US and European markets have begun the new week a subdued mood. But core global bond yields are showing some life, lower across the board while the USD is a tad softer too
Markets Today: Doing the talk… but not the walk yet
ECB talk of further easing in the future boosted risk assets overnight. Equities posted solid gains in Europe and in the US they look set to end the day in positive territory.
ECB talk of further easing in the future boosted risk assets overnight. Equities posted solid gains in Europe and in the US they look set to end the day in positive territory. Safe haven currencies have underperformed while commodity G10 currencies have gained some ground against the USD.
Comments from ECB Draghi president at it post council meeting press conference was the catalyst for the rally in risk assets. That said, equities did wobble an hour or so later, but the steady rise in the oil price from $28 to just under $30, provided a second uplift to risk assets.
The ECB made no changes to its expansionary policy however President Draghi opened the door for further easing at their next meeting in March, when new staff macroeconomic projections will become available. True to form, Draghi was once again flamboyant on his choice of words, noting that “we have the power, determination and willingness to act… there are no limits to our action – within our mandate of course,”. …and then adding the caveat “if things don’t improve or deteriorate from here”. Draghi also noted that given the changed circumstances for oil, the (4% higher) trade-weighted EUR, inflation expectations and geopolitics, the ECB was “committed” to reaching its price stability mandate and is “not surrendering” here… Andiamo Mario!!
So as we have seen before, the talking from President Draghi has uplifted risk sentiment, however time will tell whether it has a lasting effect. In a similar act of reassurance, last night in Davos, China’s Vice president Li aimed to boost investors’ confidence by noting that China would address the recent slowdown in its economy. He also said that China wants a healthy stock market that benefits most people and that China has “no intention to devalue the Yuan”.
Looking at markets in numbers, equities in Europe ended the day up around 2% on average and after briefly trading above $30, oil has come off a bit in the past hour, currently trading at $29.35. In a similar move, US equities have lost a bit of ground and are currently up between 0.2% and 1%.
In currencies, we have seen a text book risk on reaction with the CAD, AUD and NZD sitting at the top of the G10 leader board while safe haven currencies are at the bottom. The CHF is the biggest loser followed by the JPY and the EUR.
Core global bond yields had a mixed night. The risk on sentiment pushed 10y UK Gilts 4.8bps higher to 1.67% while prospects of further easing dragged 10y Bunds 3.1bps lower to 0.451%. In the US, the treasury curve is steeper led by the move higher in longer dated yields. 10y UST are at 2.01% (+1.2bps) and 30y UST are at 2.79% (+1.9bps).
In commodities, Iron ore has lost a bit of ground, down 0.7% at $41.29 and gold is basically unchanged at $1101.
Finally, in terms of data releases, the January US Philly Fed index rose to -3.5 from -10.2, beating market expectations (-5.9) and it suggest a possible upside to the ISM due for release early in February. Jobless claims rose to a six-month high of 293k vs the 278k expected with seasonal adjustments blamed for the disappointing number.
Today we have an empty economic calendar in Australia, but there is a fair bit going on in offshore markets with PMI data releases the dominant feature.
Starting with Japan, at 1pm AEDT we get the January preliminary reading for the Nikkei manufacturing PMI. Consensus is currently at 52.8 and the previous month’s reading was 52.6.
In Europe, we get services and manufacturing PMIs for the euro area, Germany and France. Despite concerns over migration, ramifications from the VW scandal and exposure to China, so far the German economy has remained resilient. In contrast, the Paris terrorist attacks have not helped the French economy and the question now is whether the slowdown is only a short term drag.
The UK will release retail sales and public borrowing figures for December. A boost to retail figures is expected following the UK’s introduction to Cyber Monday, however this boost could be offset by the expected decline in winter clothing purchases due to the warmer weather in December.
In the US the general consensus is for a rebound in existing home sales to 5.2m in December, following the sharp drop in the previous month. The drop in sales in November appears to have been caused by the change in lending disclosures rules on October 1st, triggering a rush in transactions and leaving a void in November. The index of leading indicators (Dec) is also out and Bloomberg is showing the market is looking for a -0.2% print, the first time since August. The fall in equity markets, rise in jobless claims and weakness in the manufacturing sector are seen as the major drags. The Chicago Fed National activity index ( -0.15 exp) and Markit US PMI (51 exp) are the other two notable data releases.
Canada issues retail figures for November and CPI figures for December and in terms of the US earnings season, GE is the highlight tonight.
On global stock markets, the S&P 500 was +0.40%. Bond markets saw US 10-years +3.30bp to 2.02%. On commodity markets, Brent crude oil +6.03% to $29.56, gold-0.5% to $1,101, iron ore -0.8% to $41.29. AUD is at 0.6985 and the range was 0.6876 to 0.7013
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