May 20, 2015

Markets Today: Remember US? Still doing QE

The ECB reminded markets that they were still there and still implementing QE. That allowed for a rally in European stocks and led to underperformance by the EUR.

The ECB reminded markets that they were still there and still implementing QE. That allowed for a rally in European stocks and led to underperformance by the EUR. In contrast, better US data (finally!) saw US stocks relatively flat, but yields ended the day higher. Iron ore took a tumble yesterday, which is possibly weighing on the AUD. The USD outperformed pretty much across the board.

The EUR woes started with the ECB’s Couere pointing out that while the ECB wanted markets to determine the price of assets and that there was an adjustment needed in yields and the EUR, but perhaps the volatility or speed of adjustment in past weeks was a little fast. Then, in pointing out the seasonality of a slow Northern Hemisphere summer, that the ECB would complete its QE by front loading their bond purchases before the summer and back ended after the summer if necessary.

This brought the market’s attention back to the fact that the ECB were implementing QE; remember that’s EUR negative? This kicked off the move, but it was helped along by a weak German business sentiment survey (ZEW) showing expectations falling rapidly. Merkel and Hollande were talking about the need for negotiations with Greece to move faster, and they would like an agreement by the end of May. So nothing better or worse there.

The US markets behaved in typical fashion post the release of housing starts and permits, which bounced from their bad weather induced slump earlier in the year. It’s been some time coming, but there is now at least some signs that the weakness was weather. This was encouraging, and as the FOMC is now very data dependent, every bit counts.

The UK markets didn’t react as much as you’d expect after posting the first negative headline CPI print since 1960; the core was soft too at 0.8%yoy (1.0%E, P). Inflation numbers can be interesting: after you strip away the effect of oil, a stronger GBP etc etc everything’s fine, isn’t it?

Yesterday, the RBA’s minutes were released and spent some time explaining their lack of bias in statements in which policy was changed. The minutes then went on to note that there was still scope to ease policy. The RBA’s Lowe is back on the tapes today, speaking on a panel in Sydney. Iron ore fell yesterday; there isn’t a strong daily relationship between it and the AUD, but it is likely to weigh on sentiment.

Coming Up

The relatively quiet period of data continues at least through the Southern Hemisphere day, with little released in Asia. The key focus is likely to be Japanese GDP, which is expected to be steady at 0.4%qoq.

Australia sees the consumer confidence reading for May, which post budget makes it a little more interesting. The expectation is for an improvement in sentiment and for that to flow through to spending.

The focus tonight is likely to be on the FOMC minutes, where the discussion regarding the slowing data is to be balanced against the desire to begin raising interest rates later this year.

With the back-up in bond yields, even if it has not been related to data so far but position unwinding, an emphasis on normalising policy, rather than the weakness of the data, is likely to have a greater effect on yields and FX in the present market. To balance against this, the dove Fed speaker Evans speaks on the economy and monetary policy.

The Bank of England releases its minutes but post the quarterly inflation report, this has less new information than is usual, watch for any dissenters.


On global stock markets, the S&P 500 was -0.20%. Bond markets saw US 10-years +5.31bp to 2.29%. On commodity markets, Brent crude oil -3.12% to $64.2, gold-1.6% to $1,208, iron ore -3.5% to $58.53. AUD is at 0.7915 and the range was 0.7907 to 0.801. (For more market prices, please see p.2 of the pdf).

  • German ZEW 41.9A, 49E, 53.3P
  • UK HICP -0.1%yA, 0E, P
  • US Housing starts 1135A, 1015E, 944P
  • US Housing permits 1143A, 1064E, 1038P

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