After what has been a solid month for equities and bond investors, month end flows have probably play their part in the price action overnight, US equities have lost momentum, UST have led a rise in core global bond yields and the USD is stronger. US and European inflation releases favoured the notion the Fed and ECB are done with their respective tightening cycles.
Commodity market volatility the order of the day
There’s been some more significant price action in commodities to report from the past 24 hours. At lunchtime yesterday Asian LME metals prices went into free-fall on the back of no apparent news other than playing catch up to what we’ve seen on oil and maybe even the AUD.
There’s been some more significant price action in commodities to report from the past 24 hours. At lunchtime yesterday Asian LME metals prices went into free-fall on the back of no apparent news other than playing catch up to what we’ve seen on oil and maybe even the AUD. That metal price action carried over into the LME where copper fell 5.32% with the overall composite LMEX index down 3.48%.
The sell down in metals yesterday saw selling quickly re-emerge in the AUD that in short order lost one big figure from 0.8180. It’s since recovered a good deal of that lost ground, already having begun to recover into the London session and given further assistance overnight by a weaker than expected US retail sales report for December that saw some modest selling of the USD, though even that was short-lived. Currency price action has been more contained overnight.
The miss on US retail sales was notable, enough to weigh on growth sentiment. Headline sales down a meaty 0.9% much more than the lower gasoline price-induced expectation of a 0.1% dip. And even ex-auto and gas sales declined 0.3%, the market looking for a rise of 0.5%. Even with this December pull-back, consumer spending looks on track to have grown 4% annualised in Q4, still even better than Q3’s 3.2% pace. And some analysts reported some seasonal adjustment issues with the December retail report.
Released an hour ago, the Fed’s Beige Book has continued to describe the performance of the US economy in most of the Fed Districts as “modest” and “moderate”, adjectives used on many occasions last year. The Dallas District reported growth slowed, lower oil prices cited as a factor. Noted Fed hawk Charles Plosser (not a voter this year) has been on the wires expressing confidence that the economy is now on a more normal footing and the Fed should follow. He did though say that it would take a while for inflation to move back up to 2%.
However, in the past hour, as I write this note, oil has done a quick turnaround, WTI and Brent futures up 5% and 4¼% respectively, back to levels at the end of last week in what looks like a short squeeze. US energy stocks have recovered most of the session’s earlier losses with the broader stock market also reversing some of their earlier losses.
Coming up today/tonight
Local focus is on the December AU labour force report. After November’s out-sized 42.7K employment gain, analysts are looking for monthly payback to below trend growth (~15K) with the median at +5K and NAB at -10K. The range of estimates on this monthly employment change lottery is -20K to +25K. While there’ll be some initial reaction to a higher or lower number, for us it’ll be an assessment of what the report means for the state of the labour market, is there more or less slack and what that means for the RBA. Changes in employment, the full-time/part-time split, aggregate hours worked as well of course as the unemployment rate are all important considerations. NAB’s forecast for the unemployment rate is no change from last month’s 6.3%, hardly a comfort for the RBA if it comes to pass if, as we expect, it’s because the participation rate pulls back from the discouraged worker effect.
Tonight the main scheduled reports in Europe are Spanish CPI and Germany’s first estimate of whole-of-2014 GDP (comprising implied growth for Q4). For the US, there’s PPI, weekly jobless claims, and the Jan Philly Fed survey as well as the Empire State manufacturing urvey.
Market volatility continues: Eurostoxx 600 -1.5%, Dax -1.2%, CAC -1.6%, FTSE -2.3%. Dow -223 points to 17,391, -1.3%, S&P 500 -1.3%, Nasdaq -0.9%, VIX 22.27 +8.3%. Shanghai -0.4%, Mumbai -0.4%, Nikkei 225 -0.7% and ASX 200 -0.3%; ASX SPI futures this morning -0.7%. US bond yields: 2s at 0.49% (-5), 10s at 1.84% (-6). WTI oil at $48.31 (+5.3%), Brent at $48.72 (+4.6%), Malaysian Tapis (yesterday) $47.35 (-0.7%). Gold at $1232.80/oz (-0.1%). Base metals: LME copper -5.3%, nickel -2.3%, aluminium -1.0%. Iron ore $68.3/t -0.6% Chinese steel rebar futures -0.6%. Soft commodities spot futures: wheat -2.0%, sugar +0.4%, cotton -1.9%, coffee 1.6%. Euro Dec 14 CO2 emissions at €7.25/t (-1.8%).
France CPI (Dec) 0.1%/0.1% (L: -0.2%/0.3%; E: 0.0%/0.0%); Italy CPI -0.1% y/y (L: -0.1%; E: 0.1%); EC Industrial production (Nov) 0.2%/-0.4% (L: 0.1%/0.7%; E: 0.0%/-0.7%)
US Retail Sales (Dec) -0.9% (L: 0.7%; E: -0.1%); ex autos and gas -0.3% (L: 0.6%; E: 0.5%); Business inventories (Nov) 0.3% (L: 0.2%; E: +0.3%)
For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets