December 23, 2015

Markets Today: Sideways

Moves in oil prices remain the main driver for markets amid a decline in trading volumes ahead of the Christmas holiday break.

Moves in oil prices remain the main driver for markets amid a decline in trading volumes ahead of the Christmas holiday break. US and European equity markets traded in a sideways pattern overnight while oil prices stabilised following the spike higher seen in the previous day.

US equity markets look set to end the day up between 1% and 0.5% while in Europe most equity indices have closed in positive territory. The resource-heavy FTSE100 index was the outperformer up 0.8% and following the inconclusive election results over the weekend, Spain’s IBEX35 rose 0.5% marginally offsetting the 3.5% loss from the previous day.

The stabilisation in oil prices also benefited commodity related currencies while mixed US data releases (see details below) marginally weighed on the USD. Over the past 24 hrs, the NOK has been one of the strongest performers, up 0.88% while the NZD and AUD have also outperformed, up 0.65% and 0.54% respectively. Out of the G10 currencies, the GBP was the only underperformer against the USD, down 0.5%, following worse than expected UK public finances. UK public sector borrowing rose 10% in November to £14.2bn, casting doubts over the chancellor’s ability to meet his forecast for this financial year.

Core global yields drifted higher overnight amid a decline in safe haven asset demand with UK gilts the underperformers given the prospect of an increase in issuance. 10y UK Gilt yields rose 5.9bps to 1.88% while US treasury yields rose in a bear steepening fashion. 2y UST yields gain 2.7bps to 0.971% and 10y UST yields ticked 4bps higher to 2.237%.

As for data releases, Germany’s GfK consumer confidence index rose to 9.4 from 9.3 previously, ending four consecutive months of decline. Germany’s consumer confidence was boosted by stronger economic and income expectations.

In the US, data showed that in Q3 the economy expanded at a slightly slower pace than previously forecasted. Q3 real GDP was revised down to 2.0% from 2.1% previously while the core PCE price index was revised to up at a 1.4% annual rate from 1.3%. The slight revision to GDP growth was due to a larger drag from inventories (0.7% vs 0.6%) with some commentators suggesting the drawdown in inventories could swing the other way in the fourth quarter.

Finally, US Existing home sales fell 10.5% m/m to a 4.76M following a 4.1% decline in October. Although the number is disappointing, much of the fall in November is probably explained by delays related to mortgage disclosure rules rather than a sudden weakening in the trend.

Coming Up

We have an empty domestic calendar, but on the other side of the Tasman, New Zealand releases its trade balance and household credit figures for November. Our BNZ colleagues are looking for a monthly trade deficit of $640m, comprising of exports at $4,202m (+4% y/y) and imports at $4,842m (+12% y/y). On all counts BNZ is a bit more sanguine than markets expectations.

Later in Europe, the UK releases its third Q3 GDP growth estimate where expectations are for a confirmation of a 0.5% growth for the quarter. The savings ratio is also included in the report and it is likely to garner some attention for an assessment of consumer spending in 2016.

All that said, today’s most important data releases come courtesy of the US. In November personal income is expected to have risen by 0.2%, below the 0.4% seen in the previous month. Personal spending is seen at 0.3% (0.1% prev), constraint by a pullback in utility energy services (thanks to the warmer weather during the month). As for the core PCE deflator, the monthly print is seen at a modest 0.1% and it suggests the divergence against the core PCI widened further in November. Shelter costs (rents) are increasing at a faster rate than the average and they have a larger representation in the CPI.

US durable goods orders for November are also released today and expectations are for a monthly decline of 0.6%, largely reflecting a plunge in the volatile aircraft component. New home sales for November are also out (505k exp, 495k prev) along with the final Univ. of Michigan Consumer Sentiment December reading.


On global stock markets, the S&P 500 was +0.90%. Bond markets saw US 10-years +4.40bp to 2.24%. On commodity markets, Brent crude oil -0.58% to $36.14, gold-0.7% to $1,075, iron ore +0.8% to $40.80. AUD is at 0.7227 and the range was 0.7182 to 0.7249.

For full analysis, download report:
• Markets Today: 23 December 2015 (PDF, 321KB)

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