Stock market action has been mixed today with European indices
trading moderately higher. US were under water for much of the day but did manage to eke out a slightly positive close.
Better than expected German ZEW survey and China GDP figures faced off against IMF global GDP growth forecast cuts and left a split decision as to which traders figured was more important.
Currency and commodity trading today, however, gives us a better idea of traders’ minds are at these days. USD and GBP have been the top performers today and represent the two major countries most likely to raise interest rates this year. Meanwhile, JPY, CAD and to a smaller extent EUR, have been falling today ahead of their central bank meetings this week indicating that the street expects all three to take dovish stances of varying degrees.
The Bank of Japan starts things off today. Although no changes are expected with the central bank having increased its QE purchases last fall, traders may be on the lookout for signs of whether further increases are possible in future since the Japanese economy continues to struggle. Also, traders may be watching for any signs of dissent from either side that could be a prelude to change. A falling JPY and rising Nikkei suggest that traders expect Governor Kuroda to remain dovish.
The Bank of Canada follows tomorrow morning. CAD has been falling ahead of the meeting although this could also be blamed on a 4% drop in WTI today. An interest rate cut appears unlikely but Governor Poloz may shift from a neutral to more dovish stance. Intervention in currency markets still appears very unlikely although the bank may discuss the negative impact of falling oil versus the positive impact of the falling loonie.
Later in the week the ECB is widely expected to bring in a new QE asset purchase program. Gains in the Dax and declines in EUR have slowed a bit, however, suggesting that expectations may be getting stretched. It’s possible that the ECB could disappoint by bringing in a program smaller than what the street has been hoping for and because of this risk, stock traders may be wary of getting too far out on a limb. Gold, on the other hand, continues to rally on anticipation of increased ECB money supply, taking a run at $1,300 but falling a bit short.
Crude oil, on the other hand, took another 1.5% to 2.5% hit today although this sounds worse than it was, as both WTI and Brent remained contained within their $45-$50 trading ranges. There was lots of chatter today over reasons for the decline including the lower IMF global GDP forecast weighing on demand expectations, comments from Iran about not calling an OPEC meeting and that $25/bbl could be possible, and indications of higher supply from Iraq. Overall, the key is that the price continues, while slow growth in some regions and a rising USD aren’t helping the matter.
NZD and AUD have also been weakening in reaction to the IMF report with the Kiwi Dollar taking the brunt of concerns. NZD’s selloff has accelerated following the release of soft inflation figures which give the RBNZ room to cut interest rates this year should it decide to do so.
Adding to the mix of all this monetary news is a flurry of corporate reports with earnings season getting back into gear today. A number of technology companies have reported after the close with strong Q4 numbers but mixed guidance. Netflix has been particularly active with traders focusing more on its earnings beat and international expansion than soft earnings guidance so far, but this could change.
Netflix $0.72 vs street $0.45 excluding a $0.63 tax accrual benefit. Guides Q1 $0.60 below street $0.81, launching in Australia and NZ late Q1
IBM $5.81 vs street $5.44m guides 2015 operating EPS to $15.75-$16.50 below street $16.59
CA Technologies $0.67 vs street $0.60, guides March FY $2.45-$2.52 above street $2.44
Celestica $0.23 vs street $0.25,
Significant announcements released overnight include:
NZ Q4 consumer prices 0.8% vs street 0.9% and previous 1.0%
IMF 2015 GDP forecasts
Global cut to 3.5% from 3.8%
US raised to 3.6% from 3.1%
Eurozone cut to 1.2% from 1.4%
China cut to 6.8% from 7.3%
Japan cut to 0.6% from 0.8%
Germany ZEW current 22.4 vs street 13.0
Germany ZEW expectations 48.4 vs street 40.0
Eurozone ZEW expectations 45.2 vs previous 31.8
Turkey interest rate surprise 0.50% cut to 7.75%
Upcoming significant announcements include:
10:30 am AEDT Australia consumer confidence previous 91.1
4:00 pm AEDTish Japan QE and interest rate decision no change expected
9:30 am GMT UK jobless claims street (25K)
9:30 am GMT UK average weekly earnings street 1.7%
9:30 am GMT UK rolling 3M jobs change street 74K
9:30 am GMT UK unemployment rate street 5.9%
9:30 am GMT UK Bank of England meeting minutes
8:30 am EDT US housing starts street 1,040K
8:30 am EDT US building permits street 1,058K
10:00 am EDT Canada interest rate decision no change expected
10:00 am EDT Bank of Canada monetary policy report
11:15 am EDT Bank of Canada Governor Poloz press conference