Market buzz: Fed apparently not stressing
1630: Fed not stressing, Michael Gapen and Pooja Sriram at Barclays believe, telling clients: "US equity markets falling into correction territory in recent days begs the question of how far equities would have to fall, or volatility to rise, for the Fed to consider a delay to its policy plans. We think it is too early for the Fed to consider altering course and we believe the committee will likely take some comfort in the tightening in financial conditions as it will reduce the risk of a hard landing over time. [...] we expect fiscal stimulus to keep the US economy growing above trend. We maintain our outlook for a 25bp increase in the target range for the federal funds rate in March, and for four rate increases in 2018."
1629: Capital Economics sees S&P 500 finishing 2018 at 2,600, falling to 2,300 at the end of 2019.
1540: The Dow is up around 200 points but still is somewhat jittery, felt market analyst Connor Campbell at Spreadex. "There is still a while to go in terms of the US session, however, and the Dow Jones has shown a predilection for saving its wilder behaviour for later in the day, so it’s really far too early to speak with any confidence about the index’s performance."
Closer to home, he noted the pound saw its gains against the dollar and euro dissipate, despite the hawkish comments from BoE policymaker Gertjan Vlieghe. GBPUSD, which at one point had risen 0.4%, is now up just 0.1%, while against the euro sterling slipped 0.2%.
"Monday’s gains may be welcome, but they came without much to test their worth. Tomorrow, on the other hand, will be a real challenge. The morning’s UK inflation reading is expected to slip from 3.0% to 2.9% month-on-month; even if accurate that very slight decline might not be enough to reassure investors fearing the increasingly hawkish tones of the UK’s central bankers."
1531: The ANC's new spokesperson, Pule Mabe, is labeling SABC reports of a deal for Jacob Zuma to be recalled as "fake news".
1529: There's some reports of some pretty hefty bets that Bridgewater, the world’s biggest hedge fund, has taken out that European stocks are going to trip up before long. Filings from the company on Monday about a huge short bet against Germany's Siemens takes the value of its short bets to around $14bn.
*BRIDGEWATER HAS A $1 BILLION SHORT BET AGAINST SIEMENS: FILING— fiatcurrency ♦️ (@fiatcurrency) February 12, 2018
Bridgewater's monster short bets against European stocks— Jonathan Ferro (@FerroTV) February 12, 2018
1450: Commentary on Twitter is citing SABC presidential reporter Tshepo Ikaneng as having reported that South Africa premier Jacob Zuma has agreed to step down.
1311: From Andrew Garthwaite and his team at Credit Suisse: "US and European 10y bond yields are approaching our year-end targets (2.9% and 0.9%, respectively), but most indicators signal that bond yields should rise slightly further from here.We would not be surprised to see 10y UST and bund yields reach 3.3% and 1.0%, respectively. Global PMIs, the ratio of non-financial cyclicals to defensives, the still-low level of implied yield volatility, the still-negative term premium, and our fair value model all point to higher bond yields."
1249: This comment from UniCredit Research is getting traction on some media outlets: "Regarding fundamentals and safe haven demand, it is really hard to see the dollar benefiting in a period during which US fiscal policy is heading in exactly the opposite direction to the way it should be. An expansion of the budget deficit (towards 5% of GDP) when the economy is at full employment, is threatening to throw USD-denominated assets into a vicious feedback loop of higher risk premia and increasing vulnerability to a potential downturn (due to a compromised fiscal cushion). In that respect, it is worth remembering that over the last thirty years or so, periods that saw the US federal budget deteriorate were associated with dollar weakness."
1104: Following the more hawkish turn from the Bank of England last week, MPC policymaker Gertjan Vlieghe said there was “increased evidence that tight labour markets are finally starting to have some upward effect on wages”. He said three rate hikes from the BoE would still leave some excess demand in the economy but he wanted to stress’ that there is "huge uncertainty" around the rate path, with rates possibly rising faster or more slowly.
Last Thursday the Bank left policy unchanged but said rates would need to rise earlier than previously expected as the UK economy grows more strongly than it previously forecast thanks to the booming global economy.
1035: Three-month copper futures were edging slightly higher on Monday, reaching $6,825 per tonne versus $6,791/t at the end of last week. Iron ore was down $74.0/t versus $75.3/t.
Brent crude is rallying to halt a run of consecutive losses in the last six days, up 1.29% to $63.6 per barrel.
SP Angel analysts noted that 10-year US Treasury bond yields are trading higher hovering around the 2.9% mark, the highest level in four years. "Markets will be closely watching US inflation numbers due tomorrow for signs of the strength of a recent pickup in consumer prices growth rate with estimates for a slight slowdown in CPI in January."
1032: Friday’s late recovery in the US is continuing and feeding through to European markets - though nervousness remains, says market analyst Chris Beauchamp at IG.
"Wary dip buyers might feel justified in trying to jump back in, but the sense of last week’s see-saw action suggests that we are not through the worst yet. At the very least, volatility is back, while the waning strength of earnings season means that this week’s US CPI figure takes on greater importance. As noted on Friday, the kind of dip we have seen usually ends well over a longer-term time frame, for example six months, and indeed the next five days may also see a bounce, but previous sell-offs have faltered within a month, and it is this medium term view that should worry them. The worst may not yet be over."
Ahead of the Wall Street opening bell, IG sees the Dow starting at 24,472, which would be 282 points up on Friday’s close.
While the resurgent dollar knocked the oil rally slightly, this morning's recovery lifts hopes of a rebound, Beauchamp said, although most oil bulls are keeping an eye on US production as it continues to creep higher.
1024: The City watchdog has published a report on the supervision of algorithmic trading in wholesale markets. The report from the Financial Conduct Authority highlights areas of good and bad practice, including development & testing, process, risk controls, governance & oversight, and market conduct.
Megan Butler, FCA director of supervision for investment, wholesale and specialist, said: “This report is relevant for all firms developing and using algorithmic trading strategies in wholesale markets. Firms should consider and act on its content in the context of good practice for their business.”
The Bank of England's other regulatory arm, the Prudential Regulation Authority, has also published a consultation paper on proposed expectations regarding a firm’s governance and risk management of algorithmic trading. The PRA publication is a formal consultation on a supervisory statement which sets out "expectations for the prudential aspects of risk management and governance of algorithmic trading" at firms it regulates.
0925: New bank loans in China jumped from 584bn yuan for December to 2.9trn in January (consensus: 2.05trn), according to the PBoC. However, Capital Economics points out that loan issuance jumps at the start of every year as lenders are given their new annual quotas. Furthermore, the rate of growth in Capital's 'augmented' measure of Total Social Financing - a broader gauge of credit trends in the Asian giant - slowed from a 13.6% year-on-year clip to 12.9% - a 31-month low.
0924: Things are still looking very gloomy for UK consumer facing business, card spending data from Visa shows this morning.
UK consumer spending fell in January for the first time since 2013 in what was the eighth decline in the past nine months, the latest spending data from Visa showed. Overall expenditure last month dropped back 1.2% year-on-year, following the 1% reduction witnessed in December.
0920: Steel maker Evraz is leading a group of heavyweight commodity stocks as the FTSE 100 rallies 1.28% at 7,183.23 this morning, with only one single company in the blue chip index in the red so far.
Down on the FTSE 250, gold miner Acacia is leading the fallers, down a devilish 6.66% as it caps a hellish year by posting a £710m loss before tax due to the still-not-resolved dispute with the government of Tanzania.
0910: Some fresh comment on the markets from Rebecca O’Keeffe, head of investment at broker Interactive Investor: "Investors are breathing a sigh of relief after the torrid times last week, with European equity markets rallying this morning. Buying the dip has been a very difficult call in recent days, with every attempt at engagement punished in subsequent market moves, so investors will be hoping that this is a genuine buying opportunity.
"The key event of the week is US Consumer Price data on Wednesday, with investors anxious to determine whether the inflation fears that have helped to drive recent market moves have been overdone or if these concerns are justified.
"The widespread contagion has seen almost all stocks suffer, irrespective of their underlying fundamentals, so the current rally is a stock-pickers paradise, with the opportunity to pick up potential bargains."
Similar feelings from London Capital Group analyst Jasper Lawler in Monday's London open report, where he said: “Calmer winds were blowing across markets on Monday after last week’s typhoon. The calm in European share markets follows a less volatile session in Asia."
He added: "There has been a cross-asset rebound off the lows with stocks, crude oil and currencies like the pound and euro all seeing gains. Still, investors will be aware the calm probably won’t last. A lack of clear catalysts from the earnings or economic calendar on Monday could be a mixed blessing if a bout of irrational selling returns.”
0905: US 10 year yield up 4bp to 2.8876%, 10 year Gilt: +5bp at 1.619%. Deutsche Bank's Jim Reid points out that some recent seasonal adjustments from the BLS make it harder than usual to forecast Wednesday's US CPI report. Prior to those adjustments, January had consistently beat consensus projections over the past 25 years with the opposite being the case in February. In other bonds related news, US president Donald Trump is set to release his $1.5trn infrastructure plan today.
0840: Stocks are starting the day higher, tracking Friday's bounce on the S&P 500 from its 200-day moving average - a key level of technical support. Nonetheless, as was seen towards the end of 2014 and then again at the beginning of 2016, it is not a fail-safe indicator that a bear market has begun, which is why some technical analysts prefer applying 'filters' to such moving averages upon apparent breaks. For his part, WebFG UK chief technical analyst Jose Maria Rodriguez says he is watching the 200-week MA on the S&P 500, now at roughly 2,176.
Of interest, overnight Citi has sounded a positive note on shares of StanChart and HSBC in a research note entitled 'From China with Love', even as it highlights risks at Lloyds and Barclays. The same broker is 'neutral' on RBS and challenger banks (OSB: Buy, VM: Buy, MTRO: neutral, CYBG: Sell).
As an aside, and on the subject of central banks, Citi points out: "The recent/upcoming changes in [advanced economy] central bank leadership imply much continuity in near-term policies, but could be more relevant for policy changes in 2019 or at the point of a slowdown. Several of the potential new guard would likely be less supportive of large-scale asset purchases than their predecessors. Is Central Bank Independence Dying? The tendency to choose political appointees rather than technocrats for central bank leadership positions may be rising, which could matter for monetary policy as well as broader institutional changes."
FTSE 100 up 74.19 to 7,166.62. US equity futures: Dow Industrials: +295, S&P 500: +28.25, Nasdaq-100: +53.28. Brent: +1.77% to $63.92. Cable: 0.36% at 1.3871.