One off the signs that a trend has reached exhaustion and a tipping point is when traders no longer respond to the news that drove the trend. In the case of the recent bear market, traders have stopped sending markets downward on bad news. We saw this Wednesday when crude oil went up even though the US crude oil inventory build was way worse than expected and again Thursday when US stocks shrugged off a shocking 5% drop in durable goods orders to finish well in the green while crude oil also continued to rally on rumours (and denials) that OPEC and Russia could be willing to talk about a 5% production cut to help stabilize supply.
This trading action confirms that the selloff earlier this month has left bears exhausted. While the last week’s trading has been bumpy, bottoms do appear to be forming and risk markets continue to recover.
Which brings me to today’s main event the Bank of Japan meeting where speculation has been mixed. Although the official party line remains that no new monetary stimulus is being considered, there has been a lot of speculation lately that more stimulus could be on the way either now or that the bank could hint toward more at an upcoming meeting. One reason for this is that the Japanese economy has been a bit soft lately, we should get a better picture form all the data set to come out before and around today’s decision. Perhaps more importantly, the latest selloff in crude oil has dampened inflation expectations meaning that either the Bank has to step up stimulus to offset oil or delay when it thinks it will reach its 2.0% inflation goal.
Heading into the meeting, JPY has been giving back some of the gains it made earlier this month but it’s hard to say how much of this is from capital leaving risk havens to be redeployed back into risk markets and how much is related to stimulus speculation. What is clear though is that with differing opinions out there, one of more factions may find themselves caught offside by the news and have to scramble. This could drive significant action in JPY pairs and the Nikkei
through the day.
China markets could attract attention. As the month has progressed, the damage from uncertainty has been contained more and more to mainland exchanges. Today’s consumer sentiment data shows once again that the economy is not going off a cliff the way the stock selloff would have people think, which could set the stage for a rebound at some point. We’ve seen China-sensitive markets already starting to rebound like copper, AUD and the S&P/ASX.
Earnings are also a big factor driving trading action in individual stocks. Today in the US, Under Armour and Facebook soared on earnings while other companies declined. Tomorrow could be another day of significant reactions in both directions as Amazon.com missed badly after the close, while Microsoft and Amgen put up big numbers and beat the street.
Markets may remain active right through to the weekend with a number of countries reporting GDP tomorrow including the US and Canada, plus Chicago PMI may give a preview of what to expect from the January PMI reports due out over the weekend.
Amazon.com $1.00 vs street $1.55, sales $35.75B below street $35.91B, guides next Q sales $26.5-$29.0B around street $27.6B
Microsoft $0.78 vs street $0.71, sales $25.69B above street $25.27B,
Amgen $2.61 vs street $2.29, raised 2016 year guidance to $10.60-$11.00 from $10.35-$10.75
Electronic Arts $1.83 vs street $1.81, guides next Q EPS to $0.40 below street $0.50, guides next Q sales $875M below street $916M
Visa $0.69 vs street $0.68
Significant announcements released overnight include:
South Africa interest rate 0.50% increase to 6.75% as expected
China leading index 98.12 vs previous 98.11
US jobless claims 278K vs street 281K
US durable goods orders (5.1%) vs street (0.7%)
US durables ex transport (1.2%) vs street (0.1%)
US Bloomberg consumer comfort 44.6 vs previous 44.0
US pending home sales 3.1% vs street 4.8%
US natural gas storage (211 BCF) vs street (208 BCF)
US Kansas City Fed (9) vs street (10)
UK Q4 GDP 1.9%as expected vs previous 2.1%
UK CBI sales 16 vs street 18
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)
10:30 am AEDT Japan unemployment rate street 3.3%
10:30 am AEDT Japan consumer prices street 0.2%
10:30 am AEDT Japan industrial production street (0.6%)
4:00 pm AEDT Japan housing starts street 0.5%
4:00 pm AEDT Japan construction orders previous 5.7%
4:00 pm AEDT ish Bank of Japan meeting no changes to interest rates or QQE expected
11:30 am AEDT Australia producer prices previous 1.7%
6:30 am GMT France GDP street 1.2%
7:00 am GMT Germany retail sales street 1.9%
7:45 am GMT France consumer prices street 0.3%
7:45 am GMT France consumer spending street 1.2%
8:00 am GMT Spain consumer prices street 0.1%
8:00 am GMT Spain GDP street 3.4%
9:00 am GMT Norway retail sales street (0.3%)
9:00 am GMT Norway unemployment rate street 3.4%
10:00 am GMT Eurozone consumer prices street 0.4%
10:00 am GMT Eurozone core CPI street 0.9%
10:00 am GMT Greece retail sales street (2.8%)
8:30 am EST US Q4 GDP street 0.8% vs previous 2.0%
8:30 am EST US Q4 personal consumption street 1.8% vs previous 3.0%
8:30 am EST US Q4 core PCE inflation street 1.2% vs previous 1.4%
8:30 am EST Canada Nov GDP street 0.2% vs previous (0.2%)
8:30 am EST Canada industrial prices street (0.4%)
8:30 am EST Canada raw material prices street (4.0%)
9:45 am EST US Chjcago PMI street 45.3 vs previous 42.9
10:00 am EST US consumer sentiment street 93.0
3:30 pm EST FOMC Williams speaking