Welcome to your first Hump Day of 2015. Let’s get it over with.
– A very interesting night which potentially highlights an emerging fragility in the bull case for stocks after early strength in the US, on the back of expectations of QE in Europe, gave way to a big fall before prices tried to recover into the close.
– Now, of course you’d be mad to extrapolate anything concrete from one night’s trade, especially when the uptrend in the S&P 500 remains intact. But as the World Bank’s latest semi-annual report on the global economy suggests today, the outlook is very uncertain for the global economy and thus markets. My view remains unchanged from last year – Minsky is still relevant.
– On the economic front, one of the big triggers for last night’s moves was the big surprise in UK CPI which dipped to 0.5% year-on-year after the 0.0% print – that’s no change in consumer prices – for the month of December. Also out was the Greek CPI which fell to -2.6% yoy from -1.2% while Portugal also showed deflation, printing a yoy fall in prices of 0.4% from a flat outcome last month.
– This of course fed more expectation that the ECB will embark on QE soon. This notion was also built upon when ECB Governing Council member Ewald Nowotny said the decision can be made sooner rather than later to end market uncertainty. But before that we get the European Court of Justice ruling (Advocate) some time today on the ECB’s bond purchase program. This could go either way and is a super important hurdle for stocks and the euro in the next 24 hours.
– Anyway, getting back to the US, where early stock optimism was fed by the uptick in NFIB Small Business Index optimism which jumped to 100.4 from 98.1 last, and against expectations of a rise to 98.4. But as noted above, the strength evaporated over the course of the day as traders sold stocks down into the red. So at the close, the scoreboard in the US reads:
- Dow Jones down 0.15% to 17,614
- Nasdaq down 0.08% to 4,661
- S&P 500 down 0.26% to 2,023 (watch 1,990 – last week’s low – as important support)
– European markets are on the drug of QE as they rally on the prospect of free money, even though the EU economy is slipping further into deflation, turning Japanese and looking for all the world like the worst failed experiment in the history of economics. But hey, who cares when rates are at zero?
Anyway, at the close:
- London(FTSE 100) up 0.62% to 6,542
- Frankfurt (DAX) up 1.63% to 9,941
- Paris (CAC) up 1.46% to 4,290
- Milan (FTSEMIB) up 1.96% to 18,709
- Madrid (IBEX) up 1.72% to 9,966
– The washup of the overnight moves is that SPI 200 futures are down a little with the March contract off 15 points to 5,337. It could be a better day with coal and crude oil little higher overnight.
– In Asia yesterday, the Nikkei didn’t like the strength of the yen which is back under 118. Key to the outlook for both the yen and Nikkei really is what happens in US and global stocks. Stocks down will drive flows into the yen and put a double weight on the Nikkei. Elsewhere in the region, stocks in Hong Kong and Shanghai were higher by 0.79% to 24,216 and 0.18% to 3,235 respectively after the solid increase in Chinese exports of 9.9%.
– On bond markets, US 10-year Treasuries closed at 1.9%, German Bunds at 0.48% and UK 10-year Gilts closed at 1.59%.
– On currency markets, the inflation data in the UK, Greece and Portugal played into the US dollar’s hands with dollar buyers dominating. Euro fell from 1.1859 yesterday to 1.1771 this morning while GBP surprisingly has recovered reasonably well from its lows. It’s down but still doing okay at 1.5156. There is much to be said for BoE credibility! The Aussie is sitting at 0.8163 off the lows of yesterday and last night and largely unchanged on the day. USDJPY loooks like it is about to break down heavily and it sits at 117.86 this morning.
– On commodity markets, there is uncommon positivity with crude (+0.87% to $46.47) and coal (+35 cents to $57.10) higher. But copper was absolutely caned, dropping 12 cents a pound to $2.60. That is not a good sign for global growth. Gold dipped a little and is at $1,230 this morning.
On the event and data front, the next 24 hours are really going to be dominated by the release of the ECJ decision about bond purchases by the ECB. French and Italian inflation data will also be HUGE as will US import and export price data and BoE Governor Carney’s speech.