Welcome to the first Friday of the working year. Huzzah!
– The Swiss National Bank surprised everyone overnight by dropping the ceiling it had held fast for the Swiss franc appreciation against the euro. Essentially, up until last night the SNB had been defending a EUR/CHF Swiss rate of 1.20 since 2011. That meant that the Swiss franc could not appreciate against the Euro as cash fled Europe looking for a safe haven. After the SNB action, EUR/CHF fell to 0.8500 before recovering to 1.0230 this morning.
– But the real story is less about the peg itself but what it means for global market volatility. As Richard Franulovich from Westpac wrote this morning this is 2015’s mini-Lehman moment. It also means volatility is likely to beget volatility as Mandelbrot taught us.
– The other interesting aspect of the SNB’s action is whether or not they have received a heads-up from the ECB on the scale of the QE program that is coming down the pipe, perhaps as soon as next week. Currency traders are betting it might convey some information with the EURUSD is 1.49% lower at 1.1611 while stock traders have been buying with gusto.
– On the data front, Chinese money supply and new loans were finally released yesterday and both undershot expectations, printing growth of 12.2% for M2 and new loans of Y697.3 billion against expectations of Y852.7 billion. Elsewhere, Spanish CPI printed -1.0% yoy, the SNB cut rates to -0.75% from -0.25% and producer prices in the US fell a little less than expected in December, down 0.3% and taking the yoy rate to 1.1%.
So at the close, the scoreboard in the US reads:
- Dow Jones down 0.61% to 17,321
- Nasdaq down down 1.47% to 4,571
- S&P down 18 points or 0.91% to 1,993 (watch a close below 1,990 tonight, if it occurs it will be a big technical break)
– European markets were higher again. QE (and lots of it) seems to be coming, traders are betting.
Anyway, at the close:
- London(FTSE 100) up 1.73% to 6,499
- Frankfurt (DAX) up 2.2% to 10,033
- Paris (CAC) up 2.36% to 4,323
- Milan (FTSEMIB) up 2.36% to 18,845
- Madrid (IBEX) up 1.39% 9,983
– Locally, it was a bit of a ragged night’s trade with a range on the March SPI 200 futures of 5,231-5,305 but the market has settled down just 8 points at 5,271. Yesterday saw the Aussie market, uncommonly across the region, down with heavy pressure on the miners and the banks. So we’ll see how things go this morning with iron up up a smidge overnight.
– In Asia yesterday, Shanghai ripped 3.52% higher to 3,336 as the disappointment in the official financing data was eclipsed by the big uptick in shadow lending which, according to Bloomberg, rose the most since records have been compiled. The Hang Seng was up 0.99% and the Nikkei benefited from the weaker yen, rising 1.86% to 17,109. With USDJPY at 116.33 and at risk of breaking wide open, the Nikkei might be in for a bad day.
– On bond markets, it was one heck of a rally with US 10s falling 11 points to 1.75%, German 10s dipping to 0.42% while UK gilts were unchanged at 1.52%.
– Currency traders in New York and London would have headed straight to the pub for a debrief after the sensational action of the SNB. Only last week the peg had been reiterated and reinforced by the SNB president so almost everyone would have been blindsided. As discussed, the euro is lower at 1.1613, GBP sits at 1.5172 while USDJPY is at 116.388888. The Aussie has had a bit of a wild ride trading through a 0.8130-0.8295 range over the past 24 hours. It’s still up solidly on the day with a rise of almost 1% to 0.8223.
– Elsewhere, crude oil’s squeeze (options induced) proved transitory with prices falling $2.19 a barrel or 4.52% to $46.29 a barrel. But the volatility helped gold, which is up $30 on the day to $1,258. I had a deep dive into gold over at Go Markets for traders who are interested. Copper was up 2.26% to $2.61 a pound while on the bulks, iron ore for March delivery rose 78 cents to $67.63 a tonne. Newcastle coal for the same month fell another 25 cents to $56.20.
Tonight is another big night of data with the release of German, EU wide and US Consumer Price data. This is a big macro event as it will set the scene for ECB QE and inform the Fed tightening timetable. There is nothing of note in Australia or Asia today.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
JP Morgan Chase
Soft quarterly results from US banks this week have been one of the key reasons for the nervous tone in US stock markets this week.
JP Morgan, the biggest US bank by assets, missed expectations with a 6.6% drop in quarterly profit. Trading profit in volatile markets has been an issue for the banks. JPM’s home loan revenue also fell.
The bank’s chart has arrived at what looks like an important support level. It’s testing the bottom end of what looks like a wedge or “diagonal terminal” pattern. For chart traders, a clear break through this support would indicate more downside to come. Given the importance of this sector for US markets, this development could have implications for wider market sentiment making this a support level to keep an eye on.
Ric Spooner, Chief Market Analyst CMC Markets
You can follow Ric on Twitter @ricspooner_CMC