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August starts with a big rally supported by PMI and central banks

CMC Markets

Stocks and commodities are off to a strong start this morning with energy commodities, metals, and world indices trading significantly higher on a combination of two major factors. First, the Fed, Bank of England and ECB all did nothing at their meetings today. The FOMC made no note of tapering, the Bank of England indicated it plans to issue more detailed guidance and forecasts next week and ECB President Draghi indicated he expects rates to remain low at his press conference with discussions on guidance possible in the autumn. The street appears to have taken no news as good news suggesting that central banks remain prepared to keep their feet off the brakes for now and allow economies to improve further. Second, economic data from China, Europe and the US suggest that recovery momentum is starting to build. China’s official PMI beat the street and got the ball rolling, sparking a rally in copper and boosting the Hang Seng above 22,000. Perhaps even more significant were the signs that a recovery in Europe may be getting traction, led by the UK and Germany. A number of countries jumped back up into expansion territory like the Netherlands and Italy. Greece posted its best PMI in years and other peripheral/emerging economies showed improvement like Ireland and Poland. There were some disappointments from the PMI numbers, particularly in Asia with South Korea and Taiwan declining and in emerging markets like Russia, India and Turkey. South Africa, however, showed improvement despite tough times for the mining industry. Overall the street appears to have been particularly impressed by the signs of life in Europe. The best US jobless claims number arriving on the heels of yesterday’s strong ADP report has carried positive spirits into the US where markets appear poised to open sharply higher as they challenge their all-time highs once again. We could see some choppiness later in the morning, however, particularly around the US ISM report at 10:00 am EDT. In currency markets today USD has strengthened a bit, but Sterling has owned the top of the leaderboard as it rebounds on the back of a very strong PMI report, reducing the chances of more QE from the Bank of England who appears to be moving toward other measures for managing expectations. AUD has stabilized after yesterday’s selloff even though a dismal Aussie PMI report further put more pressure on the RBA to cut rates at its meeting next week. NZD has been falling in sympathy with AUD. SEK remains under pressure after poor GDP earlier in the week. CAD has lost a bit of ground today but could be active after Canadian PMI comes out. We may also see action in selected stocks and sectors today. Despite the oil rally, it could be a volatile day in the oilpatch after several majors reported disappointing earnings. Similarly miners could get knocked around in the wake of big writedowns from Canadian gold producers. On the other hand, US insurers continued the run of favourable results from financials. Corporate News TransCanada announced plans to proceed with its $12B, 1.1 mmbbl/d Energy East pipeline project to transport oil from Alberta to refineries and export terminals in Quebec and New Brunswick. Earnings reports released this morning include: Barrick Gold adjusted EPS $0.66 vs street $0.56, $8.7B writedown, cuts dividend 75% to $0.05 Imperial Oil adj EPS $0.65 vs street $0.98, sales $7.6B vs street $8.8B ExxonMobil $1.55 vs street $1.89 ConocoPhillips $1.41 vs street $1.28 Procter & Gamble $0.79 vs street $0.77 Highlights of last night’s aftermarket earnings reports include: Suncor Energy $0.62 vs street $0.64 Kinross Gold $0.10 vs street $0.07, $2.2B writedown, suspends dividend Yamana Gold $0.07 vs street $0.10 First Quantum $0.18 vs street $0.24 MetLife $1.44 vs street $1.33 Allstate $1.12 vs street $0.97 Lincoln National $1.27 vs street $1.15 Murphy Oil $1.75 vs street $1.53 Lam Research $0.80 vs street $0.71 CBS $0.76 vs street $0.72 Economic News Significant economic announcements released overnight include: US Challenger layoffs 37K vs previous 39K US jobless claims 326K vs street 345K, best level since January 2008 UK interest rate 0.50% no change as expected UK asset purchase (QE) target £375B no change as expected ECB interest rate 0.50% no change as expected UK manuf PMI 54.6 vs street 52.8 Spain manuf PMI 49.8 vs street 50.6 Italy manuf PMI 50.4 vs street 49.7 France manuf PMI 49.7 vs street 49.8 Germany manuf PMI 50.7 vs street 50.3 Netherlands manuf PMI 50.8 vs previous 48.8 Greece manuf PMI 47.0 vs previous 45.4 Ireland manuf PMI 51.0 vs previous 50.3 Poland manuf PMI 51.1 vs previous 49.3 Russia manuf PMI 49.2 vs previous 51.7 Turkey manuf PMI 49.8 vs previous 51.2 South Africa manuf PMI 52.2 vs street 51.0 China official manuf PMI 50.3 vs street 49.8 vs previous 50.1 China HSBC manuf PMI 47.7 street 47.7 vs previous 48.2 Australia manuf PMI 42.0 vs previous 49.2 South Korea manuf PMI 47.2 vs previous 49.4 India manuf PMI 50.1 vs previous 50.3 Taiwan manuf PMI 48.6 vs previous 49.5 Economic reports due later today include: 8:58 am EDT US Markit manuf PMI street 53.2 9:00 am EDT Brazil manuf PMI previous 50.4 9:30 am EDT Canada manuf PMI 10:00 am EDT US ISM manuf PMI street 52.0 10:30 am EDT Mexico manuf PMI 10:30 am EDT US natural gas storage street 56 BCF 9:30 am EDT Singapore electronics index street 51.0 9:30 am EDT Singapore PMI street 51.3