February 25, 2016

FW: Markets Today: Back in black

It was a session of two halves with a risk off during European session spilling into the first part of the New York sessio/

It was a session of two halves with a risk off during European session spilling into the first part of the New York session, oil lower after the war of words yesterday Iran’s oil Minister complaining about high Saudi production, the USD in the ascendancy and commodity currencies lower. Risk sentiment in the US market was not helped by the Markit version of the US Services PMI for the US which fell back from 53.2 to 49.8. It has yet to establish itself as a reliable monthly guide to the official non-manufacturing PMI, but it was enough to dampen the mood.

Then later in the session, the US EIA released its weekly oil report revealing a very modest decline in weekly US oil production but rising crude inventories. The market though was looking for some good news for once and took its cue from falling gasoline inventories with gasoline demand up 1.8%, a hint that the long looked-for increase in consumer-led driving and spending might be afoot.  The turnaround in oil and equity markets also stymied a further rally in the US bond market, a rally that was also assisted to some extent by somewhat weaker than expected US new home sales for January, though they seem to be heavily affected by weather in the West and what were especially high sales in December. US homebuilder stocks are now out-pacing the broader recovery in US equities.  The turnaround mid-session was the catalyst for an improvement in risk sentiment with US energy stocks doing an about turn. The S&P 500 is currently very close to square for the session, the S&P 500 having been down as much as 1½%.

The Aussie dollar is hovering at $US0.72 this morning, having traded below 7150 when market sentiment was more brittle. Little change in the S&P 500 VIX index so far for the session; LME copper prices were virtually unchanged, while the Chinese iron ore price is up four cents to $51.64, Dalian iron ore futures were also in positive territory yesterday as were Chinese steel rebar prices.  Iron ore has had a 34.8% almost continuous rally from its December 11 low of $38.30, right through the period of international market and commodity volatility.

Dallas Fed President Kaplan has been speaking this morning, seemingly adding a measure of calm saying he is patient in waiting for more data, that is aware of the dollar but it’s not a major concern, he’s not expecting a US recession this year and that there is no predetermined timetable for Fed action. Taking a more out there view, an IMF report released ahead of the Shanghai G20 finance ministers meeting is calling for bold multilateral actions to boost growth and that the Fund is likely to downgrade its world growth forecasts in April when its next set is due.

Coming Up

Yesterday’s construction figures for the December quarter – wait down by a double-digit decline in engineering construction spending – gave a strong flavour of what might lie ahead for the Capex report this morning with NAB expecting a 4% declining in the December quarter and the market consensus at -3%. That is, unless there is a surprise lift in non-mining Capex in the quarter. A similar theme is likely to pervade the 2016-17 first estimate hold in January-February when markets were volatile. We look for an estimate of $86 billion, dominated by a 30% decline in mining Capex, with some offset from a 7% increase in non-mining capital spending. The consensus is higher at $92.8bn.  We also have NZ net migration figures up first this morning at 845 and the feds James Bullard is speaking in New York at 11 AM our time, followed by the BOJ’s Kiuchi at 1230.

Tonight, some interest in Sterling with possible revision to their first estimate of December quarter GDP, this release also providing the spending breakdown. There are more Fed speeches tonight with both Lockhart and Williams speaking while there is weekly jobless claims and the durable goods orders report for January.


On global stock markets, the S&P 500 was +0.40%. Bond markets saw US 10-years +2.59bp to 1.75%. On commodity markets, Brent crude oil +3.64% to $34.49, gold+0.6% to $1,230, iron ore +0.1% to $51.64. AUD is at 0.7207 and the range was 0.7146 to 0.7212.

Good luck.

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