Oil prices remain the main driver for markets and as it has been the case this week the assessment of good news continue to prevail over bad ones. Oil prices took another leg higher last night following a US Energy Information Administration report that showed a sharp decline in US distillate stockpiles. WTI and Brent oil made new 5 months high, jumping 3.8% and 3.4% respectively, notwithstanding news that crude stockpiles rose and that the Kuwaiti strike had ended. News of another oil producers meeting in May also hit the wires, but is hard to believe this news had a meaningful impact on the overnight price action.

Europe and US equity markets ended the day in positive territory with energy and financial stocks leading the way. That said not all sectors benefited from the oil induced improvement in sentiment. Coca cola shares were one of the notable losers, dropping 4.8% after it announced a decline in revenue and profits in Q1.

The risk on sentiment pushed core global yields higher with the move further boosted by better than expected US housing data. March existing home sales rose to 5.33M from 5.07M in Feb, confirming a rebound to trend after February’s drop.10y Bund ended the day  +1.5bps at 0.152% and relative to Sydney closing levels 10y US treasury yield jumped 8.5bps to 1.843% while the 2y climbed 5bps to 0.798%.

In currencies the USD is stronger across the board barring the oil linked CAD and NOK. The strength in the USD has not only been aided by the jump in US yields, EUR and JPY weakness have also played a hand. The EUR was weighted down by position squaring ahead the ECB meeting today while the Yen appears to have been helped by the improvement in risk sentiment and the anticipation of further easing by the BoJ next week. Despite the fact that commodities had a good night with Iron ore in particular gaining 3.8% (closing at $64.8), the strength of the USD was too much for the AUD, down 0.28% to be currently at 0.7794.. Interestingly, the decline in the AUD during the overnight session occurred at the same time the VIX climbed back above 13, after making a new 8 month low of 12.5. The GBP was down 0.45% notwithstanding latest poll on the forthcoming referendum nudging in the direction of the UK remaining in the EU. The Mori phone poll (a more reliable methodology than online polls) puts Remain at 49% and Leave on 39%.  Momentum for the “Remain” camp could well increase following the UK Treasury’s in-depth report outlining the consequences of leaving the EU would be for the UK economy.

Coming Up

It’s another quiet day in Australia with the quarterly NAB Business survey the only notable data release. The survey is similar to the monthly business survey, but it has a larger sample size and it contains more forwarded looking questions on topics such as expected capital expenditure and employment. On this score it will be interesting to see if the pickup in non-mining capital expenditure noted in the previous quarter continued in Q1. From the RBA’s perspective, this is particularly relevant given that the lack of non-mining investment remains the missing ingredient in the changeover to non-mining led growth.

New Zealand has a busy day with job ads (Mar), consumer confidence (Apr), Net migration (Mar) and credit card spending (Mar) all scheduled for release. With regards to consumer confidence, our BNZ colleagues note that there are still sizable negative and positive factors tugging on the heart strings of consumers at the moment (farmers versus home owners). A print similar to the 118 level in March should be deemed as a good outcome.

In Europe is all about the ECB meeting today, however, in contrast to last month, this time no changes are expected. Following last month’s announcements of: cut in rates, increase in monthly asset purchases, inclusion of corporate bonds in the bond buying programme and a new series of targeted longer-term refinancing operations (TLTROs), the task now for the ECB lies more along the lines of promoting the effectiveness of these new expansionary policies and assertion that the Bank can do more if needed. Recall too that the corporate bond buying programme and the TLTRO have not yet been implemented. For now all we know is that the corporate bonds will be included “towards the end of the second quarter” and the new TLTRO won’t start before June. Lastly, we would note that recent data releases suggest a steady recovery is emerging, industrial production in Germany for instance and household consumption in France have surprised on the upside, suggesting the ECB can afford to sit on its hands and see if this recovery continues to evolve.

The UK releases its retail sales figures for March ( -0.3% exp vs -0.2% prev) and on the other side of the Atlantic we get the Chicago Fed business activity index (Mar), Philly Fed business outlook (Apr), jobless claims and the index of leading indicators. Jobless claims data is very volatile in March, but the expectation is for claims to rebound to 270k form last week 42 year low of 253k. The Philly Fed is expected to fall to 9 in April (12.9 prev), but the two straight jump in the Empire State index suggest the risk is for an upside surprise.

Overnight

On global stock markets, the S&P 500 was +0.10%. Bond markets saw US 10-years +5.99bp to 1.85%. On commodity markets, Brent crude oil +3.47% to $45.56, gold+0.0% to $1,253, iron ore +3.1% to $64.77. AUD is at 0.7796 and the range was 0.7794 to 0.7797.

Good luck

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• Markets Today: 21 April 2016 (PDF, 1MB)

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