Gold and Yen rally as stocks and oil consolidate
After four days of strong gains dating back to last Friday, US indices took a break on Thursday to digest their recent action. Relative to the recent rally, however, declines were small ranging between 0.2% for the Dow to 0.8% for the NASDAQ a sign this is more of a pause than a correction. Cuts to the OECD’s 2016 growth forecasts provided a headwind partially offset by better than expected US jobless claims. Traders responded positively to better than expected earnings out of Nvidia and Canadian Tire, also an encouraging sign.
Crude oil also dropped back with much of the losses coming in a 20 minute period after DOE inventories were reported showing an increase in oil that contradicted a decline in the API inventory report and a bigger than expected rise in gasoline stockpiles. Rumours which circulated about the same time that Saudi Arabia said it won’t cut production were also used as an excuse for a takedown.
WTI quickly stabilized, however, holding above the $30.00 level, suggesting that this was a trading correction in an emerging uptrend. In my opinion, of course Saudi Arabia won’t cut production yet, it’s just agreed to freeze production and it’s not that long ago they didn’t even want to discuss the matter. The quick return of support indicates the street recognizes progress is likely to be slow but countries talking to each other at all is an improvement.
Defensive capital flows picked up today with traders once again favouring gold and JPY as havens over USD and CHF. Gold had a particularly strong day on no news indicating that traders increasingly expect USD to come back down as expectations for a March Fed rate hike fade.
Comments from St. Louis Fed President Bullard reflect the shift to a more neutral to dovish tone out of the Fed. He suggested it would be unwise to continue normalizing policy with inflation falling (which lowers the neutral interest rate anyway).having previously been among the more hawkish faction this suggests the Fed could be leaning to delay the next rate hike out beyond March. He also suggested that the Fed still has lots of tools available for stimulus including more QE before having to resort to negative interest rates (which suggests recent negative US rate talk has been more to put the threat out there in a bid to keep the other central banks in line than a serious policy option).
On the other hand, San Francisco Fed President Williams suggested no reason to change course away from gradual rate hikes while keep options open with the usual data dependent mantra. On Friday Cleveland Fed President Mester, a known hawk and a voter this year, is speaking, we’ll see if her tune has changed at all.
There isn’t any news scheduled for Asia Pacific countries today although the impact of the gold and copper rallies could have a positive influence on Australian miners while the JPY rally could cast a cloud over stock trading in Japan.
Heading into the weekend, we could see a particular focus on trading in the UK, US and Canada. GBP finally started to bounce back on Thursday from its recent underperformance with the EU Brexit talks summit getting underway and continuing through Friday. EUR, meanwhile, continues to weaken following dovish FOMC minutes that suggested the central bank considered not even waiting for March to bring in additional stimulus.
Friday’s US consumer prices report may have an influence on Fed speculation trading since FOMC members have been indicating lately that the inflation outlook could impact the pace of interest rate increases. It will also be interesting to see how willing traders are to hold shares over the weekend ahead of the upcoming South Carolina and Nevada party presidential candidate votes.
In Canada, retail sales may attract particular attention with traders looking for a January retrenchment from a big December. Weather was pretty good across the country last month though, so there’s potential for a surprise. Sales may also give an indication of how consumers are responding to lower fuel prices and how the country’s economic transition is proceeding.
Nordstrom $1.17 vs street $1.22 guides near year EPS to $3.10-$3.35 below street $3.54
Fluor $0.68 vs street $0.93, guides next year EPS to $3.50-$4.00 around street $3.71
Significant announcements released overnight include:
OECD 2016 GDP Forecasts
World cut to 3.0% from 3.3%
US cut to 2.0% from 2.5%
Canada cut to 1.4% from 2.0%
UK cut to 2.1% from 2.4%
Eurozone cut to 1.4% from 1.8%
Germany cut to 1.3% from 1.8%
China 6.5% no change
Japan cut to 0.8% from 1.0%
US jobless claims 262K vs street 275K
US Philadelphia Fed (2.8) vs street (3.0)
US leading index (0.2%) as expected
US natural gas (158 BCF) vs street (150 BCF)
US DOE crude oil inventories 2.1 mmbbls vs street 3.5 mmbbls
US DOE gasoline inventories 3.0 mmbbls vs street 0.4 mmbbls
US Bloomberg implied oil demand 16,747 mmbbls vs previous 16,418 mmbbls
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)
There are no major announcements scheduled for Asia Pacific countries today.
7:00 am GMT Germany producer prices street (2.0%)
8:30 am GMT Sweden unemployment rate street 7.6%
9:30 am GMT UK retail sales street 3.6%
9:30 am GMT UK retail ex auto & fuel street 3.4%
8:30 am EST FOMC Mester speaking
8:30 am EST US consumer prices street 1.3%
8:30 am EST US core CPI street 2.1%
8:30 am EST US real avg weekly earnings previous 1.7%
8:30 am EST Canada consumer prices street 1.8%
8:30 am EST Canada core CPI street 1.9%
8:30 am EST Canada retail sales street (0.9%) vs previous 1.7%
8:30 am EST Canada retail ex auto street (0.7%) vs previous 1.1%
1:00 pm EST US Baker Hughes drill rig count previous 541
Saturday Feb 20 US Republican South Carolina primary and Democratic Nevada caucus
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