Good morning. Here’s what you need to know.
— U.S. markets appear to have stabilised somewhat this morning after a big sell-off yesterday. In a reversal of recent moves, S&P 500 futures are up nicely, U.S. Treasury note futures and gold futures point to declines, and the dollar is gaining against the euro and the yen, while emerging-market currencies are gaining against the dollar. Overnight in Asia, however, markets were down big — the Japanese Nikkei 225 fell 4.2%, and the Hong Kong Hang Seng and the Shanghai Composite, both of which have been closed in recent sessions for the Lunar New Year as other markets around the world have sold off, fell 2.9% and 0.8%, respectively. And in Europe, stock markets are in the red across the board, with Germany’s DAX leading indices lower.
— Vehicle sales unexpectedly fell to 15.2 million units at a seasonally adjusted annualized rate in January from 15.3 million in December. Economists were looking for a rise to 15.7 million SAAR. Many auto manufacturers — including General Motors, Ford, Toyota, and Honda — cited unseasonably cold weather last month as a factor behind the drop.
— The Reserve Bank of Australia left its benchmark policy rate unchanged at 2.5%, as expected. However, the central bank got rid of the easing bias in its policy statement by adding the line, “On present indications, the most prudent course is likely to be a period of stability in interest rates,” and the Australian dollar surged. “There is some back and forth on domestic developments, but, together, these statements suggest that the exchange rate is approaching levels at which the RBA is more comfortable and that policymakers are removing the threat of using their most powerful tool to drive it lower (changes in interest rates),” says Todd Elmer, an FX strategist at Citi. “This will be viewed by the market as an all-clear signal on the currency and is likely to invite a further reversal of short-positions among leveraged investors.”
— The release of results of Markit’s monthly U.K. construction Purchasing Managers Index survey revealed the sharpest rise in construction output last month since August 2007. The PMI unexpectedly rose to 64.6 from December’s 62.1 reading. “Housing activity growth now stands at its strongest for just over a decade, boosted by growing demand for new homes and improving confidence within the UK property market,” said Tim Moore, a senior economist at Markit, in the release. “Meanwhile, strengthening domestic economic conditions spurred greater spending on commercial projects in January. A sharp rise in civil engineering activity completed an impressive showing from all three sub-categories of construction monitored by the survey.”
— Shares are UBS are higher after the Swiss bank reported earnings that tripled analysts’ consensus estimate. “All in, this is a mixed set of results. On the positive side, there is a substantial ‘beat’ on capital,” wrote Goldman Sachs analysts in a note. “On the negative side, the all-important trends in the private bank were muted — flat margin, and in-line net new money.”
— Shares of Yum! Brands are higher in pre-market trading following the release of earnings results for the quarter ended December 31. Earnings per share were $US0.86, above the $US0.79 consensus estimate, but revenues were only $US4.19 billion, versus expectations for $US4.25 billion. Same-store sales fell in the fourth quarter, but the company reaffirmed its forecast for double-digit earnings growth this year.
— At 8:30 AM ET, Richmond Fed president Jeffrey Lacker will speak on the economy. At 12:30 PM, Chicago Fed president Charlie Evans will speak on monetary policy.
Monthly U.S. factory orders data are due out at 10:00 AM. Economists predict total orders fell 1.8% in December after rising 1.8% in November. Follow the data LIVE on Business Insider »
— The ranks of the unemployed in Spain rose 2.4% in January from the previous month as Christmas-season jobs ended, but fell 3.3% from the previous year — marking the best January for the labour market since 2007. Youth unemployment rose 4.0% from a month earlier, but fell 7.5% from a year earlier.
— “Of note, a new poll out in Italy suggests that under the new electoral reform, a center-right coalition (ostensibly led by Berlusconi) would win without need of a run-off,” write Brown Brothers Harriman currency strategists in a note to clients this morning. “The center-left (Renzi) can make a fight of it, trailing 36% to 37.9%. The 5-Star Movement is polling just shy of 21%.”
“The last time the Nikkei traded below 14,000, back in September, USD/JPY was below 97, and the correlation between equities and USD/JPY is good enough to make that a potential target as old, stale yen shorts are squeezed out by the current equity and emerging-market turmoil. Emerging-market currencies and developed-market equity indices have been the biggest beneficiaries of super-easy Fed policy, and after a long period where EM FX bore the brunt of the change in the tide of Fed policy, equity markets are now reacting. Are they going to play catch-up?”
— Kit Juckes, a global strategist at Société Générale