A sense of stability has returned to markets on Thursday, as global equities continue to trade in positive territory and foreign exchange markets have steadied. A rash of second tier data releases overnight were unable to move the needle, Sterling seemingly found its footing after Wednesday’s disastrous sell-off and markets are poised for some important US data which kicks off the North American session. Today’s lone blemish is China, which saw its Shanghai Composite Index tumble 6.4% on today’s close, only a few days before world leaders descend on Shanghai for the next G-20 meeting. Investors remain concerned about the world’s second largest economy, bringing total loses to more than 47% since last Summer.
Despite another round of heavy losses for Chinese shares, it was more or less a quiet Asian session. As noted previously, global markets resumed their march higher today in the face of another sharp Chinese decline. Wall Street’s finest noted a convergence of reasons for this latest slide, from profit-taking to renewed fears of liquidity in the financial system and instability for the yuan. A strange time to be frank as G20 leaders begin meetings in Shanghai today which are slated to last through the weekend. In Japan, the Nikkei average jumped 1.4%, which nudged the yen lower and gave exporters a bit of relief. Tonight, Japanese inflation concludes a busy week and industrial production and household spending pace a busy data slate for Japan next week.
Sterling found its footing for the moment followingWednesday’s swift decline. Taking out key psychological levels, the pound has steadied a bit and for the moment, tuning out any new “Brexit” rumors. European stocks brushed aside any Chinese worries and rose on average by about 2% on Thursday. Similar to the pound, the euro has stabilized and has actually traded within a very tight range for the last two days. German and EU inflation were both in line with expectations and Spanish Q4 GDP confirmed a strong rebound, rising 3.5% at an annual pace. A series of country specific inflation and growth readings close out the data calendartomorrow.
Turning to North America, orders for US capital goods recovered in January, jumping by the most since June of 2014. This better result could represent a pause in the manufacturing sector’s slowdown but it is probably too early to tell. The US dollar is largely unchanged in the minutes following the result, as weekly jobless claims rose by 10k over the previous week showing more Americans filed first time unemployment claims. Later this morning, Fed member Williams will be addressing markets, a few hours after Bullard commented the Fed’s rate hikes could have sparked the recent market turmoil. The Canadian dollar rose again on Thursday, despite a slight decline in oil prices. With WTI prices approaching $32 per barrel, the USDCAD rate continues to consolidate awaiting clarity on the on-going OPEC output negotiations.
Further reading:
Buying The EUR Dip Tactically Around The ECB March Meeting – BofA Merrill
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