The US equity market reversed early losses

Market Movers

• In the euro area, we get M3 money supply and bank lending figures. Growth in M3 has started to slow a bit in the past months, which might indicate that economic growth will slow in the latter part of H2 16. The bank lending figures could also attract some attention in light of the current focus on bank credit. We saw some weakness in lending growth in December but as the figure can be quite volatile, we suggest awaiting this number before drawing any conclusions.

• In the UK, we do not expect any revisions to overall GDP growth in Q4 in the second release to be released today, i.e. we expect an unchanged print of 0.5% q/q. However, it is the first time the subcomponents from the expenditure side are published and we expect them to show that private consumption was still the main growth driver.

• In the US, we will get January data on durable goods orders. The weakness in durable goods demand has been a major factor behind the downturn in the US manufacturing sector and a turn in demand would be very much welcomed.

• St. Louis Fed President Bullard speaks today. Last week he made a very dovish impression, stating that he thinks it is unwise to proceed with the hiking cycle when inflation expectations continue to decline.

Selected Market News

Market movements have been scattered overnight. The US equity market reversed early losses and finished in the plus after the oil price stabilised. Most Asian stock markets are posting similar gains this morning, notably the Japanese Nikkei index, which is up 1.5% following reports that the government is considering an increase in spending to support economic growth. The JPY is weakening against the USD as a sign of better risk sentiment. However, the Chinese stock market fell sharply by 3%, the most in a month. With no major economic news out China today, investors appear to be concerned that recent gains may be overdone relative to an uncertain economic outlook. In the UK, a Bloomberg survey showed said that there is a 40% probability of an economic recession should a Brexit happen (for more coverage, The UK's EU Referendum – Brexit – what if?), 22 February 2016.

The uneven market developments seem to reflect uncertainty about the fundamental strength of the world economy. Last night, the IMF called for the G20 meeting in Shanghai this weekend to come up with ‘a strong policy response, both national and multilateral, including from the G20’ if downside risks materialise given concerns about slowing global economic growth due to the global impact of China’s transition to more balanced growth and signs of distress in emerging markets. IMF calls for both fiscal policies (where there is fiscal space) and balance sheet repair in the financial sector as well as preparedness of a coordinated G20 plan. However, US treasury secretary Lew sounded less alarmed yesterday about the global economic outlook, saying ‘this is a moment where you’ve got real economies doing better than markets think in some cases’ and that markets should not ‘expect a crisis response in a non-crisis environment’ ahead of the G20 meeting.

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