Risk on mode returns as stocks soar to new heights ahead of China trade numbers
Stock markets around the world are coming off another big day as traders anticipate moving into a positive period for corporate earnings prospects where. The US economy remains strong but offshore uncertainties remain high enough to keep the Fed on hold. Alcoa’s positive earnings report kicked off summer earnings season (historically a positive time of year for stocks) with a bang.
Meanwhile Japanese PM Abe’s big upper house win on Sunday is being seen by traders as a positive, potentially unleashing more reforms and more stimulus. This prospect has added to the outflow of capital from defensive havens crushing JPY and boosting Japanese stocks in the process.
Meanwhile, the fears Brexit could stabilize world markets or the global economy continues to fade. Theresa May’s victory bringing the Conservative leadership contest and power vacuum to an early end sent GBP soaring as traders applauded someone taking charge of the situation. GBP may remain active through Thursday’s Bank of England meeting where the central bank is widely expected to cut rates but may not considering how much stimulus has already been created by the big pound devaluation.
St. Louis Fed President Bullard also dampened down Brexit fears, joining Cleveland Fed President Mester, suggesting that the impact of Brexit on the US economy is likely to be close to zero. He also suggested that low US yields were due to a flight to safety not concerns over the US economy, but also indicated that he remains dovish on interest rates for the next couple of years.
Crude oil has also staged a big rebound today with WTI and Brent gaining 4.5% after an OPEC report indicated it expects global demand to increase by 1.5 mmbbl/d next year and falling non-OPEC production to bring the oil market back into balance in 2017. Oil may remain active through tonight’s API and tomorrow’s DOE inventory reports.
CAD also picked up on the oil rebound heading into tomorrow’s Bank of Canada meeting. The central bank is widely expected to remain on hold until the longer term impact on the economy of the Fort McMurray wildfires can be better determined. Governor Poloz has previously indicated he expects a negative impact in Q2 from the shutdowns and evacuation but a positive impact on Q3 and beyond from restarts and reconstruction.
Markets going back into risk-on mode can also be seen rebounds for resource currencies like AUD and NZD. Asia markets and commodities may be active again today around China’s trade figures and New Zealand food prices.
There have been no major corporate developments after the US close today.
Significant announcements released overnight include:
UK same store sales (0.5%) vs previous 0.5%
Germany consumer prices 0.3% as expected
Sweden consumer prices 1.0% as expected
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
4:30 pm EDT US API crude oil inventories
5:30 pm EDT FOMC Kashkari speaking
8:45 am AEST NZ food prices previous (0.5%)
10:30 am AEST Australia consumer confidence previous 102.2
TBA China trade balance street $45.6B
TBA China exports street (5.0%)
TBA China imports street (6.2%)
2:30 pm AEST Japan industrial production previous (0.1%)
7:45 am BST France consumer prices street 0.2%
8:00 am BST Spain consumer prices street (0.8%)
9:00 am BST Italy consumer prices street (0.3%)
10:00 am BST Eurozone industrial production street 1.3%
8:30 am EDT Canada Teranet/Natl Bank house prices previous 9.0%
10:00 am EDT Bank of Canada interest rate 0.50% no change expected
10:00 am EDT Bank of Canada monetary policy report
10:30 am EDT US DOE crude oil inventories street (3.0 mmbbls)
10:30 am EDT US DOE gasoline inventories street (1.0 mmbbls)
2:00 pm EDT US FOMC beige book
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