Market Talk - October 12th, 2017

Mario Draghi, declared the intentions of the ECB were to keep rates low, well after the bond-buying program has ended. Draghi stated this was important to keep borrowing costs at bay and promote solid growth within the Eurozone. The EUR/USD rate, is still in the 1.18 region losing 20bps today. The big ECB rate decision will be in 2 weeks which officials will determine the reviewing its stimulus package and the monetary policy. Fairly little activity in the stock markets pursued this, Dax ended up 9bps higher with the CAC 3bps down. Whilst the IBEX 35 was flat, there were signs of concern with respect to the Catalan independence talks, namely Spain giving Catalan to drop independence within 8 days, then Catalan president accusing Rajoy for ignoring his calls and finally the Spanish finance minister claiming the Catalan policies as “insane”. This doesn’t look good for an amicable solution being reached any time soon! The GBP rose against the dollar even with the slowing consumer report.

Today we had a few economic statistics released from the US. The US initial jobless claims and this came in lower than expected thus giving more positive news for the US region – 243k compared to an estimate of 258k for the month. On Wednesday the US Jolts Job Openings came in at 6.082m, slightly less then both the previous month and this month’s forecast of 6.125m. A job is “open” if a specific position currently exists, the job could start within 30 days and there is active recruiting for external workers. As this reading was a weaker than forecast reading this is generally negative (bearish) news for the USD. Arguably the most important was the PPI (MoM) numbers released which matched expectations of a 0.4% percent change in the price of goods sold by manufacturers. Although this doesn’t mean we will expect a good CPI number, there are signs that inflation could be picking up with a second positive number in a row. Generally, the sense from the US that things are ticking along fine. This evening we will have federal balance budget which is expected to remain flat or slightly higher and some news from China with respect to Import, Export and Trade Balance numbers.

Little in the way of market activity, the Dow and the SPX down slightly which approximately put those European investors at a near zero when looking together with FX.
Tomorrow we will have the CFTC speculative net positions, which is always useful to look at to see the breakdown of “who” is investing as well as the Core and Retail figures from the US. A few FOMC officials will speak tomorrow to give us further clues of possible rate hikes this and next year.

Affecting Commodities, the EIA report showed a large increase in the Natural Gas supply – supplies of Natural gas rose to 86 billion cubic feet for the week ending October 6th, NG managed to end the day up 3.36%. Contrary to this Oil prices dropped (WTI -1.21%, Brent -0.98%) as supplies fell for the third week in a row. The US EIA report shows crude falling almost 2.8 million barrels for the week ending October 6th. EIA did forecast that US Crude Oil production will average 9.9 million barrels a day in 2018, which will put this as the highest average annual production in US history.

Majority of the US government bonds gained in price today with the curve flattening, due to decent economic data emanating from the states as well as a solid demand for today’s 12-billion-dollar sale of the 30-year bonds at auction. We will see tomorrow with the CPI report another positive number could see yields dropping further.

US 2’s 1.51% (-1), US 5’s 1.94% (-2), US 10’s 2.32% (-3), US 30’s 2.85% (-4).