Crude oil soars on conference comments; IMF forecast changes; Bank of Japan preview
Crude oil is coming off a spectacular day, with both Brent and WTI gaining over 5% on positive industry comments out of the Oil and Money Conference in London. Rumours were circulating that OPEC and Russia could be getting ready to talk but even more importantly, comments that US production could fall significantly next year due to the big spending cuts and reduced drilling activity prompted by the price crash.
Stock markets, meanwhile, flattened out in North America and Europe today. Worse than expected Germany factory orders and US trade figures got the blame for the weakness, but normal backing and filling and consolidation of recent gains seems to be the more likely culprit to me.
Changing forecasts and comments from the IMF also have had an impact on trading which could continue through into today’s Asia Pacific action. Highlights of the report include:
The IMF held its outlook for China steady, providing another indication that fears the Chinese market selloff last summer could cause a meltdown in its broader economy were overblown.
The agency raised its forecast for the US, and perhaps even more importantly stopped begging the Fed to wait until 2016 for a rate increase, instead asking it to wait after its first hike for signs of rising inflation before hiking again. Sounds like the IMF has seen the wind blowing toward rate liftoff and is trying to get back onside
It held its forecast for the Eurozone and suggested the ECB should keep doing what it has been doing.
The IMF cut its forecast for Japan and suggested the Bank of Japan should consider further stimulus. This comes at an interesting time with the Bank of Japan meeting today. There has been a lot of chatter lately on whether the central bank could bring in more QQE at one of its meetings this month or not. It’s not expected to do anything today but any signal on what it may do at the end of the month could attract a lot of attention from traders.
Although Norway and India cut rates in the last month, with the RBA and Poland’s central banks holding rates, no indication of any more ECB stimulus despite calls from the street, FOMC members Fed still talking liftoff after the weak PMI report and commodities on the rebound, it appears the latest cycle of central bank easing may be winding down. The Bank of Japan’s latest decision could confirm or deny that impression and have a big impact on currency trading.
Speaking of which, USD sold off again today. Regardless of when or how quickly the Fed raises interest rates, it’s become increasingly clear that the greenback has priced in a much more aggressive rate hike program than we are likely to get, and so it has started to give back some of its gains of the last year. Gold has been a big beneficiary along with commodities to a lesser extent. In currency USD has weakened across other paper majors in general, enabling AUD and NZD to continue their advances with EUR, GBP, CHF, NOK and CAD also gaining ground. JPY has been lagging but could be more active on the Bank of Japan news.
Bombardier press reports circulating suggest that it is in early stage talks to sell a controlling interest in the C-Series jet program to Airbus
Yum! Brands $1.00 vs street $1.06 same store sales for China 2% and India (18%) both well below street, indicated earnings growth to be well below 10% target, but raises dividend 12%.
Significant announcements released overnight include:
IMF 2015 GDP forecasts update:
World cut to 3.1% from 3.3%
US raised to 2.6% from 2.5%
Canada cut to 1.0% from 1.5%
Eurozone unchanged at 1.5%
UK raised to 2.5% from 2.4%
China unchanged at 6.8%
Japan cut to 0.6% from 0.8%
US trade balance ($48.3B) vs street ($48.0B) vs previous ($41.8B)
Canada trade balance ($2.5B) vs street ($1.1B)
Canada Ivey PMI 53.7 vs street 54.0
Germany factory orders 1.9% vs street 5.6%
UK Halifax house prices 8.6% vs street 9.1%
Upcoming significant economic announcements include:
TBA Bank of Japan decision no change to interest rates or QQE expected
TBA Singapore GDP street 1.2% vs previous 1.8%
4:00 pm AEDT Japan leading index street 103.4
7:00 am BST Germany industrial production street 3.3%
8:00 am BST Spain industrial output street 4.7%
9:00 am BST Norway industrial production previous 2.8%
9:30 am BST UK industrial production street 1.2%
9:30 am BST UK manufacturing production street (0.2%)
3:00 pm BST UK NIESR GDP estimate previous 0.5%
8:30 am EDT Canada building permits street 0.3%
10:30 am EDT US crude oil inventories street 2.0 mmbbls
10:30 am EDT US gasoline inventories street 0mmbbls
2:00 pm EDT FOMC Williams speaking