ince the beginning of 2016, bears have had the run of the markets driving indices, commodities and some currencies substantially lower. Yesterday’s US selloff and rebound had many of the hallmarks of a selling climax with big plunges followed by a big rebound.
Overnight trading has been mixed. Asia Pacific markets followed the positive US lead in to start but slumped in the afternoon on no news to end with the Nikkei down 2.4% and the hang Seng down 1.8%. Australian markets managed to hold off the bears counterattack and finish up about 0.4%, a similar gain to what we have been seeing in Europe so far this morning.
Yesterday’s positive reversals suggest that the worst of the recent bear market may be behind us although the bottoming process could be choppy continuing to create short term trading opportunities. After giving up the ghost yesterday, today looks like a key day for the bears, if they can't muster up enough strength for another big push downward, they may finally be exhausted which could set the stage for a significant bounce out of deeply oversold conditions in the coming days and weeks.
So far today, US index futures have been trading down about 0.4% and have stabilized over the last few hours which looks more like normal backing and filling than a renewed bearish push. Gold and JPY are trading flat, suggesting that capital has stopped flowing into defensive havens.
Crude oil, particularly WTI is trading lower this morning, stabilizing near $27.00 above yesterday’s lows but down from yesterday’s highs. A bigger than expected increase in US API inventories overnight took some of the wind out of its sails. Oil, natural gas and gasoline may all be active through this morning with weekly inventory reports due from the DOE and EIA.
CAD continues to strengthen on the back of yesterday’s decision by the Bank of Canada to not cut interest rates as some had been speculating. The loonie is gaining slightly on USD today, in contrast to other oil currencies like NOK and RUB which remains under pressure. GBP, one of the other more oversold currencies technically remains under pressure in ongoing reaction to Bank of England Governor Carney’s dovish comments earlier this week and ahead of today’s ECB meeting.
The ECB, as expected, did not make any changes to interest rates or its QE program having underwhelmed the street with a few fixes around the edges at its highly hyped December meeting and its next significant QE review not until March. Comments from President Draghi at his press conference on the impact of lower oil prices on the economy and inflation could attract some interest. Once we’re fully past the ECB, with the Bank of Canada done for now and the Fed expected to do nothing at its upcoming meeting, focus could turn to the Bank of Japan and what it may or may not do about the rising Yen at its meeting next week.
In addition to energy news, there is another round of earnings reports, so far the highlight has been very strong results out of insurer Travelers. The Philadelphia Fed survey may present a test of bulls conviction with another bearish reading expected in the wake of last week’s poor Empire Manufacturing report.
Travelers $2.90 vs street $2.67, revenues $6.6B vs street $5.9B
Verizon $0.89 vs street $0.88
Significant announcements released overnight include:
ECB refinancing rate 0.05% no change as expected
ECB deposit facility rate (0.30%) no change as expected
ECB marginal lending rate 0.30% no change as expected
US API crude oil inventories 4.5 mmbbls vs street 2.6 mmbbls
NZ Business PMI 56.7 vs previous 54.7
NZ consumer confidence 121.4 vs previous 118.7
Australia consumer inflation expectation 3.6% vs previous 4.0%
Australia New home sales (2.7%) vs previous (3.0%)
Upcoming significant announcements include:
1:30 pm GMT ECB Draghi press conference
1:00 pm GMT Poland industrial output street 5.5%
1:00 pm GMT Poland construction output street 2.4%
1:00 pm GMT Poland producer prices street (0.9%)
1:00 pm GMT Poland retail sales street 3.2%
8:30 pm EST US Philadelphia Fed street (5.9)
8:30 am EST US jobless claims street 278K
10:30 am EST US natural gas street (178 BCF)
11:00 am EST US DOE crude oil inventories street 2.3 mmbbls
11:00 am EST US DOE gasoline inventories street 1.7 mmbbls
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