Markets Today: Groundhog day
In a redux of the previous Friday, slumping oil prices were the primary catalyst for the latest pressure on commodity and emerging market currencies and global risk assets, alongside safe-haven support for Treasuries.
In a redux of the previous Friday, slumping oil prices were the primary catalyst for the latest pressure on commodity and emerging market currencies and global risk assets, alongside safe-haven support for Treasuries. The difference relative to 8 January is that the latter was accompanied by a pretty stellar US employment report, whereas Friday’s gloom was compounded by a series of US economic ‘misses’ including all core retail sales measures, industrial production and the Empire manufacturing survey. Only the University of Michigan’s consumer sentiment index beat forecasts, but since this is so sensitive to equity market performance, current strength is surely ephemeral.
The ‘good’ news for those inclined to look for it in Friday’s markets is that in contrast to the previous Friday when US stocks closed on the lows, this Friday the nadir came early afternoon and the S&P 500 closed some 1.2% off the lows. That said, with Middle-Eastern bourses losing 6-7% on Sunday – prior to a very mild recovery – the stage already looks set for fresh downward pressure across APAC equity markets today.
The chatter late in our session on Friday was that sanctions on Iran would be lifted this weekend. Oil and the CAD were both under pressure before we went home. On Saturday, the International Atomic Energy Agency (IAEA) confirmed that Iran had done what was necessary in order for sanctions to be rescinded. Iran claims it can increase production and exports by 500,000 barrels a day immediately and reach its pre-sanctions production level of 3.4 million barrels a day within seven months (FT reports). That may be highly ambitious, but the immediate threat to global prices is the overhang of already-produced and stored Iranian oil. The FT notes that satellite tracking and industry sources say there are between 19 and 24 Very Large Crude Carriers (VLCCs) – capable of holding some 2 million barrels each – fully loaded and either already at sea or waiting to set sail.
Currencies of commodity producing EM countries were hardest hit with RUB, MXN and ZAR all off more than 2%. In G10, AUD dramatically underperformed NZD (so snuffing out the nascent rally in AUD/NZD, now back to 1.0620). NZD is already showing some signs of ‘catch-up’ with Friday’s AUD (-1.73%) and CAD (-1.22%) falls. The JPY and EUR again exhibited their safe-haven/funding currency status, rallying by 0.9% and 0.5% respectively
In equities, after Shanghai ended -3.55% and most European indices were off a little over 2%, the S&P500 finished -2.16%, bringing the YTD loss to 8% from 6% the previous Friday. The Dow ended -2.39% (-8.2% YTD) and the NASDAQ -2.74% (-10.4% YTD). The German DAX has fared worse YTD, -1.1%. The VIX added 3 points to 27. 10 year Treasuries finished 5bp down at 2.04%, having been as low as 1.98%.
Commodities saw both Brent and WTI settle below $30, WTI -$1.50 to $29.70 and Brent -$1.90 to $29.11. The LMEX index lost 1.6% while iron ore actually improved by 90 cents to $41.12 a tonne. Gold added $10 to $1,089.
US corporate earnings saw Citigroup report $1.06 against a $1.05 street consensus, though the market didn’t like the extent to which earnings were boosted by asset sales and other one-time events. The share price fell 7%. Wells Fargo reports $1.03 a share against $1.02 expected, with a 6% uplift in revenue but some asset values also hit from lower oil prices. Its stock lost 3.6%.
As for the US data, headline retail sales fell 0.1% as expected but ex-autos they were -0.1% (0.2% expected), ex-autos and gas 0.0% (0.4% expected). Industrial production fell 0.4% (-0.2% expected) and the Empire (NY State) survey fell to a fresh post-GFC low of -19.37 from a revised -6.21 and -4.0 expected. The Atlanta Fed’s latest ‘GDPNow’ forecast for Q4 GDP is down to 0.6% from 0.8% earlier in the week.
The week starts with a US holiday (Martin Luther King Day) in what is a busy week for US earnings releases. Morgan Stanley, BAML and IBM are due on Tuesday followed by Goldman Sachs on Wednesday. Bank of New York Mellon Corp, Southwest Airlines, Verizon Communications, American Express and Starbucks Corp report Thursday with GE on Friday (Reuters).
The only things of note on the Australian calendar this week are monthly consumer sentiment on Wednesday and today’s TD Securities inflation measure. NZ is busier, with QSBO business sentiment Tuesday, CPI Wednesday, a dairy auction Wednesday and the PMI on Friday.
Highlights on the international calendar this week will be China GDP on Tuesday accompanied by the usual raft of (December) monthly activity readings covering retail sales, industrial production and fixed asset investment. Property prices are due today. US CPI data is on Wednesday and the ECB meeting and EZ CPI data on Thursday
On global stock markets, the S&P 500 was -2.20%. Bond markets saw US 10-years -5.27bp to 2.03%. On commodity markets, Brent crude oil -6.28% to $28.94, gold+1.6% to $1,091, iron ore +2.2% to $41.12. AUD is at 0.6842 and the range since Friday’s close has been 0.6827 to 0.6904.
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• Markets Today: 18 January 2016 (PDF, 273KB)
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