Resource currencies rebound while US and European stocks struggle
US indices appear to be heading for a lower open today, essentially giving back yesterday`s slight gains. Despite all of the great employment, economic and corporate news that has come out over the last week, indices remain unable to make any further headway. This suggests that current growth has already been priced in and that the advance of the last two years appears exhausted.
This raises the risk of a correction particularly as we move into the seasonally weaker months of the year. At this point it remains open as to whether stocks may fall under their own weight or if a specific event will be the straw that broke the bull`s back.
The malaise isn’t contained to North America either. European indices are also trading lower again today despite a strong improvement in employment in Spain and generally better than expected Service PMI numbers from across the continent. This suggests that as Eurozone economies improve pressure on the ECB bring in QE may decrease over time. This causes speculation on more ECB stimulus to evaporate at a time when Fed tapering is already decreasing new money supply into the market.
Today`s OECD report saw the prospects for economic growth shift around somewhat with the UK coming out ahead. The US was trimmed for this year but this was clearly due to the Q1 weather disruptions since the 2015 outlook was increased. China took the biggest hit although this appears to have brought a high estimate down closer to consensus.
In currencies today, SEK is on the rebound pulling NOK along for the ride as traders discount yesterday`s weak Swedish industrial production than on today`s big service PMI rebound. NZD is top dog again today ahead of tonight`s NZ employment report. AUD has been climbing after the RBA maintained interest rates and its neutral stance staying out of the easing camp. CAD is climbing ahead of the Canadian PMI report due later this morning.
Another big deal has been announced in the Pharma sector today with Bayer agreeing to purchase Merck’s consumer care business for $14.2B.
Citrix Systems raised its next Q EPS guidance to $0.59-$0.61 from $0.57-$0.59
Nvidia $0.24 vs street $0.16
BCE $0.81 vs street $0.76
Westjet $0.69 vs street $0.63
Economic reports released overnight and this morning include:
The OECD changed its 2014 economic forecasts for a number of countries this morning, including:
US cut to 2.6% from 2.9%, but increased 2015 to 3.5% from 3.4%
UK raised to 3.2% from 2.4%
Eurozone expects GDP to grow to 1.2% this year and 1.7% in 2015 from (0.4%) last year
Japan cut to 1.2% from 1.5%
China cut to 7.4% from 8.2%
World maintained at 3.9%
US trade balance ($40.4B) vs street ($40.0B)
Canada trade balance $0.08B vs street $0.40B
Australia interest rate 2.50% no change as expected
Australia trade balance $731M vs street $1,000M
Spain unemployment change (111K) vs street (51.0)
Norway unemployment rate 2.8% as expected vs previous 2.9%
Eurozone retail sales 0.9% vs street 1.0%
Service PMI reports:
India 48.5 vs previous 47.5
UK 58.7 vs street 57.8
Sweden 57.8 vs previous 53.5
Spain 56.5 vs street 54.2
Italy 51.1 vs street 50.5
France 50.4 vs street 50.3
Germany 54.7 vs street 55.0
Eurozone 53.1 as expected
Economic reports due later today include:
9:00 am EDT Brazil Service PMI previous 51.0
10:00 am EDT Canada Ivey PMI street 54.5 vs previous 55.2