Stimulus speculation and oil rally send stocks soaring
hat a difference a week makes. Last Friday, traders were falling all over themselves in a big stampede for the exits ahead of the US long weekend. This week, traders are scrambling to get back on the bullish bandwagon.
Wednesday’s selling climax finally exhausted the bearish sentiment, and since then their icy grip on trading has been weakening. Central banks have also come in to support the markets. The Bank of Canada gave CAD the boost of confidence it needed, while dovish comments from ECB President Draghi and speculation the Bank of Japan could go more dovish next week have ignited rallies in overseas markets overnight.
ECB President Draghi continued his dovish tone this morning at the World Economic Forum in Davos. Yesterday, he indicated that low oil prices are impacting inflation but helping to boost consumption. More importantly, he stated that the ECB has the will, the power, the determination and the tools to act as needed to support the economy and that there is no limit to its power. The street has taken this statement to be similar to his “whatever it takes” comments that settled the big sovereign debt crisis of confidence a few years ago.
EUR is trading down moderately again today while European indices like the DAX, CAC and FTSE are driving higher again, posting gains in the 2.0-2.5% range. Some capital appears to be finding its way back across the Channel with the deeply technically oversold GBP bouncing back despite weaker than expected UK retail sales.
Speculation of renewed stimulus spread to Japan overnight with traders thinking the Bank of japan may also need to act in some way with falling oil depressing prices again, even if it’s just more dovish talk at this stage. This speculation, along with capital flowing out of defensive havens like gold, has sent JPY downward again, igniting a big 5.8% rebound rally for the Nikkei.
Crude oil is rallying again today with Brent and WTI soaring another 5-6% and regaining the $30.00 level. A big relief rebound out of deeply oversold conditions has been helped by comments out of Saudi Arabia that while it plans to keep its supply war going until higher cost producers are shaken out of the market, it believes the price has overshot to the downside.
The big resurgence in the oil price has lit a fire under oil sensitive currencies, particularly RUB which has been screaming up nearly 6% today from extremely depressed levels, with NOK and CAD also posting another day of solid gains that has seen CADUSD retake $0.7000. The loonie may remain active today particularly around today’s Canada retail sales and consumer price reports.
US index futures have also been participating in the recovery party with the Dow, NASDAQ, and S&P up 1.3-1.6% so far today. It’s another big day for earnings reports, plus flash manufacturing PMI is due mid-morning. In light of the Saudi comments and bearish comments on the oilfield service sector from Schlumberger in its earnings report last night, the Baker Hughes drill rig count this afternoon may also attract some attention.
Barrick Gold prelim Q4 gold production 1.62M oz above street 1.56M oz, prelim copper production 138 mmlbs vs street 115mmlbs. Considering $1.0B of goodwill impairment charges and $1.0-$1.2B of asset impairment charges
General Electric $0.52 vs street $0.49, sales $33.8B below street $35.9B
Schlumberger $0.65 vs street $0.63, massive overcapacity in US land rigs (activity down 68% over year) means no signs of price recovering in short to medium term
Starbucks $0.46 vs street $0.45, same store sales 8.0% vs street 6.9%
Significant announcements released overnight include:
Japan flash manufacturing PMI 52.4 vs street 52.8
France flash manufacturing PMI 50.0 vs street 51.3
France flash service PMI 50.6 vs street 50.1
Germany flash manufacturing PMI 52.1 vs street 53.0
Germany flash services PMI 55.4 vs street 55.5
UK retail sales 2.6% vs street 4.4%
UK retail ex auto and fuel 2.1% vs street 3.5%
Upcoming significant announcements include:
8:30 am EST Canada retail sales street 0.2%
8:30 am EST Canada retail ex auto street 0.4%
8:30 am EST Canada consumer prices street 1.7%
8:30 am EST Canada core CPI street 2.0%
9:45 am EST US flash manufacturing PMI street 51.0
10:00 am EST US existing home sales street 5.20M vs previous 4,76M
10:00 am EST US leading index street (0.2%)
1:00 pm EST US Baker Hughes drill rig count