The equity rally to continue in Asia
After an impressive night for European and US equities, the S&P 500 now sits just 2.4% off its all-time highs. Quite an impressive feat considering there is little excitement for much of the global macro backdrop. The S&P 500 VIX volatility index has pulled back to 13.8, close to a full standard deviation below its long term average of 21.5. China’s trade data provided support to commodities overnight with both iron ore and copper gaining. The pickup in China’s imports provide further evidence of its return to investment-driven fiscal stimulus, providing some fundamental support to the recent moves in commodities, emerging markets and the Aussie dollar.
This is all pointing to a strong open to the Asian session. The yen has seen a bit of weakness with the USD/JPY moving back to the 109 handle, and this should help move the Nikkei strongly higher today (our current call is +1.5%). The materials sector in the FTSE had a wild night as it gained over 5%, and BHP Billiton Ltd (NYSE:BHP) and Rio Tinto PLC (NYSE:RIO) both had spectacular nights as they rose 9.2% and 7.6%, respectively. The ASX is subsequently looking to have a very strong day, we currently are calling for it to open 0.9% higher. But the fact that investor appetite for the heavily-weighted banking sector looks to be returning could help see an even stronger day. The key focus in Australia will be the often volatile monthly employment numbers with the market expecting 15,900 new jobs, which would be quite a jump from the previous three months.
The weekly Department of Energy oil inventories climbed in line with the API numbers as they grew by an additional 6.6 million barrels, but production declined alongside gasoline inventories. There was also speculation that Iranian oil minister, Bijan Namdar Zanganeh, would not personally attend the 17 April oil producers meeting in Doha. Neither of these negative news stories were able to take much of the recent levity out of the oil spot price, as the market appears to be looking through these developments towards a hopeful production freeze deal. And it seems highly unrealistic to expect Iran to be party to the deal, whether Zanganeh comes to the meeting or not.
Headline US retail sales disappointed the market, but the retail sales control group which feeds directly into GDP added 0.1% month-on-month. This helped move the Atlanta Fed’s GDPNow estimate for Q1 from +0.1% to +0.3%.
The EUR/USD sold off 1% overnight after Eurozone industrial production came in below estimates. I would note though that it is a very volatile release and the longer term annual growth rate trend is still steadily improving.
