9mbpd, production having been down to around 8½mbpd as recently as the middle of last year.  (See the chart below.)

There will be some Sterling focus with the release of the January Retail Sales report out tonight.  After a disappointing December, the market is only priced for an OK rebound in January, though not even enough to counter the 2.0% decline in December, a 0.7% rise tipped for January.  For Australia, there are some key data releases next week when Q4 Wages and Construction Work Done hit the tapes next Wednesday, followed Thursday by the New Private Capital Expenditure report.  That all comes ahead of the expected rebound in Q4 GDP the next Wednesday.

Overnight

On global stock markets, the S&P 500 was -0.22%. Bond markets saw US 10-years -4.12bp to 2.45%. In commodities, Brent crude oil -0.09% to $55.7, gold+0.7% to $1,240, iron ore -1.1% to $90.06, steam coal +0.0% to $80.00, met.coal -1.2% to $160.00. AUD is at 0.769 and the range since yesterday 5pm Sydney time is 0.7685 to 0.7732.

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