The massive moves in the Nikkei and Yen in the wake of yesterday’s big miss on Japanese third quarter GDP failed to ignite similar sell offs in Europe or US, especially as comments from central bankers reinforced that free money is still flowing from the central bank spigot.
Last night’s big news came from ECB President Mario Draghi who put some meat on the bones of ECB QE saying that soveriegn bond purchases were now on the table. “Other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds,” Draghi said.
It helped put European stocks higher with the DAX up 0.57% to 9,306, the CAC up 0.56% to 4,226 and the FTSE 100 was up 0.26% at 6,672. Naturally Spain and Italy benefitted more from Draghi’s comments than the core markets with the IBEX index in Spain up 1.59%, while the FTSE MIB was up 1.33%.
US stocks were non-plussed, once again trading either side of nowhere, and lacking a catalyst for a decent move one way or the other. At the close the Dow is up 0.08% to 17,649, the S&P up 1 point to 2,041, while the Nasdaq was 0.37% lower at 4,671.
One topic that has the market interested is a paper from the San Francisco Fed (HT NAB Economics) which “suggests that inflation is expected to remain low through the end of 2016, and the uncertainty around the forecast is tilted to the downside, that is, the risk of lower inflation.” It didn’t impact overly, but given that Fed Chair Janet Yellen is from the San Fran Fed originally, it got more attention than normal.
On the data front US industrial production was underwhelming printing -0.1% against +0.2% expected and +0.8% last. Capacity utilization was also weaker at 78.9% from 79.2% last.
Locally, traders on the SPI 200 December contract took price 11 points higher. No doubt some of that will be the miners’ strength in London but with iron ore’s fall continuing we’ll see how things go today.
As noted earlier the huge miss on Japanese GDP sent the Nikkei into a tailspin losing more than 500 points or 2.95% to 16,974. Abenomics is failing and the free money dump is not lifting the economy out of the mire even though the GDP deflator of 2.1% suggests some inflation is in the system.
In Shanghai the tie-up with Hong Kong proved to be the boon many expected initially but the tractor beam of Tokyo carnage turned the focus to the downside and the composite index was 0.19% lower. That is much better than the 1.21% loss on the Hong Kong exchange with the Hang Seng closing at 23,797.
Bonds, like US stocks, were fairly quite with US 10s up 2 pips to 2.34%, German Bunds doing likewise at 0.76% and UK 10s at 2.12%. Italian bonds, buoyed by the prospect of ECB bond buying, rallied 4 points to 2.30%.
The Euro fell overnight after Draghi’s comments reversing off its approach toward trendline resistance and it is at 1.2452, 120 points off the high overnight. Sterling was pressured again after Andrew Haldane and Mark Carney suggested inflation in the UK is heading lower once more. GBP too is off 100 points from the high at 1.5639!
The US dollar strength has weighed on the Aussie dollar as well and after a high of 0.8794 last night it’s all the way back at 0.8706.
On commodities, iron ore is down at $73.96 a tonne, Newcastle coal for December rose 40 cents a tonne to $64.70. Nymex crude dipped 0.42% to $75.50 a barrell while gold didn’t move too much and is at $1,186 this morning. Copper closed at $3.039 a pound while on the Ag prices did something they never do – nothing!!!
On the data front, RBA minutes at 11.30am AEDT will be interesting as will Chinese house price data. Tonight it’s CPI in the UK, which will have Sterling traders on tenterhooks as will the ZEW survey in Germany. PPI is out in the US along with ther NAHB homebuilders index.
If the name Pacific Brands doesn’t mean much, chances are Volley, Grosby, Hush Puppies or Clarks will register. Pacific Brands owns or has licences to these brands and over the past couple of days there have been reports that it’s considering selling them to private equity group, Anchorage Capital. This would follow Pacific’s recent sale of the King Gees, Stubbies and Hard Yakka brands to Wesfarmers. This news saw a rally in Pacific Brand’s share price yesterday which, for chartists, looks as though it might be forming the right shoulder of an inverse head and shoulder pattern. From here a break though the neck line would complete the pattern and indicate potential for higher prices.