There was a strong rebound on global equities overnight, largely on the back of positive earnings reports out of Europe and a decent fall in US jobless claims. New claims fell to 331,000 in the week to February 1, which is 20,000 less than the week before. Again, this data adds to the view that the weakness we had seen in some other indicators was temporary – the rebound is on.
Global stocks surged, with gains on the major European indexes (Dax, CaC and FTSE100) up between 1.5 per cent and 1.7 per cent. On Wall Street, and with about an hour left to trade, gains are only slightly more modest with the S&P500 up 1.2 per cent (1772) which, if held, will be the strongest gain this year. The Dow is 172 points higher (15,612), while the Nasdaq is up 1.2 per cent (4057). Gains are fairly broad based at this stage, the only notable underperformer being telecommunications. Otherwise, energy stocks, basic materials and industrials outperformed.
Forex saw decent moves in the euro, up almost a big figure (1.3590) after the European Central Bank held rates steady. It’s not that the ECB was more hawkish or anything – far from it. Indeed Mario Draught, the head of the bank, said that it could act at the next meeting if conditions warranted. He’s very much keeping rate cuts or some other action front and centre. No, it’s more the case that the bank played down the risk of deflation – something investors had been getting all excited about. If the ECB is less concerned about deflation, it’s less likely to take dramatic action, so the story goes. Anyway, the Australian dollar hovers around 0.8969, which is up smalls from yesterday (1630 AEDT). The British pound was then up 25 pips or so to 1.6326 and the yen sits at 102.07.
Rates generally sold off a little, although moves were small. The US 10-year yield is up about 2 bps to 2.707 per cent, the 5-year is at 1.517 per cent, while the 2-year is at 0.33 per cent.
Commodities then found a decent bid. For crude, Brent rose nearly 1 per cent ($107.2) while WTI was 0.4 per cent higher ($97.8). In the metals space, copper was 1.1 per cent higher, gold was flat ($1257) and silver was 0.6 per cent higher.
Elsewhere the US trade deficit came in at $US38.7 billion ($43.43 billion) in December, from $34.6 billion the month prior. Then non-farm productivity rose 3.2 per cent in the fourth quarter from 3.6 per cent. In Europe, German factory orders fell 0.5 per cent in December to be 6 per cent higher annually, while UK house prices rose by 1.1 per cent in January according to Halifax, to be 7.3 per cent higher annually. The Bank of England held rates steady at 0.5 per cent and maintained asset purchases of £375 billion ($686.44 billion).
Locally today, the SPI points to a 0.6 per cent gain on our market. Otherwise the main release domestically will be the Reserve Bank’s Statement on Monetary Policy. Recent data indicators suggest the central bank should make upward revisions to growth and inflation forecasts, which for mine are far too low. I doubt they’ll make significant changes at this point for fear of sparking another rally in the Australian dollar. On that note, I expect the jawboning effort to continue.
Offshore today we see a private sector estimate of growth in the Chinese services sector at 1245 AEDT. Tonight the main game will be US payrolls, which are forecast to rise 175,000 (January data), while the unemployment rate is forecast to be at 6.7 per cent. There are a few other bits and pieces worth noting as well – US consumer credit and German industrial production in particular.
Have a great day…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.