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Market Update
After a subdued session on Wednesday, US equities are more positive in pre-market trade this morning. Having dipped as low as the 4680s yesterday and closed the US session with losses of just under 0.3%, E-mini S&P 500 futures are this morning back on the front foot and have reclaimed the 4700 level for a pre-market gain on 0.2%. Analysts gave various reasons for yesterday’s mini tumble; inflation concerns after hot UK and Canadian CPI figures. Worries about margin pressures on US corporates after Walmart and Target earnings. But this was likely reading too much into things at the time and the dip likely had more to do with investors just booking a little profit with stocks back at record levels. The recovery overnight suggests dip-buying appetite remains strong and why not? The now concluded Q3 US earnings season was largely a success and goes a good way to justify lofty equity valuations.
Looking at other markets; European equities are subdued today with the Stoxx 600 currently down 0.1% and back to just under 490, meaning it also trades very close to record highs. Asia equities were more negative overnight, with the Hang Seng losing 1.3%, but this appears not to have had any spill over impact on the rest of the world. The data. Aside from the US weekly jobless claims report and Philadelphia Fed manufacturing survey, both scheduled for release at 1330GMT, the calendar is looking for pretty empty today. Some Fed and ECB policymakers will speak, though this is likely more of a story for FX and bond markets rather than equities. For now, central bank policy is dovish enough to keep equity investors happy.
Speaking of bond markets; US yields fell back yesterday, and the drop has continued on Thursday. US 10-year yields hit three-week highs at 1.65% yesterday but have now pulled back to 1.59%. Some are attributing the pullback in yields as down to the drop in oil prices weighing on inflation expectations, thus also weighing on nominal yields. European yields are also trading on the back foot, with the German 10-year down nearly 3bps on the session to under -0.26% again, close to multi-week lows. For reference, WTI has slipped all the way to below the $78.00 per barrel mark this morning, having been as high as $85.00 last week.
The short-term bearish US SPR release story rumbles on and the latest twist to the story is that the US has been petitioning major Asian imports to release oil reserves in tandem with the US to deliver some sort of shock and awe message to OPEC+. China said overnight that it was working on a crude oil reserve release, following talks earlier in the week between US President Biden and China President Xi, which reportedly ventured into energy policy. According to the ING commodity teams, “such a release might be enough to turn the tide in oil markets ahead of a structural shift to a supply surplus early next year”. OPEC+ members have been fretting in recent days about how oil markets may return to surplus in 2022, or even as soon as this December.
Turning now to FX markets; NZD is the best performer, up 0.7% versus the buck to take NZDUSD back towards 0.7050 after the central bank’s quarterly inflation expectation survey showed a sharp rise in business inflation expectations, thus bolstering the case for the RBNZ to hike rates by 50bps next week. AUDUSD is higher in tandem, perhaps aided by the stronger kiwi and some positive reopening news, though it may have more to do with the fact that the dollar is a little weaker this morning. The DXY is about 0.2% lower and back to the 95.60s, having 0.2% gains to AUDUSD, EURUSD and pushing USDCHF 0.2% lower. CAD, GBP and JPY are all flat thus far on the session versus the buck.
Day Ahead
Coming up at 1330GMT is the aforementioned weekly US jobless claims report and November Philly Fed manufacturing survey. This could trigger FX market volatility. The rest of the session will probably be quiet, with Fed’s Williams and ECB’s Lane speaking at 1430GMT and then Fed’s Evans speaking at 1900GMT.
