tock markets around the world have been on the rebound overnight and this morning, led by Chinese indices
which finally regained some footing after completing a round trip from their March lows and getting within striking distance of their November 52-week lows.
This rebound has taken some of the contagion pressure off of other world markets, enabling stocks in Japan and the US to bounce back. Today’s rally has also taken some of the pressure off of commodity markets enabling Brent and WTI crude oil to rally 3.5% and copper to jump 2.5%
Although today’s relief rally appears encouraging, Chinese markets aren’t out of the woods yet and could still be volatile in the coming days. Think of the recent plunge like dropping a football off a roof. After hitting the ground it makes a high bounce then falls back and each subsequent bounce gets smaller while the ground creates a firm floor. Eventually the bounces stabilize but it can take a while.
Just as the March rally was sparked by an artificial measure (improved communications links and capital flows), current support has partially come in from artificial measures to reduce selling like bans in insider sales and threats to arrest short sellers and throw them in jail. Eventually these measures will have to come off which means there could still be more volatility down the road and that it could take some time before Chinese markets find their appropriate level.
European markets are rebounding today as well, on anticipation of new Greek proposals due today. Leaders on both sides have gone relatively quiet today and seem to have stopped negotiating through the media and on Twitter which suggests some work may actually be getting done. Interestingly, EUCO leader Tusk, the chair of Sunday’s big summit, has taken a more conciliatory tone today, calling on Greece to bring in serious reforms and the creditors to give debt relief, joining the position of the French, the US and the IMF.
In currency trading today, NOK has been the top performer getting the double benefit of improving sentiment toward Europe and the rebounding oil price, reversing the double whammy that took it lower earlier in the week. CAD is also on the rebound with WTI today and much stronger than expected Canadian housing starts which takes some of the pressure off the Bank of Canada to cut rates next week. JPY and CHF have dropped back to the bottom of the league standing with capital coming back out of defensive havens, while gold is flat and USD is sitting in the middle of the pack.
US markets could be active later this morning with Fed Governor Lael Brainard speaking. The street will likely be looking for whether she joins Governor Powell, Vice Chair Fischer and some of the regional Fed Presidents in still calling for 1-2 rate hikes this year or of she backs away from that policy trend. Also traders may look for any indications of how much of an impact current crises in China, Greece and Puerto Rick may have on the US economy and monetary policy.
Alcoa $0.19 vs street $0.23
Significant announcements released overnight include:
UK interest rate and QE target no changes as expected
IMF world GDP forecast cut to 3.3% from 3.5%
Canada housing starts 2.2K vs street 190K
Canada new house prices 1.2% vs previous 1.1%
US jobless claims 297K vs street 275K
China consumer prices 1.4% vs street 1.3%
China producer prices (4.8%) vs street (4.6%)
Australia employment change 7K vs street 0K
Australia full time 24K vs previous 15K
Australia part time (17K) vs previous 27K
Australia unemployment rate 6.0% vs street 6.1%
Germany trade balance €19.5B vs street €20.5B
Sweden unemployment rate 3.9% vs previous 3.7%
Greece consumer prices (2.2%) vs street (2.4%)
Greece unemployment rate 25.6% as expected
Upcoming significant announcements include:
9:00 am EDT IMF world economic outlook
10:15 am EDT FOMC Governor Brainard speaking
10:30 am EDT US natural gas street 87 BCF
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