Good morning. Here’s the latest:
– Oil crashed again overnight, down almost 5%. Iron ore fell further, the VIX spiked and there was a general air of concern in US markets which also saw the 30-year Treasury note fall to its lowest level since mid 2012 to 2.486%.
– There was no actual catalyst for the weakness although things like Prince Alwaleed bin Talal saying that oil will never go over $100 a barrel again and Goldman Sachs cutting its crude price forecast to $39 a barrel set the tone for weakness in the energy sector.
– This also reinforces the deflationary trend around the globe which might help explain why European shares rose while the US was in the red from the get-go. Traders are clearly thinking ECB boss Mario Draghi is going to reinforce that QE will start soon but there was plenty of anti-QE rhetoric overnight. Bundesbank head Jens Weidman is out later this week and likely to refute Draghi, (yes ,technically his boss) about sovereign bond-buying.
– It’s a more volatile and fractious start to the year than I was expecting and I get a real sense that there is some genuine concerns about valuations as we head toward the first earnings season of the year. Here’s an example from Jim Paulsen at Wells Capital saying that stocks have never been so overvalued.
– Anyway, at the close of what was a volatile week on US stock markets and with earnings season about to kick off, the scoreboard in the US reads:
- Dow Jones down 0.41% to 17,664
- Nasdaq down 0.75% to 4,669
- S&P 500 down 0.68% to 2,031 (watch 1,990 – last week’s low – as important support)
– European markets defied the US and rose into the close on the continent while the FTSE was flat. That suggests this is a QE pre-emptive rally.
Anyway, at the close:
- London(FTSE 100) flat at 6,501
- Frankfurt (DAX) up 1.38% to 9,782
- Paris (CAC) up 1.17% to 4,228
- Milan (FTSEMIB) up 0.95% to 18,349
- Madrid (IBEX) up 0.81% 9,798.
– Locally, yesterday was a down day for the ASX lead by the miners, including BHP which dipped more than 2%, but the overall price drop of 0.8% was largely in line with what futures suggest. The bad news is that overnight futures have fallen further and the SPI 200 March contract is down 45 points to 5,340. So more pressure on the energy sector, iron ore miners and given its portfolio, BHP.
– In Asia yesterday, the restructuring of Asia’s richest man, Li Ka-shing’s business helped buoy the Hang Seng which finished the day up 0.44%. On the mainland, Shanghai’s reversal of the 2,405 high on Monday continued with a fall of 1.72% to 3,229 while in Tokyo, trade was much less exciting with the Nikkei up 0.18% to 17,198. Today the release of Japanese trade data will be interesting not only for the local economy but what it might convey about the state of global demand as well.
– On bond markets US rates rallied further with the 10s down at 1.91%. HSBC’s Steven Major, who called the rally of 2014 correctly, believes US rates will continue to fall to a low of 1.5%. In the UK, rates rallied to 1.58%, and German Bunds dipped to 0.48%.
– Currencies were a bit fraught overnight with the US dollar spending all of Asian trade yesterday under uncommon pressure. The Aussie rallied to a high around 0.8251 before Europe entered the fray and slammed it back down to a 0.8128 low. It’s sitting now at 0.8167. That’s an underperformance against the other majors, with euro at 1.1836 and GBP still up on the past 24 hours at 1.5174. USDJPY is lower slightly as well at 118.37 and the yen is poised to rally aggressively if the US stocks swoon turns into a rout.
– Commodities are down again with crude down 4.98% to $45.95 a barrel. That speaks volumes about demand at the moment and tells us much about the short-term inflationary impacts but it has to be good for the global economy going forward as Myles Udland from BI US wrote overnight. Copper was down again overnight as well, falling 1.22% to $2.72 a pound (another signal about global growth) while iron ore was also hit with the March 2015 contract down $1.55 to $67.33 a tonne. Newcastle coal fell 80 cents a tonne to $56.75.
Looking at the data today, we get Japanese trade, and we’re still waiting on Chinese loans while trade is currently scheduled for today. Offshore tonight, we get the first of an important raft of CPI data this week with the release of monthly data for the UK, Greece and Portugal.