Markets Today: Where are we now?

Today’s title is our final tribute to the late musical genius, David Bowie. Where are we are now? Is the first single from David Bowie’s 25th album released on the morning of his sixty-sixth birthday in 2013.

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Today’s title is our final tribute to the late musical genius, David Bowie. Where are we are now? Is the first single from David Bowie’s 25th album released on the morning of his sixty-sixth birthday in 2013. This was Bowie’s first new music in 10 years and the single eventually made it to number six on the UK Singles chart.

In terms markets, where are we now? Well, yesterday we left work with investors still worried about another equity rout notwithstanding the relative stability in Chinese equity markets. European stocks had a terrible start following news that Renault had been raided by authorities as part of a national investigation linked to VW emission scandal. Following the news, the Stoxx Europe 600 index fell 3%, but later the index managed to pared some losses ending the day -1.6% . US equities opened under pressure, but a rebound in oil boosted energy stocks and a healthy earnings report from JP Morgan also contributed to the rally. The bank showed a 10% jump in Q4 profits, helped by strong performance within its investment banking division.

In currencies, the USD is stronger against most G10 with the Norwegian Krone and AUD the two exceptions. The first one aided by a rebound in oil and the second boosted by yesterday’s better than expected employment numbers. The NZD lost ground against the USD and the late US equity rally appears to have contributed to the underperformance of the Yen.

Core global yields had a mixed night, 10y Bunds and 10y UK are little changed at 1.729% and 0.572% respectively. US Treasury yields initially traded in a sideways pattern, but later in the day a soft 30y bond auctions as well as a late rally in equities pushed longer dated yields higher.
Looking at commodities, there was no news attributed to the rebound in oil prices either than an improvement in risk appetite. WTI gained 2.38% and it’s now back trading above the $31 mark. The gold is down 1.86% to $1073 while iron ore has gained 1.8% and is back above $40.

Overnight the BOE left rates and QE on hold as expected and McCafferty did not abort his call for a rate hike (vote was 8-1). The Committee noted the current oil price fall means UK CPI will rise slightly more gradually than previously expected and should support UK spending in time.

ECB minutes from their December meeting were also released last night and they revealed some policy makers wanted the ECB to act more aggressively, pushing for a 20bps cut in the deposit rate instead of the 10bps that eventuated. Staying with the ECB, after a previous story that suggested the ECB council was considering further stimulatory policies on the back of oil price declines, an exclusive Reuters interview overnight contradicted this view reporting that “many” ECB policy makers are “sceptical” about the need for policy action near term .

US Fed Bullard (hawk and voter) was also on the wires and noted that the renewed decline in oil is “becoming worrisome”. He also said that while central bankers tend to “look through” oil price changes, one circumstance where they may become more concerned is when inflation expectations begin to change. To this point, we would note that the renewed decline in oil since December has weighed down on inflation expectation across many countries, including the US.

Coming Up

In Australia this morning we get Housing Finance figures for November. Recent industry reports suggest a retracement in owner occupied housing finance approvals and our economists have pencilled a -0.6% print for November. Further moderation in investor finance approvals is also expected.

In the US, we have a busy day of data releases with advance December retail sales figures the highlight. With the manufacturing sector under pressure, consumer spending is one of the key drivers of economic growth in the US. Bloomberg is currently showing consensus expectations are for a headline number -0.1%. The negative number is primarily driven by a correction in auto sales and lower gas prices. Ex autos retail sales expectations are for a more respectable 0.3% print. Other US data releases include industrial production (Dec), PPI (Dec), Empire Manufacturing (Jan) and the preliminary (Jan) reading of the University of Michigan consumer sentiment index. The exceptionally warm weather is expected to have depressed total production (-0.2% exp vs -0.6% prev) while consumer sentiment is expected to have remained elevated ( 92.9 exp vs 92.6prev).

Is a busy night of Fed speakers with Dudley (voter, moderate), Williams (non-voter, moderate) and Kaplan (non-voter, mild hawk) in the roster. New York Fed Dudley’s views are seen to be closely aligned with the Fed Chair Yellen and as such his comments should warrant more attention.

In terms of US company earnings Citigroup and Wells Fargo are reporting tonight and within the next hour we should get some headlines from Intel.

Overnight

On global stock markets, the S&P 500 was -2.50%. Bond markets saw US 10-years -1.58bp to 2.08%. On commodity markets, Brent crude oil -1.35% to $29.9, gold+0.5% to $1,092, iron ore -4.1% to $39.51. AUD is at 0.6993 and the range was 0.692 to 0.6962

Good luck.

For full analysis, download report:
Markets Today: 15 January 2016 (PDF, 271KB)

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