The global stock market rally

9 December, 2016

European Outlook: The global stock market rally, which was underpinned by further ECB stimulus measures yesterday and a rise in oil prices, continued in Asia overnight, with most markets moving higher. The Nikkei 225 briefly broke 19,000, closing a strong week and up again on the day 1.23% at 18,996. The Hang Seng dipped as Macau Casino shares came under pressure, but FTSE 100 futures are also up as are U.S. stock futures. The Dow30 and S&P500 again closed at record highs last night. The front end WTI futures contract is trading above USD 51 per barrel, with Gold under $1170 again. European yields spiked with stock markets yesterday as the ECB settled for “less for longer” although the 10-year Bund contract was up from session lows at the close and extended gains slightly in after hour trade. Eurozone spreads widened but peripheral stock markets outperformed, so somewhat of a split reaction to the central bank’s easing package, but things should continue to settle down today. ECB officials are out en masse explaining and defending the central banks steps and the calendar has German trade data at the start of the session, as well as French production numbers and Norwegian inflation data.

China CPI & PP: CPI higher at 2.3% expectations was for 2.2% from 2.1% last time. PPI was a big beat coming in at 3.3% up from 1.2% last time and well over expectations which were 2.3%.  The PPI is at it highest level in 5 years and reflects the increase in both demand in the economy and recent rises in commodity prices. AUDUSD popped on the news to 0.7475 before drifting lower to 0.7465.  

German trade surplus narrows as imports surge: Germany posted a trade surplus of EUR 20.5 bln in October, down from EUR 21.1 bln in the previous month, as exports rebounded slightly over the month, but were overshadowed by a 1.3% m/m jump in imports. The three month trend rate improved though, so some indication that net exports, which detracted from growth in Q3 will help to underpin overall growth again in the last quarter of the year. Unadjusted data show a current account surplus of EUR 18.4 bln, down from EUR 21.7 bln in October last year, although accumulated data for the first ten months of 2016 still show a surplus of EUR 216.5 bln, up from EUR 202.1 bln in the corresponding period last year, so pressure on Germany to reduce its current account surplus remains in place.

ECB Statement: Draghi left rates unchanged, as widely expected and the extended QE program settled on a compromise of less for longer, with monthly purchases scaled back, but the overall time frame of the program extended by 9 months rather than the expected 6, which means the total of asset purchases on the cards is higher than markets had been expecting. Indeed, Draghi’s main message  was that the ECB will remain active in markets for the foreseeable future and can still step up its support again if and when market and economic conditions warrant such a move. In the press conference he was very adamant that it was NOT tapering. The ECB announced a further extension of the QE program today and while monthly purchase volumes were cut to EUR 60 bln from EUR 80 bln, the length of the program extension is 9 months rather, which means the total program amounts to asset purchases of EUR 540 bln. This is more than the EUR 480 bln a 6 months extension at EUR 80 bln per months would have amounted to and the ECB actually left the door to a further increase of monthly purchases volumes and the overall program length open, depending on actual developments.

Main Macro Events Today                

U.S. Michigan Consumer Sentiment The first release on Michigan Consumer Sentiment is out later and should post an increase to 94.5 for the month after rising to 93.8 in November from 87.2 in October. The already released IBD/TIPP Poll for the month revealed an increase to 54.8 from 51.4 and expectations are for the Bloomberg Consumer Comfort measure to remain steady with a 45.1 average in December.

US Wholesale Trade October wholesale trade data is also out today and should reveal a 0.6% sales headline with inventories down 0.4% for the month as indicated by the advance October figures. Data in line with our forecasts would leave the I/S ratio at 1.31 from 1.32 in September.

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