Markets Today: Spain in the political spotlight

Spanish politics has been a watch point for markets since the weekend with the national election not producing a clear majority for any one party and not an obvious coalition likely to be formed, according to Spanish political commentators.

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Overnight markets were initially shaped by the decline in the oil price, with the WTI oil down towards $34 a barrel level with associated pressure on the oil linked currencies such as the CAD the NOK. WTI though recovered later in the session, currently up marginally for the session overall.

The data that was released was very much second tier with the little-watched Chicago fed national activity index under-clubbing expectations and Eurozone consumer confidence marginally less negative.

Spanish politics has been a watch point for markets since the weekend with the national election not producing a clear majority for any one party and not an obvious coalition likely to be formed, according to Spanish political commentators. The anti-austerity Podemos Party gained 69 of the 350 seats on offer.  If a new government can’t be formed within two months, new elections have to be held. It’s not been surprising then that Spanish equity and bond markets have under-performed at the start of week, the Madrid stock market leading Europe lower, down 3.62% and Spanish bonds underperforming their Eurozone counterparts, by 6-8 bps for the 10 year tenor.  So far however this has not inflicted any pain on the Euro which has made some gains against the USD since the start of the week.

The AUD has continued on pretty much where it left off yesterday with a slightly higher level against the background of somewhat firmer commodity prices on the day. The intraday recovery in WTI oil came with higher LME base metal prices (copper up 1.13% and nickel up 1.43%), a 1.37% rise in the price of gold to $1079.60 (up $14.60) and a further $0.36 rise in the spot price of iron ore to $40.46/tonne.

Dennis Lockhart, President of the Atlanta Fed (a voter this year but not in 2016) did a radio interview with a local Atlanta station offering his view that “gradual” may mean rate rises at every other meeting. “… The rate of rising interest rates will be more like every other meeting. But the really important point is it’s going to depend on how the economy actually performs.” In short, it will be gradual and data dependent. The market is currently pricing in a near 50 (45%) chance of the first follow-up hike by the March 16 FOMC meeting (when NAB expects the next US rate rise), the market expecting the Fed to hold steady at the January 27 meeting.

Coming up

The wind down to the festive season begins to wind up as far as data releases are concerned with very little on the local regional calendar much likely to change market pricing too much at all. ANZ consumer confidence, UK consumer confidence and Japanese small business confidence reads are all released during our session today.  Tonight sees the release of UK public finance data for November, followed in the US session by further revision to third quarter US GDP that’s expected to be downgraded somewhat from 2.1% to 1.9%. There is also a further regional manufacturing index for December, this one from the Richmond fed, along with FHFA house prices for October and the November Existing Home sales report.

The next big releases come tomorrow night with US personal income, spending and PCE (private consumer expenditure) deflator report for November also with durable goods orders and new home sales, also for November along with the final estimate University of Michigan consumer sentiment survey for December.  Those are all to the high end of market-sensitivity releases with the PCE deflators those forecast and regarded as the most reliable guides to consumer inflation.  The core deflator is expected to increase by 0.1% in the month, annual growth expected to be steady at 1.3%.

Overnight

AUD steady this morning in 0.71s: Eurostoxx 600 -1.1%, Dax -1.0%, CAC -1.3%, FTSE -0.3%.  Dow +35 points to 17,164, +0.2%, S&P 500 +0.2%, Nasdaq +0.4%, VIX 19.56 -5.5%.  Shanghai +1.8%, Mumbai +1.8%, Nikkei 225 +0.4% and ASX 200 +0.0%; ASX SPI futures this morning -0.0%.  US bond yields: 2s at 0.95% (0), 10s at 2.19% (-1).  WTI oil at $34.74 (+0.0%), Brent at $36.17 (-1.9%), Malaysian Tapis (yesterday) $35.79 (-0.9%).  Gold at $1079.70/oz (+1.4%). Base metals: LME copper +1.1%, nickel +1.4%, aluminium +0.5%. Iron ore $40.5/t +0.9% Chinese steel rebar futures +0.0%. Soft commodities spot futures: wheat -1.4%, sugar -0.9%, cotton -0.6%, coffee -1.3%.  Euro CO2 emissions price (Dec 16) +1.6%. The AUD/USD’s range overnight 0.7157-0.7195; indicative range today 0.7165-0.7215; the AUD/USD is 0.7188 now

Chicago Fed National Activity Index (Nov) -0.30 (L: -0.04; E: +0.1); EC consumer confidence (Dec) -5.7 (L: -5.9; E: -5.9)

As this is my final Markets Today report for this year, I would like to offer my best wishes to our readers for the festive season and wish you all the best 2016.

For full analysis, download report:
• Markets Today: 22 December 2015 (PDF, 385KB)

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