Daily Market Update: Markets remain in yo-yo mode
Volatility remains the key theme in markets at present, with the price action in many areas continuing to whip around from session to session.
That’s particularly true of oil and stock prices which have generally pushed higher over the past 24 hours, following the large declines we noted in yesterday’s commentary. Brent crude opens at $31.15 pb this morning ‐ about 5% higher than where it was early yesterday. But conviction in the upmove isn’t looking especially strong, with the overnight price action seeing a retracement from the intra‐session high of around $32.70 as concerns about oversupply continue to represent a headwind for any rallies.
Equity markets have been following a similar contour with prices generally firming over the course of the European day to recover a chunk of their losses from the prior 24 hours. But the renewed downward pressure in oil quotes overnight is imparting some renewed downward momentum in equity futures prices overnight, with the US S&P future down about 0.4% following a 1.4% gain in yesterday’s US session. Currency markets aren’t swinging around by as much as equities or oil. Eur/USD is unchanged over the past 24 hours at $1.0870 though sterling has managed to push a little higher, rising by about three quarters of a percent against both the euro and the dollar, opening at 75.9p and $1.4315 respectively.
Interestingly, and importantly, while sentiment in markets has been very weak and volatile so far this year, back in the real economy figures out yesterday showed an outright improvement in US consumer confidence in January. The Conference Board board’s headline measure of confidence posted a better than expected reading, rising from 96.5 to 98.1 – a 3 month high. Yesterday’s results showed that consumer expectations about the future also rose to their highest since October last year, underpinned by an anticipated further improvement in employment and income prospects.
We don’t seek to overplay the importance of consumer confidence as an economic indicator as we’re always inclined to pay more attention to what consumers spend rather than how they answer questionnaires. However, it is significant in our view that sentiment among real economy agents is not showing anywhere near the same level of fragility about the outlook as investors, in the process offering some encouragement for our view that financial markets have likely become overly pessimistic on prospects for the US economy.
Looking to the day ahead, the FOMC make a policy announcement from Washington this evening. There are no expectations for a policy change, but analysts will be paying close attention to how they characterise the economy and the outlook for US interest rates. The Fed will likely acknowledge the recent large swings in financial and commodity markets which should lend a moderately dovish tone to the update, but we expect the overall message to remain consistent with the need for US interest rates to go up over time. New home sales are also published and are expected to grow 2.0% m/m in December following 4.3% in November.
In other news, BBA loans for house purchase are announced in the UK for December.
Expectations are for an increase from 44,960 in November to 45,500 in December. ECB board members Lane, Mersch, and Lautenschlaeger also speak today and there may be some interest regarding how closely the stances of the different policy makers align with Draghi’s dovish policy update last week.
In Ireland, residential property price growth is published for December. Residential property price inflation was 6.5% y/y in November and a December increase somewhere in the ballpark of 0.5% m/m – i.e. in line with the 2015 average monthly growth rate – would leave the annual rate of growth at 6.7% y/y at year end.