Overnight trading in stocks around the world confirms the shift in trader focus that has been going on for the last several weeks. For the last several years, stocks had responded positively to dovish monetary news that would boost liquidity. Since the September Fed meeting, however, stocks have increasingly been responding positively to hawkish news and negatively to dovish news.
After several years of easy monetary policy, traders around the world have recognized that the positive effect of new stimulus has decreased and that it’s time for central banks to start normalizing monetary policy. Yesterday’s comments from New York Fed President Dudley that rate liftoff would be a show of confidence in the economy hit the nail on the head.
Yesterday’s FOMC minutes confirmed that FOMC members wanted to signal that a rate hike is on the table for December unless something really goes wrong before then. They also indicated overseas confidence has improved (China markets have bounced back). Meanwhile, the Bank of Japan stayed the course on its QQE program overnight. More importantly, it gave no indication of any interest in increasing stimulus. Governor Kuroda was upbeat about the prospects for Japan, still thinking the 2% inflation target could be reached in H2 of 2016 if oil were to bounce back.
The reaction in currency markets to this news has been quite interesting. USD has been falling back a bit rather than rising further. The USD index ran into resistance at 100.00 but more importantly, trading action suggests a first rate hike has now pretty much been fully priced in (since March IMO). Fed minutes also indicated that while liftoff looks near the pace of further increases is likely to be gradual and the neutral rate likely lower than in past cycles. USD appears to have priced in a more aggressive campaign of increases than we are likely to see in 2016 so it could be nearing a peak.
Similarly, gold’s bear trap reversal around $1,070 suggests that it could be close to a washout as well although a retest of the tantalizingly close $1,000 round number can’t be ruled out. head and shoulders top formations emerging in USD trading against currencies like CAD and SGD also suggests the USD advance may be nearing an end for now.
JPY has been gaining as well today as traders who had gone too dovish scramble to gat bask on side. This held the Nikkei
back a bit but it was due for a pause anyway. AUD and NZD have posted the strongest gains.
EUR could be active again this morning with ECB meeting minutes due which may give an indication of how serious discussions of potentially adding to stimulus in December have been. EUR has been on the rebound but dovish talk could knock it back while a mixed tone could support a trading bounce.
Today’s US data is middle tier and traders are more likely to focus on tomorrow’s retail sales report. There are a couple of Fed speakers who could keep the rate speculation pot boiling
NetApp $0.61 vs street $0.57
Keurig Green Mountain $0.85 vs street $0.70, 13% dividend increase
L Brands $0.55 vs street $0.52, raised jan 16 year guidance to $3.69-$3.79 from $3.58-$3.73.
Significant announcements released overnight include:
Peoples Bank of China surprise trim of 7-day SLF lending rate to 3.25%from 3.35%, cuts overnight SLF rate to 2.75%
Japan interest rate and QQE decision no change as expected
Japan trade balance ¥111.5B vs street (¥246B)
Japan exports (2.1%) vs street (2.0%)
Japan imports (13.4%) vs street (8.6%)
Switzerland watch exports (12.3% overall), Hong Kong (38.5%), Mainland China (5.1%) US (12.2%), Germany (4.7%)
Sweden unemployment rate 6.7% as expected
UK retail sales 3.8% vs street 4.5% vs previous 6.5%
UK CBI total orders (11) vs street (10) vs previous (18)
Upcoming significant announcements include:
12:30 pm GMT ECB meeting minutes
1:00 pm GMT Poland central bank minutes
1:00 pm GMT Poland industrial output street 2.5%
1:00 pm GMT Poland construction output street (1.3%)
1:00 pm GMT Poland producer prices street (2.5%)
1:00 pm GMT Poland retail sales street 0.4%
8:30 am EST Canada wholesale sales street 0.2%
8:30 am EST US jobless claims street 270K
8:30 am EST US Philadelphia Fed street (0.3)
9:45 am EST US Bloomberg consumer comfort previous 41.6
9:45 am EST US Bloomberg economic expectations previous 42.0
10:00 am EST US leading index street 0.5%
10:30 am EST US natural gas street 19 BCF
12:30 pm EST FOMC Lockhart speaking
4:45 pm EST FOMC Fischer speaking