European and US equity indices ended the week on a positive note, boosted by a rebound in bank stocks and a jump in oil prices. Deutsche Bank led the bank rally in Europe (up 11.8% on the day) after confirming a bond buyback programme reported earlier in the week. Thanks to yet another comment of cooperation between oil producers, energy companies on both side of the Atlantic also had a strong end to the week helped along by a solid jump in oil prices. WTI oil ended the week at $29.44, up 12.3% on the day while Brent closed at $32.65, up almost 11%. Data was also supportive; US January retail sales beat expectations, however consumer sentiment was weaker than expected (see more details below). Against this back drop of improved sentiment, core global yields drifted higher while the USD was stronger against most currencies.

Overall, it is hard to suggest Friday’s move bore the signs of a much needed circuit breaker to the current market rout. While banks stocks rallied on the day, the Euro stoxx 600 financials sub index ended more than 12% down for the week and the S&P500 financial index lost more than 14% for the same period. The oil fuelled rally in energy stocks was not based on concrete new positive news, rumours or comments of cooperation between oil producers have previously amount to nothing, so we still need to see more tangible evidence that a bottom in oil prices has been reached. Time will tell, in the meantime on Monday all eyes are likely to be on China as it returns from a week long Lunar new year holiday. China’s equity market’s reaction to last week’s turmoil as well as the degree, if any, of a lower USD/CNY fixing could set the tone for the week.

On this score, in an interview over the weekend, PBoC Governor Zhou played down concerns over the country’s decline in fx reserves, noting the need to differentiate between capital outflows and capital flight. Zhou also stressed that Beijing strategy did not include further devaluation to boost exports.

Looking at Friday’s equity markets performance in more detail, the Euro Stoxx 50 closed up 2.83%, the FTSE gained 3.08% and in the US the Dow was +2.0%, S&P 500 was +1.95 and NASDQ was +1.66.

In currencies, the USD was stronger against most currencies with CAD one of the exceptions (+0.63%) boosted by the move in Oil. The AUD was practically unchanged (currently at 0.7116) and the NZD was the worst performer, falling 1.34%.

Core global yields drifted higher following the stronger than expected US retail sales and the sharp rise in oil prices. 10y UST notes ended at 1.74%, + 8.9bps while 10yr Bunds closed +7.5bps at 0.26.1% and 10y Gilts +11bps at 1.411%.

In other commodities, Gold lost 0.61% on Friday, but it ended 5.6% up for the week, it biggest weekly gain since October 2011. The LMEX index closed the week +1.03% and iron ore lost 3.54%, ending at $43.65.

CFTC data for the w/e 9 February shows overall USD speculative longs were reduced again (186.5k to 130.3k). The fall was led by a significant paring of EUR shorts (-63.3k from -87.1k) as well as AUD shorts (-5.6k from -26.1k). Interestingly, the now small net short AUD position suggests that at least over the near term the currency is unlikely to benefit from any short squeezes. In rates, the prior week’s net short of 360k was narrowly trimmed to -357.1k.

As for data releases, US January retail sales rose 0.2% vs. +0.1% expected. The Michigan consumer sentiment index fell to 90.7 from 92.0 (92.3 exp). Notably, 5-10 year inflation expectations fell to 2.4% from 2.7%. We know Fed official pay a lot of attention to this reading, at 2.4% the series is now at a historical low and it supports the view the Fed will remain on hold in March, if not for longer.

The CoreLogic RPData report released over the weekend shows that Australia’s preliminary auction clearance rate once again surprised to the upside, rising to 72% compared to 70.1% previously. In Melbourne, of the 440 reported results, 73.6% were successful while in Sydney, of the 469 auctions held the clearance rate was 78.6.

Coming Up

It’s a quiet start to the week domestically with new motor vehicles sales (Jan) the only data scheduled for release. In offshore markets, Japan releases Q4 GDP figures and Industrial production (Dec F). From China we get, Trade balance (Jan) along with the Jan lending-money supply report while the US is observing the president’s day holiday. Draghi speaks to European lawmakers in Brussels and no doubt the market will be looking for some reassuring words re their negative rate policy and fresh stimulus ahead.

Overnight

On global stock markets, the S&P 500 was +2.00%. Bond markets saw US 10-years +8.90bp to 1.75%. On commodity markets, Brent crude oil +10.98% to $33.36, gold -0.7% to $1,239, iron ore -3.5% to $43.65. AUD is at 0.7108 and the range was 0.7064 to 0.7129.

For full analysis, download report:

• Markets Today: 15 February 2016 (PDF, 1MB)

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