Some argue that there can’t be too many better analogies to predicting markets than playing cards or rolling dice, so the late Lemmy’s classic The Ace of Spades from the band Motörhead seems very apt this morning.

Data

US Consumer Confidence rose more than expected with the survey result of 96.5 a lot better than the predicted 93.5.  This was largely due to better labour market conditions and cheaper fuel costs allowing some leeway in household budgets to splurge in the holidays.

Markets

Positive prior month revisions also helped to return markets to a positive lean, although Europe was already in the black from the outset, following on from a robust Asian performance in the face of Monday’s negativity.

Mainland European bourses closed almost 2% higher and the UK was 1% stronger.  The US is closing at session highs with gains of a little over 1%.

WTI oil bounced by almost 3% overnight and is now almost nudging $38/bbl.  This should be some slightly better news for Saudi Arabia at least as data showed that the kingdom’s net foreign assets had declined for the 10^th month in a row as the country’s finances continue to worsen.  Saudi Arabia’s finance minister also noted that he expected to tap international bond markets in 2016 to help address deficits.  Gold was up by less than 1% and iron ore continues to recover and is now $42.31/tonne, as it creeps back from $38/tonne lows in mid-December.

The Australian dollar was the strongest performer overnight, rising 0.7% against the US$ to 0.7299 almost at the top of the overnight range, which floored at 0.7246.  Both the Canadian and New Zealand dollars registered mild gains whereas every other main currency was down with sterling the weakest.  The Sterling story is an interesting one and contrasts with lots of optimism some six months ago – indeed there was even a decent chance that the Bank of England could hike rates ahead of the Fed.  However over the last few months, the UK’s recovery has slowed and added to this is the uncertainty hovering over a possible exit from the EU.  Short term sterling pessimism is also driven by concerns that the recent (and ongoing) devastating floods in the North of the country will hamper growth with the full insurance costs to be discovered.

US 10-year Treasuries sold off sharply with an almost 8bp widening to 2.31% since this time yesterday.  As well as the expected moves from positive equity markets, the weakest 5-year Treasury auction since 2009 wouldn’t have helped and this is in addition to a weak 2-year sale on Monday and ahead of a 7-year one today.

Credit markets predictably rallied and the US CDX tightened by over 2bp to 89bps, a little better than the European iTraxx index which narrowed less than 2bps to 79bps.

Coming Up

The UK’s Nationwide House Price data is released at 6pm our time tonight and the US Pending Home Sales are out early tomorrow morning.

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

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