Let’s start with liquidity.
– That’s the most interesting thing in global financial markets at the moment. Yesterday’s BoAML global fund managers index showed “investor optimism/pessimism is now completely in thrall to central bank liquidity policies.” Likewise, the current questions about Greece and where it sits, if it sits, in the Euro are all about liquidity. For Greece and its banks. So it was no surprise that the Fed highlighted the risks to markets which the first and subsequent tightenings, this year, will cause.
– The Fed said:
…the increased role of bond and loan mutual funds, in conjunction with other factors, may have increased the risk that liquidity pressures could emerge in related markets if investor appetite for such assets wanes.
That is, when someone shouts sell and everyone does at the same time, things will get ugly and unstable. It is also, along with the risk of deflation, why the Fed is in no hurry to raise rates just yet and why the majority, according to the minutes, are leaning toward keeping rates at zero “for a longer time”. Indeed “many” members said a premature hike would harm the recovery. The Doves have it and the fed is in no rush.
– That Dovishness was important because US January PPI fell 0.8% against expectations of a fall of 0.4%. This means that the year-on-year change in producer prices is now 0.0%. Certainly, ex-food and energy, the yoy level is a healthier 1.6%. But we know from Europe and China that PPI falls are leading CPI falls at the moment. So the Fed is in tune with the US economy – that’s great news.
– Turning to overnight trade now and the result of this, of a big fall in UK unemployment, and continued uncertainty about Greece and Ukraine is that US rates rallied, UK rates sold off, sterling rallied and the early US dollar strength against the Aussie and euro was reversed. Gold tested lower as well but bounced back.
– At the close, the scoreboard in the US reads:
- Dow Jones down 0.1% at 18,030
- Nasdaq up 0.1% to 4,906
- S&P 2,100, unchanged
– European markets at the close:
- London(FTSE 100) flat at 6,898
- Frankfurt (DAX) up 0.6%, 65 points to 19,961
- Paris (CAC) up 0.95%, 45 points to 4,799
- Milan (FTSEMIB) up 1.85%, 393 points 21,659
- Madrid (IBEX) up 1%, 107 points to 10,805
– Locally, after a stellar day yesterday, March SPI 200 futures traders are down just 3 points at 5,871.
– In Asia yesterday, it was largely just the Nikkei given Chinese New Year celebrations across the region. The Nikkei celebrated by making a fresh eight-year high. It closed up 1.2% at 18,199, the highest close since July 2007 when the GFC first stirred.
– As noted above, US bonds rallied 6 points to 2.08%, UK Gilts sold off 9 points to 1.85% after the claimant count fell 38,600, taking unemployment to 5.7%. German 10-year Bunds closed at 0.35%.
– On currency markets, the US dollar strengthened early with the euro hitting a low of 1.1335, but it is back at 1.1395 now. The Aussie sits at 0.7817 after a quick foray down to 0.7770 and the USDJPY is at 118.7. Sterling is up and away at 1.5438 as the standout amongst the majors.
– On commodity markets, gold made a low of $1,197 – right on trendline support but is back at $1211 now. Nymex crude has given the bulls a bloody nose, falling 2.15% to $52.38 but copper is up 1.43% to $2.6185. On the bulks, Newcastle coal has hit right across the curve, for the second night in a row. The March contract closed at $68.10. Iron ore for March fell 57 cents to $63.50.
On the data front today there is nothing out in Australia. It’s another Chinese New Year holiday and tonight in Europe sees only second tier type releases – French CPI, EU current account and Swiss trade data. The US jobless claims and the crude stock build will be interesting.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Woodside will be an interesting stock today. The market was pretty happy with yesterday’s profit result which showed the benefit of a conservative, effective management team bearing down on costs and improving balance sheet strength.
Back in the days of $100 oil, Woodside was criticised as being “ex growth” with insufficient options to improve its reserves. This is now looking like a potential strength. Even after its recent acquisitions from Apache Oil, Woodside has the balance sheet capacity to take further advantage of any ongoing cyclical weakness in the oil price with well-timed asset buying.
The positive reaction to yesterday’s result saw Woodside break through the neck line of a bullish head and shoulder pattern. However, today it will need to swim against the tide of a weaker oil price overnight. If Woodside can confirm this head and shoulder break by moving higher in coming days then the 50% and 61.8% retracement levels around $38 and $39.50 loom as possibilities. The latter coincides with the 200 day moving average.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC