April 12, 2016

Markets Today: Lack of conviction

European markets ended the day in positive territory boosted by Italian banks following hopes of a government support package while in the US, equity indices erased early gains and ended the day marginally lower.

It was a mixed night for global equities while commodities traded higher. European markets ended the day in positive territory boosted by Italian banks following hopes of a government support package while in the US, equity indices erased early gains and ended the day marginally lower. In a backdrop of broad USD weakness, oil prices have continued their upward trend boosting other commodity prices which in turn also helped commodity linked currencies outperform.

US equity markets have struggled for direction reflecting a lack of conviction ahead of the “true” start of the quarter earnings reporting season. Now, after the bell, Alcoa has unofficially kicked off the reporting season beating earnings expectations ( EPS $0.07 vs $0.02 exp), but missing on revenue ($4.95bn vs $5.20bn exp).

Oil prices have continued their recent upward trend ahead of the oil producers meeting this weekend. Brent is up 2.1% and WTI is +1.8% at $40.42. Sound bites from different oil producers appear to have boosted hopes of production freeze deal over the weekend. Venezuela said the first priority of the April 17 talks should be to cap output, while Azerbaijan said it backs a freeze. Iron ore also had a solid day, climbing nearly 5% to $56.6, copper gained 0.5% and gold climbed 1.1% to $1256.4.

The USD is softer against all G10 currencies, barring CHF which is practically unchanged. The GBP is the top performer with Reuters reporting a large GBP/JPY order as a factor for the outperformance. The fall of DXY below its October low of 93.805 triggered a basket selling of USD while the rise in commodity prices helped commodity linked currencies outperformed. The NZD is up 0.75%, the CAD is +0.71% and the AUD is +0.54%, currently trading at 0.7596.

Fed Kaplan said he doesn’t back an interest-rate increase this month in light of a puzzling weakening of economic growth, though a June tightening by the U.S. central bank remains a possibility.

Coming Up

This morning in Australia we get the weekly consumer confidence at 9.30am followed by the all-important NAB Survey at 11:30am.

We know that the RBA considers the NAB Business survey as an important tool in its assessment on the domestic economy. In February, the survey showed a notable improvement in business conditions, jumping to +8 points, more than offsetting the decline in the previous month. All three components of conditions improved during the month (trade from 10 to 12, profit from 6 to 11, and employment from -1 to +1). In this regard, the employment component move back into positive territory was particularly encouraging. We will be watching with great interest to see if these trends continued in March.

Looking at Offshore markets it’s a relative quiet day in terms of data releases. The UK and Germany (final) release their CPI readings for March. Core CPI in the UK is expected to have risen by 1.3%yoy driven by increases in import prices and a rise in wage costs in the services sector. The Final German CPI reading is expected to be in line with its preliminary reading of 0.3%yoy.

In the US we get import prices (Mar), Monthly budget and the NFIB Small Business Optimism Index (Mar). Declines in hiring intentions and jobs-hard-to-fill, published last week, suggest the NFIB index fell to 92 from 92.9.

As for the earnings reporting season, Bloomberg is showing the expected EPS growth for the S&P500 is -10.1%yoy with the banking and energy sectors seen as the biggest contributors to the expected negative growth. There are no major companies reporting tonight, but on Wednesday JP Morgan kicks off the banks reporting followed by Bank of America and Wells Fargo on Thursday and Citigroup on Friday.

It’s going to be a busy night of Fed speakers with Fed Harker, Williams and Lacker all in the roster. That said with Fed Chair Yellen and Dudley speaking last week, regardless of what other Fed speakers may say, we know the that the inner circle within the Fed remains “cautious”.


On global stock markets, the S&P 500 was -0.30%. Bond markets saw US 10-years +0.87bp to 1.73%. On commodity markets, Brent crude oil +1.98% to $42.77, gold+1.1% to $1,257, iron ore +4.8% to $56.62. AUD is at 0.7599 and the range was 0.7595 to 0.76.

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For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets


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