It was something of a risk-on night with commodity and emerging market currencies back in favour for once, oil rising on little more than comments from Iran’s Oil Minister welcoming the prospect (hope) of cooperation between producers, though not specifying whether Iran would join in a production freeze. (Of course it’s not clear whether over-supply could be corrected in the event of oil production remaining at current levels.) S&P downgraded four oil producing economies, including Saudi Arabia, seemingly on its outlook for oil prices.  Anyway, WTI overnight pushed back up by $1.63 to $30.67, a rise of 5.6%, Brent up 7.3%.  US Treasury yields rose, 2s by 3 bps and 10s by 5 to 1.82%, market pricing now implying a 50% chance of one Fed rate rise by the end of this year.  Both European and US equity markets were higher, the Eurostoxx 60o index by 2.62% and the banks there by 3.33%.

The main US equity indexes are up 1½-2% into the last hour of trade in the wake of the January industrial production report revealing more resilience in US industrial activity, production up a higher than expected 0.9%, supported by higher manufacturing output for once (+0.5%) and higher utility output from Northern Winter effects.  The FOMC Minutes from their Jan 26-27 meeting have been released in the past hour, not seeing much market reaction given it comes after Fed Chair Yellen’s double dose of testimony.

In the FX space, the hints of a return to carry trades saw the likes of the AUD and the NZD perform strongly, the AUD trading up into the higher 0.71s, up 0.84% as this goes to print, while the CAD has also been given a leg up from oil, as have the NOK and RUB.  We note that while oil rose, base metals were little changed, as was gold.  The Chinese spot iron ore import price eased 0.92% yesterday.  The USD made some overall net gains against the EUR, the JPY and the CHF, giving some of those gains back in late NY trade.

Finally, German Chancellor Merkel was speaking in Parliament overnight ahead of the EU Summit, mentioning the challenges from the refugee crisis and that UK EU concerns on welfare seem justified.

Coming Up

Two NZ releases first up this morning: ANZ job ads and producer prices ahead of the Fed’s James Bullard (he gets a vote this year) speaking about the US economy at 10 AM. We also have a speech from the RBA’s Malcolm Edey who is speaking to a Sydney investor forum on the current risk environment.

Then it’s all aboard for the AU monthly employment report and what that might reveal about the vagaries of sampling rotation effects and/or the economy. The ABS has already warned that this month the part of the sample dropping out has a low employment intensity, the new sample coming in therefore likely to support a higher print overall. NAB’s estimate is a rise of 22,000 in employment with an even larger gain possible but for recent signs of moderation in other labour demand indicators.  NAB’s estimate is somewhat higher than the market consensus of +13,000.  Keep your eye on the unemployment rate as a more reliable guide to the health of the labour market and on that score, looks for an unchanged 5.8% rate.  The RBA’s monthly FX transactions are also due, at 1130.

Also on the schedule in our time zone is the release of Chinese consumer and producer prices for January, while the BOJ’s Ishida (policy board member) speaks at 1230.

Tonight is a speech from the BOE’s Deputy Governor, Financial, Jonathan Cunliffe, and San Francisco Fed President John Williams (allied closely with Yellen’s views and thinking) is speaking first thing tomorrow morning at 7:30 AM.  On the data front, not a massive night, the Philly Fed index and weekly jobless claims the picks as the EU Summit to discuss Brexit and the refugee crisis gets underway.

Overnight

On global stock markets, the S&P 500 was +1.70%. Bond markets saw US 10-years +3.98bp to 1.81%. On commodity markets, Brent crude oil +6.49% to $34.28, gold+0.1% to $1,209, iron ore -0.9% to $46.35. AUD is at 0.7172 and the range was 0.7084 to 0.7182.

Good luck.

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• Markets Today: 18 February 2016 (PDF, 1MB)

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