The US session presented a few challenges to traders yesterday, which in the end proved too much. After a limited reaction from the poor jobless numbers on Friday, stock market investors decided that even with such poor performance, the Fed are still going to taper, so they sold off across all equity markets. News that Iran is likely to export more oil globally led the price of a barrel to come off by more than 1%, which led energy stocks in the US lower too. Overall the stock market saw its biggest one day fall in two months and set a rather downbeat tone for Asia to come in and follow.
European markets enjoyed a fairly quiet trading session yesterday, with limited gains across the majority of indexes – even the Spanish only saw a 0.75% gain – thanks to limited data flow. It was a very different story in the US and overnight in Asia, but we’ll get to that in a while…
In the FX market, the single currency has done a much better job of holding onto Friday’s gains than Sterling has. Both currencies rallied sharply after the extremely poor Non-Farm payrolls number (which was a bit of an embarrassment to the Federal Reserve, who tapered on the expectation that numbers would continue in a positive direction and not fall off a cliff, which they did) . Sterling looks to be the victim of its own recent success, having hit some key high points in the previous couple of weeks, which are making traders nervous about how much stronger it could get. The Euro on the other hand is sitting bang in the middle of its recent trading range and no one’s getting nervous about its fortunes for the time being.
Sterling’s fortunes could be subject to change today as we look at what inflation is doing in the UK. The CPI figure released this morning is expected to show annualized inflation remains at 2.1%. If that happens then it means the pressure on Mark Carney to hike rates sooner rather than later is relaxed somewhat. Given that prices everywhere else in the world are falling and that the high street has been in ‘January sale’ mode since the end of November, there is a real chance that inflation could fall down a notch. If that is the case, we’d expect a short term sell-off, for Sterling, but we keep in mind that today’s data is one of only very few key releases this week, so any reaction could be a touch overblown.
If David Cameron has anything to do with it (and he’s the PM, so he might) the UK’s fortunes could end up changing a lot faster. Yesterday Mr Cameron once again urged those against fracking to “get on board”, as he looks across the Pond to America with a large amount of energy envy. Mr Cameron hopes to get the NIBY’s on board, by giving local authorities 100%of the business rates from fracking businesses, rather than the 50% they get now. Unsurprisingly Greenpeace have called this bribery – and we think they may have a point – but DC is desperate to get this going.
Follow they did. The Japanese Nikkei fell by more than 3%, bringing it back to one month lows, as the Yen strengthened significantly over the Non Farm payrolls announcement and then carried on strengthening on Sunday night’s open, all the way through to this morning. the increased cost of the Yen hurts the Japanese export heavyweights that make up the lion’s share of the Nikkei, hence the move.
Today all eyes are on the UK inflation numbers that we mentioned. We’ll also get to look at French and Italian inflation numbers, which could put a bit of pressure on the euro if they come out below expectations. The big number this afternoon is US retail sales, which is expected to have grown by 0.1% in the month of December.
We have a couple of speakers of note today. Jean claude-Trichet will be telling the EU parliament how the Troika have been performing in their role as guardian and gatekeeper to all things bailout related. Also at some point today we will hear from Francois Hollande over what he’s been up to in his spare time.
Futures markets show everything opening lower as we come on-line, but its a long day so here’s hoping it turns itself around pretty swiftly and doesn’t follow Asia’s trend.