January 21, 2016

Markets Today: Runaway train

Another volatile night my friends. Well that was as far as equity markets are concerned the E600 European index down a cool 3.2%.

Another volatile night my friends. Well that was as far as equity markets are concerned the E600 European index down a cool 3.2%, and for most of the US session, though into the last hour of York trade, the Dow and the S&P 500 are rallying off their lows, the Dow presently down 1%, having been well south of that earlier. Oil again was front and centre with WTI down the best part of two dollars to $26.55, down 6.7% and Brent down $0.51 to $28.23 a decline of 1.7%. Oil market sentiment was poor with more wire coverage of oversupply from the likes of a story in the FT that the oil market “could drown in oversupply” and a report that the first US oil tanker arrived in Europe following the lifting of US crude oil export restrictions.

By those standards, currency markets were becalmed, with Bloomberg spot DXY index up 0.1% against 0.4% declines in the EUR, the JPY, and the CHF. With the decline in oil prices, the NOK and the RUB both had hefty falls (by 0.5% and 2.1% respectively), while the CAD made up some ground with CAD investors relieved that the Bank of Canada left rates on hold. Those with memories of the year ago will recall that a surprise move by the Bank of Canada was followed weeks later by the first of two cuts from the RBA. Nearly as many economists had forecast a cut from the Bank of Canada as picking no change.

The AUD trades north of 0.69 this morning (following intra-session equity market volatility), having traded down below 0.683 but then relatively resilient in the circumstances given the negative sentiment towards oil/commodities overnight. Base metal prices closed lower though not to the extent of oil, with the LMEX base metals down 0.92%. Spot Chinese iron ore prices eased back $1.17 yesterday to $41 61 amid declines in Dalian iron ore futures and Chinese steel rebar futures prices on the day. Speaking overnight on CNBC at the Davos forum, Australian Finance Minister Cormann made some comments about the Aussie dollar noting that the market determines its value, that the lower value of the Aussie helps competitiveness and that the challenge is for Australia is to strengthen competitiveness further. Nothing out of the ordinary here.

US data was on the softish side with weaker than expected housing starts and somewhat lower than expected monthly headline and core CPI. The monthly UK labour market report was better than expected. The Atlanta Fed nudged up its estimate of Q4 GDPNow to 0.7% from 0.6% (due Jan 27).

Coming up

There are two NZ data releases this morning which might come under a little more scrutiny after yesterday’s soft CPI. As far as the Australian data is concerned, there is the HIA new home sales report for November, one of the few months demand indicators of new housing and apartments. There is also the monthly RBA FX transactions report, this one for December. The UK RICS house price balance is also due this morning, probably regarded as one of the most reliable indicators of house price momentum.

Tonight is the first ECB meeting for this year. While no change in policy is widely expected to be announced, forward medium to longer term inflationary expectations have been pulling back with the declining commodity prices and in oil and this is something the ECB will be watching closely. It’s to more than conceivable get some more strong words from President Draghi as far as his determination to avert deflation. (Whether any such then translate to more accommodative monetary policy is another matter.) Eurozone consumer confidence for January is also due, this really draws any market interest at all. In the US, there is the weekly jobless claims report.


Equity markets and oil take more heat: Eurostoxx 600 -3.2%, Dax -2.8%, CAC -3.4%, FTSE -3.5%. Dow -157 points to 15,859, -1.0%, S&P 500 -1.0%, Nasdaq +0.5%, VIX 27.05 +3.8%. Shanghai -1.0%, Mumbai -1.0%, Nikkei 225 +0.5% and ASX 200 -1.3%; ASX SPI futures this morning -0.0%. US bond yields: 2s at 0.83% (-4), 10s at 1.99% (-6). WTI oil at $26.55 (-6.7%), Brent at $28.33 (-1.5%), Malaysian Tapis (yesterday) $28.14 (-4.5%). Gold at $1100.60/oz (+1.1%). Base metals: LME copper -1.1%, nickel -0.5%, aluminium -0.8%. Iron ore $41.6/t -2.7% Chinese steel rebar futures -0.9%. Soft commodities spot futures: wheat -0.7%, sugar -3.9%, cotton -0.8%, coffee -3.5%. Euro CO2 emissions price (Dec 16) -7.3%. The AUD/USD’s range overnight 0.6828-0.6905; indicative range today 0.6870-0.6930; the AUD/USD is 0.6922 now

UK jobless claims (Dec) -4.3 K (L: 3.9 K; E: 2.8 K); ILO Unemployment rate (Nov) 5.1% (L: 5.2%; E: 5.2%)

The Bank of Canada left its cash rate steady at 0.5%

US CPI (Dec) -0.1%/0.7% (L: 0.0%/0.5%; E: 0.0%/0.8%); core CPI 0.1%/2.1% (L: 0.2%/2.0%; 0.2%/2.1%); US housing starts (Dec) 1232K/-3.9% (L: 1173K/10.5%; E: 1200K/2.3%
Good luck.

For full analysis, download report:
Markets Today: 21 January 2016 (PDF, 409KB)

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