March 29, 2017

Markets Today: (Because I’m) Happy

Getting toward the end of the month and the end of the quarter, and given the torpor of risk assets markets of late, the return of some buying could easily have occurred. And that could well be part of the explanation for overnight moves.

Stocks were higher in Europe and in the US, as they were for much of Asia yesterday.  In FX markets, the USD has steadied, the Bloomberg DXY spot index up 0.47%, the Euro, Sterling, Swiss Franc, and the Japanese yen were all lower.  Hard commodities rose (base metals and oil), gold eased, US Treasury yields were higher for the day, with the AUD more than holding its ground at 0.7633 this morning, if off its overnight highs.

But there’s no doubt that a super-charged report on the state of US consumer confidence certainly had a material lifting effect on risk markets.  Both the main measures of consumer confidence had already lifted since the US elections, but the overnight Conference Board measure shot the lights out, the index up from 116.1 to 125.6.  Consumer Confidence was the highest since 2000, with the Jobs Plentiful Index also at the best level since 2001.  The monthly rise in the Jobs Plentiful index was the most since April 1974.

While this report is “soft” data as opposed to hard data reports (e.g. consumer spending and payrolls), it’s undoubtedly a strong reading on consumer spirits.  They may well have been bolstered by hopes for tax cuts and other promised/expected changes, but also as well as what consumers are seeing in the job market.  US S&P/CoreLogic house prices also continued rising in February.  The 20 cities index was up 5.73% y/y after 5.47% to January.  Adding a little more to the strong US data theme, the Goods Trade balance was notched up a smaller than expected deficit, while the Richmond Fed Manufacturing Index was also

Yellen was speaking and there was nothing for market pricing. She was speaking on Community Development Financial Institutions with no Q&A. Fed President George and Kaplan were both speaking, as was Fischer.  While tilted a little more toward the hawkish end of the monetary policy spectrum, George said that the Fed is “about there” in meeting its inflation goal, but that she is not seeking tight monetary policy but hike in a gradual and deliberate fashion.  Kaplan was also speaking of gradual removal of monetary accommodation.  In an interview with CNBC, Fed Vice Chair Stanley Fischer said that two more rate hikes seems “about right” for this year.  “That’s my forecast as well”, also mentioning how the Fed is “watching and waiting” to see how fiscal policy plays out.  Again, nothing to upset market pricing, the market seeing the next likely move from the Fed at the 14 June meeting (13.6bps priced) with just over 1½ priced by year end.  As you were largely from a market pricing standpoint and the market has not entered into a major new reflation trade.

On the commodities front, iron ore had an up day yesterday, up $0.44 to $82.01.  Met coal was a tad higher with post Cyclone Debbie assessments of coal (and other infrastructure and production) still to come. Most Australian met coal is produced in Queensland.

Coming Up

First up today is a speech from Fed Governor Powell who has tended not to be too much of a monetary policy hawk or dove.  He’s is speaking as we go to press.

Japan has its February Retail Trade report, the market expecting further 0.3% m/m growth after January’s 0.5% rise.  The Shoko-Chukin Small Business Confidence index for March is released this afternoon.

Chicago Fed President Charles Evans continues on his European tour, speaking tonight in Frankfurt (again, the ECB’s Peter Praet is on the same speaking card).  In the US, Boston Fed President Eric Rosengren is speaking to the Economic Club (in Boston), while SanFran Fed President Williams is speaking to the Forecaster’s Club in New York, so the potential there to get something meatier on the outlook for the economy.  US Pending Home Sales is released.

And of course Wednesday is D-day for UK PM Theresa May who will be triggering Article 50 notifying the EC of the UK’s intention to withdraw from the EU, starting the period of two years of negotiations before exiting.


On global stock markets, the S&P 500 was +0.73%. Bond markets saw US 10-years +3.78bp to 2.42%. In commodities, Brent crude oil +1.16% to $51.34, gold-0.4% to $1,251, iron ore +0.5% to $82.01, steam coal -0.2% to $80.75, met.coal +0.2% to $157.00. AUD is at 0.7635 and the range since yesterday 5pm Sydney time is 0.7588 to 0.7655.

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