Stocks rallied significantly through the second half of the first quarter but have been dropping back this week with some traders concerned about valuations heading into earnings season starting next week with Alcoa and major US banks set to kick things off as usual. Considering that many companies guiding low was one of the reason for the big January selloff, that the US economy has done well in the first quarter, and that confession season has been unusually quiet this time around with very few profit warnings, there good potential for a number of positive surprises this earnings season. Because of this, current stock market weakness appears to be a normal trading correction to ease overbought technical conditions rather than a new downturn.
The way the Yen has been screaming higher this week it seemed only a matter of time before we saw a trading reversal which arrived overnight. Comments from Japanese finance minister Aso indicating that the government doesn't like to see strong JPY moves in either direction and that it could intervene if necessary threw a bucket of cold water on the rally and provided traders to take profits ahead of the weekend.
Crude oil has been bouncing back strongly today with WTI and Brent gaining 3.1-3.5% shrugging off yesterday's trading correction and resuming Wednesday's advance as traders respond positively to falling US inventories and speculate on a deal being reached among producers at the Doha meeting later this month. Oil sensitive currencies CAD, NOK, RUB and MXN are among the top performing currencies today rallying in tandem with the commodity price. Later today, the Baker Hughes weekly drill rig count may attract some attention from traders as well.
Canada employment may spark more trading interest in the Loonie Friday morning as well, as it’s the last major data point before next week’s Bank of Canada meeting. Last month total jobs fell by 2K as full time jobs fell by 52K. The street is expecting a 10K increase this time. I think we could see a small 5K decrease because I suspect the oil rebound won’t lead to callbacks as quickly as the oil crash led to layoffs especially heading into breakup. Also, the rebounding Loonie may have held some hiring back in other sectors. I think it would take a surprise drop of 25K or more for the Bank of Canada to consider cutting rates next week. Canada housing starts are due out first and are expected to show a decline for March with decent weather in February likely having pulled some starts forward.
Copper is bouncing back from a 2 percent takedown yesterday. The orange metal could be active through next week with a number of Chinese data announcements scheduled including GDP, retail sales, trade balance and inflation.
FOMC speakers overnight maintained the current party line with SF Fed President Williams calling for at least 2 hikes this year which has become the party line while Chair Yellen and KC Fed President George called for gradual increases (considering one is a dove and one is a hawk, the definition of gradual may differ). Today's Fed speakers include NY Fed President Dudley and Dallas Fed President Kaplan who have been in the dovish camp.
There have been no major announcements in North America so far today.
Significant announcements released overnight include:
Germany trade balance €20.0B vs street €18.0B
France industrial production 0.6% vs street 1.7%
UK industrial production 0.5% vs street 0.0%
UK manufacturing production 1.8% vs street (0.7%)
UK trade balance (£4.8B) vs street (£3.4B)
Greece industrial production (3.0%) vs street 2.1%
Greece consumer prices (1.5%) vs street (0.6%)
Upcoming significant announcements include:
3:00 pm BST UK NIESR GDP estimate previous 0.3%
8:15 am EDT Canada housing starts street 190K
8:30 am EDT Canada employment change street 10.0K vs previous (2.3K)
8:30 am EDT Canada full-time jobs previous (52K)
8:30 am EDT Canada part-time jobs previous 49K
8:30 am EDT Canada unemployment rate street 7.3%
8:30 am EDT FOMC Dudley speaking
1:00 pm EDT US Baker Hughes drill rig count previous 450