Markets Today: I’ve been waiting for a (rally) like you

And yes, it was still all about oil with another classic short squeeze, this time seemingly triggered by comments from the Iraqi Oil Minister speaking at a conference in Kuwait.

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And yes, it was still all about oil with another classic short squeeze, this time seemingly triggered by comments from the Iraqi Oil Minister speaking at a conference in Kuwait saying that Saudi Arabia and Russia are now more flexible about cooperating to cut output. Whether you believe it or not, the cooperation on supply that is, West Texas Intermediate and Brent are up 4-5% with share markets and other risk assets rising in tandem. For now, the $30 mark to have been something of a trading support for benchmark oil prices ahead of further substantial news on supply fundamentals in the weeks and months ahead that’s changed little in recent weeks.

The Eurostoxx 600 index closed up a net 0.87%, having been down as much as 2% earlier in the session having opened lower after Chinese stocks dropped 6.42% yesterday. The S&P 500 and the Dow are now up 1-1½% into the last hour of trade, the CAD sits atop the FX leader board this morning, up 1.1%, with the AUD not far behind, up 0.87% trading just north of 70 US cents. The LMEX base metals index rose 2.52%, copper up 2.76%, nickel up 1.4%, and zinc up 4.95%, gold rose 1.54% to $1120.60 amid some softness in the US dollar overnight, the Bloomberg spot DXY index down 0.3%.There was a minor hiccup for the NZD overnight after Fitch changed NZ’s sovereign rating outlook from positive to stable from lower export prices and growth prospects, affirming NZ’s AA rating.

It’s not been a massive night as far as data releases are concerned. US house prices rose further according to both the official FHFA and Case-Shiller indexes, though there was in surprise from the Conference Board’s measure of Consumer Confidence for January from Expectations rising 96.3 to 98.1 despite heightened market volatility. A sign perhaps of consumers seeing the plunge in oil prices from their own perspective of filling up the gas tank. Whether true or not, this measure of confidence tends to follow labour market trends more closely and consumers’ perceptions of job availability changed little in January according the Jobs Plentiful/Hard to Get component.

Coming up

It’s pretty much all about the CPI today, the market positioned for another benign CPI reading and what that may or may not mean for the RBA. The market consensus for headline CPI is for growth of 0.3% in the quarter, leaving annual inflation at an almost unchanged 1.6% rate (1.5% in September). For underlying inflation, the market is expecting growth of 0.5% leaving the annual inflation 2.1%. NAB’s forecasts are lower, with lower petrol and fruit prices, a benign rental market and still strong retail competition delivering barely discernible headline inflation of 0.1% the quarter and underlying inflation at 0.4%. Even though NAB’s forecasts below consensus, we see the risks to our forecasts as still to the downside. The RBA’s forecasts for inflation to Dec are 1¾% y/y (headline), 2% for underlying.

For Kiwi followers, there is a speech from PM John Key to the Chamber of Commerce today. Given the audience, it’s conceivable the PM might use this as an opportunity for scene-setting speech. As for tonight’s session, there is the December US new home sales report with the market looking for a rise in sales, for the month by another 2% after last month’s 4.3% rise, signifying resilience in housing demand. The two-day FOMC meeting starts tonight – this time with just a statement and no accompanying forecast update, dot point charts nor press conference from Fed Chair Yellen – the statement being released at 6 AM Thursday morning followed an hour later by the RBNZ’s meeting outcome, both expected to see unchanged cash rates.

Overnight

Markets back to risk-taking: Eurostoxx 600 +0.9%, Dax +0.9%, CAC +1.1%, FTSE +0.6%. Dow +263 points to 16,148, +1.7%, S&P 500 +1.7%, Nasdaq +1.0%, VIX 22.51 -6.8%. Shanghai -6.4%, Mumbai -6.4%, Nikkei 225 +1.0% and ASX 200 +1.8%; ASX SPI futures this morning +0.9%. US bond yields: 2s at 0.84% (-2), 10s at 1.99% (-1). WTI oil at $31.47 (+3.7%), Brent at $31.83 (+4.4%), Malaysian Tapis (yesterday) $29.86 (-5.8%). Gold at $1122.70/oz (+1.5%). Base metals: LME copper +2.8%, nickel +1.4%, aluminium +1.3%. Iron ore $41.1/t -1.2% Chinese steel rebar futures +1.5%. Soft commodities spot futures: wheat +0.7%, sugar -0.6%, cotton -0.3%, coffee 0.2%. Euro CO2 emissions price (Dec 16) +3.2%. The AUD/USD’s range overnight 0.6922-0.7022; indicative range today 0.6985-0.7060; the AUD/USD is 0.7019 now.

German Ifo survey, Business climate (Jan) 107.3 (L: 108.7; E: 108.4); Dallas Fed manufacturing (Jan) -34.6 (L: -21.6; E: -21.6), released Monday night

US Case Shiller 20 cities house prices (Nov) 0.94%/5.83% (L: 0.84%/5.54%; E: 0.8%/5.64%); FHFA house prices (Nov) 0.5% (L: 0.5%; E: 0.5%); Markit services PMI (Jan) (L: 54.3; E: 53.9); US Conference Board Consumer confidence (Jan) 98.1 (L: 96.5; E: 96.5); Richmond Fed manufacturing (Jan) +2 (L: 6; E: 2)

Good luck.

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