May 15, 2015

Market Today: and relax

After Wednesday night’s excitement, there was a collective deep breath overnight, with some of the preceding moves reversed. There was little newsflow but what there was allowed for some relaxation of the prior day’s anxiety.

After Wednesday night’s excitement, there was a collective deep breath overnight, with some of the preceding moves reversed. There was little newsflow but what there was allowed for some relaxation of the prior day’s anxiety.

Equity markets were particularly pleased with the low inflation, positive employment data; ending the day strongly both in Europe and the US. Yields edged lower consistently in the US, and after a little hiccup in Europe, also ended lower. Commodities were softer too. The USD was one exception – it seems to lose ground no matter what at the moment. Overnight, it was weak against the EUR, CHF and CHF in particular. The AUD underperformed.

The US data was mixed, although there wasn’t any top tier data. The PPI tends to get interest if it comes ahead of CPI. It was soft. However, the statistics bureau (BLS) noted that the timing of the survey and moves in oil prices was unfavourable, which contributed to the decline. On the other hand, the jobless claims remained encouraging, with the four week moving average at its lowest level since April 2000. That should keep hopes alive for a better payrolls outcome.

In Europe, again, there was little out but the headlines were somewhat hopeful. Greece seems to have acquiesced to privatising the ports and airports. It helps at the margin. While the ECB’s Draghi reminded markets that they would continue with their QE policies ‘in full’ until they achieve their inflation goals. These factors contributed to the non-linear path of the EUR overnight; it ended higher.

It was quiet domestically yesterday, with many contemplating the soggy cornflakes… The AUD continued to rise during the day but ended the 24 hour period lower. News that there was a limit down move in the Dalian iron ore market yesterday may have contributed. While the move is also interesting in the context of the news that China is effectively implementing an ECB like LTRO program to encourage banks to buy local government debt to use as collateral at the PBoC to gain cheap funding.  Further China monetary easing is likely now viewed as maintaining the (modest) growth status quo rather than accelerating it – which would benefit Australia. No longer do we automatically have AUD higher on news of China easing.

Coming Up

There is no expected data in the Southern markets this today, so we are left to the vagaries of the USD. Again. We have had a number of comments regarding the validity of the US’s Q1 weather effects and whether the US really is experiencing a temporary soft patch or deceleration. Much points to the weather, but I guess we will wait and see. The currency says no, yields say yes. Or are those yield and currency moves just position unwinding as QE edges close to its end? Again, time will tell.

Today we get more indications as to the health of the US economy. We are looking for an improvement in the US data, allowing the Fed to raise interest rates this year. Now that markets are no longer extremely long USDs, there might be more scope for a USD pickup. But, that depends on better numbers. The industrial production data should be better but might be held back by oil production. The Empire manufacturing survey has less oil exposure and is expected to improve. That would be helpful. But equally, the Uni of Michigan consumer sentiment survey takes a key role in the state of households, and will need to continue its improvement to allow for investors to believe in economic pickup. Inflation expectations in the survey are also important.

The BoJ’s Kuroda speaks today. We are still looking for an extension or, in particular, a transformation of their monetary easing policy. But, more recently Kuroda has not acknowledged that need, thus any hint today would be negative for JPY. More monetary easing in the rest of the G10 continues to highlight the 2% official rates remaining in Australia. That’s why the AUD remains at levels seen before they eased twice this year.


On global stock markets, the S&P 500 was -0.30%. Bond markets saw US 10-years -2.17bp to 2.26%. On commodity markets, Brent crude oil +2.76% to $66.7, gold+0.8% to $1,192, iron ore  -0.2% to $62.88. AUD is at 0.7982 and the range was 0.7886 to 0.8. (For more market prices, please see p.2 of the pdf).

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