Following another weak overnight trading session in Asia where JPY gains sent the Nikkei
down again, stocks have been on the rebound. European indices have bounced back particularly strong with Italy’s FTSE MIB up over 5%, Spain’s IBEX up 3.5% and the Dax up 2.3% as financial concerns that had been swirling around European banks started to fade.
US index futures the FTSE are posting more moderate gains of about 1.0% with the NZSDAQ 100 trading up 1.5% as higher volatility in momentum stocks cuts both ways. There are three areas in focus for US trading today:
The main event of the day is Fed Chair Yellen’s testimony to Congress. At the beginning of the year, the Fed’s party line was calling for four interest rate hikes this year but lately key members like Vice Chair Fischer and NY Fed president Dudley have softened their stance., Others, like Cleveland Fed President Mester and KC Fed President George have suggested volatility is part of the transition process toward normalizing rates.
USD has been steady overnight but had tumbled yesterday on speculation that Dr. Yellen may take a more dovish tone. This was stoked by reports that the Fed has apparently asked banks to consider negative interest rates as a scenario in the current round of stress tests.
For currencies, the most important impact of Dr. Yellen’s comments are related to interest rates. A hawkish read could send USD back upward while a dovish read could accelerate USD declines.
For stocks, her comments on the health of the US economy and the potential impact of recent market turmoil could have a bigger impact. Hints that the economy is soft or rate hikes could be delayed could be read as a sign of weakness and poor prospects for corporate earnings which could undermine stocks and potentially outweigh any short term cheer from liquidity addicts. Hawkish comments on the other hand, could shore up confidence in companies. With the street still mixed on what the Fed could do, we may see significant intraday swings
in both directions creating trading opportunities in indices and currencies around the news.
Second, oil, gasoline, energy stocks and oil sensitive currencies could be active today around DOE energy reports. Last night’s API increase of 2.4 mmbbls was in line with expectations. A small trim to OPEC’s 2016 demand growth forecast to 1.25 mmbbl/d has knocked oil back a bit again although it still remains above yesterday’s low which was near $27.35. CAD has continued to strengthen overnight, suggesting a growing feeling the oil market may be getting washed out for now.
Third, Media and entertainment stocks could be in focus around earnings reports for big players. Last night, Disney beat the street on revenues and earnings. While a big win from the studio off Star Wars is not a huge surprise, better than expected results from the cable and broadcasting divisions which had been struggling could be seen as a positive. This morning, time Warner beat the street on earnings and raised its dividend but some of the network division results were soft. Cable network weakness would not have come as a total surprise after yesterday’s trading which saw Viacom fall 15.2% on weak earnings while Discovery Communications dropped 6%. In contrast theatre chain Cineplex rallied 5% on strong earnings boosted by the Force Awakens’ big box office.
Disney $1.63 vs street $1.45 revenues $15.2B vs street $14.8B, cable and broadcasting both beat street, uptick in ESPN subscribers
Time Warner $1.06 vs street $1.01, revenues $7.0B vs street $7.5B, guides 2016 EPS to $5.30-$5.40 above street $5.26. Turner and HBO sales in line, operating EPS below street 15% dividend increase
Open Text $1.01 vs street $0.90, sales $465M vs street $460M
Anadarko Petroleum 81% dividend cut
Significant announcements released overnight include:
US API crude oil inventories 2.4 mmbbls as expected
US New Hampshire Presidential primaries results:
Democrats Sanders 60%, Clinton 38%
Republicans Trump 35%, Kasich 16%, Cruz 12%, Bush 11%, Rubio 11%
UK industrial production (0.4%) vs street 1.0%
UK manufacturing production (1.7%) vs street (1.4%)
France industrial production (0.7%) vs street 1.7% vs previous 2.8%
Norway consumer prices 3.0% vs street 2.4%
Norway producer prices (10.7%) vs previous (10.8%)
Sweden household consumption 2.6% vs previous 3.2%
Italy industrial production 2.1% vs street 1.4% vs previous 0.9%
Australia consumer confidence 101.3 vs previous 97.3
Australia new home sales 6.0% vs previous (2.7%)
Japan producer prices (3.1%) vs street (2.8%)
Upcoming significant announcements include:
8:30 am EST FOMC Yellen testimony text released
10:00 am EST FOMC Yellen testimony to Congress starts
1:30 pm EST FOMC Williams speaking
3:00 pm GMT UK NIESR GDP previous 0.6%
10:30 am EST US DOE crude oil inventories street 3.2 mmbbls
10:30 am EST US DOE gasoline inventories street 1.0 mmbbls
10:30 am EST US Bloomberg implied oil demand previous 16,357 mmbbls
After 4:00 pm EST Tesla Motors, Twitter, Cisco Systems, Whole Foods report earnings
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