Surprise PBOC rate cuts, strong US earnings keep stock rally going
Stock traders had been in a positive mood overnight as it was, with yesterday’s dovish comments from ECB President Draghi and another round of positive earnings reports out of the US led by Google, Amazon and MicroSoft keeping the party going.
It turns out though, that markets didn’t even have to wait for December to get new central bank stimulus as the PBOC announced a number of significant interest, deposit and reserve requirement rate cuts this morning in another bid to get China’s economy and help manage its transition from an export driven to a domestic consumption driven economy. The central bank indicated that it made this move to combat downward pressures on the economy and that low inflation means it has more room to cut if needed. Although China no longer reports flash PMI, this move coincides with a drop in the coincident indicator (highlighting a weakening Main Street economy), even though the leading indicator improved (which could be due to the stock market rebound).
The one-two combination of new and potential stimulus from the central banks of two struggling regions ignited another upleg for stocks. Commodities like copper and crude oil, on the other hand, have fallen since the PBOC announcement with traders taking the cut as an indication of weak demand for resources.
In currency trading USD and GBP are running at the top of the league as the two central banks still leaning toward rate hikes leaves them in a hawkish position relative to the full on stimulus being undertaken by some of their peers. Gold popped on the initial report then quickly gave it all back relative to USD suggesting its recent rally may be running out of gas for now.
JPY interestingly, its trading more in line with USD and GBP than EUR with an improved flash manufacturing PMI report for Japan taking pressure off the Bank of Japan to increase its own stimulus program. EUR and continental currencies remain weak while in resource currencies, the dollars (AUD, CAD and NZD) continue to outperform the kronas (NOK, SEK).
MicroSoft $0.67 vs street $0.58, sales $21.6 vs street $20.7B
Google $7.35 vs street $7.20
Amazon.com $0.17 vs street ($0.13), sales $25.3B vs street $24.9B
AT&T $0.74 vs street $0.68
Procter & Gamble $0.98 vs street $0.95
Whirlpool $3.45 vs street $3.29, trims guidance to $12.00-$12.50 from $12.00-$13.00
American Airlines $2.77 vs street $2.72
Significant announcements released overnight include:
People’s Bank of China surprise 0.25% interest rate cut to 4.35%
surprise 0.25% deposit rate cut to 1.50%
surprise 0.50% reserve requirement ratio cut to 17.50%, and an additional 0.50% cut for some financial institutions
surprise scrapping of deposit rate controls
China leading index 1.6% vs street 1.2%
China coincident index (1.2%) vs street 0.7%
Canada consumer prices 1.0% vs street 1.1%
Canada core CPI 2.1% vs street 2.2%
Japan flash manufacturing PMI 52.5 vs street 50.5
France flash manufacturing PMI 50.7 vs street 50.2
France flash service PMI 52.3 vs street 51.7
Germany flash manufacturing PMI 51.6 vs street 51.7
Germany flash service PMI 55.2 vs street 53.9
Eurozone flash manufacturing PMI 52.0 vs street 51.7
Eurozone flash service PMI 54.2 vs street 53.5
Poland unemployment rate 9.7% vs street 9.9%
Italy industrial orders 2.1% vs previous 10.4%
Italy retail sales 1.3% vs previous 1.7%
Singapore consumer prices (0.6%) as expected
Singapore core CPI 0.6% vs street 0.4%
Upcoming significant announcements include:
9:45 am EDT US flash manufacturing PMI street 52.7
1:00 pm EDT US Baker Hughes drill rig count previous 787