Building on a positive reaction by Asia Pacific markets to China’s cut to bank reserve requirements, and some positive news for oil out of the US, stock markets have been advancing to start March. So far today, US index futures are trading up about 1.0% with the FTSE up 0.7%, the Dax up 1.0% and the Hang Seng up 1.5%.
Crude oil is also climbing today with WTI rising 1.3% and Brent gaining 0.8%. Overnight reports suggest that US oil production fell again in December while demand increased. It appears US shale producers have started to respond to lower oil prices with reduced exploration unable to offset natural declines and perhaps some shut-ins. If this trend continues, the US market could start to move back toward balance which could help oil prices to stabilize and potentially recover a bit. That being said, it wouldn’t take much to resume exploration or turn on shut-in wells so the upside for oil remains limited to maybe $40 or $50.
Energy sensitive currencies mixed this morning, MXN and RUB have both gained over 1.0% on the oil rally while NOK is posting a more moderate 0.3% gain, while CAD (which has held up better in pullbacks) is pretty much flat against USD.
The oil rally could boost energy stocks today. In Canada a positive finish to bank earnings season from the Bank of Nova Scotia (TO:BNS) who beat the street and raised its dividend could kindle interest in financials. Valeant Pharmaceuticals (N:VRX) may also be active again as the street continues to respond to management changes, the suspension of guidance and other developments this week keeping the company at the top of the news. We may continue to see news reports come out from mineral exploration companies with the big PDAC convention in Canada continuing, a time when companies often put out assay results and try to make a big splash at the big show.
Manufacturing PMI reports have been mixed with China coming in below expectations. This plus rumours of coming mass layoffs in the millions for the government and the coal/steel sectors may have prompted yesterday’s stimulus move from the PBOC to support the country’s restructuring. Germany and Australia beat the street this month while the UK and Sweden fell well short of expectations.
There’s a lot of news on tap for North America today that could rock the markets. Monthly and quarterly GDP reports for Canada could influence trading in CAD as it may give a better idea of how the transition away from oil dependence back toward a more balanced economy between the twin WTI and CAD crashes of the last 18 months. It also may indicate how much, if any, pressure the Bank of Canada may be under to cut interest rates again.
In the US manufacturing PMI and construction spending reports are due mid-morning, with the street looking to see if yesterday’s big drop in Chicago PMI was for real or not given that indicator’s recent volatility. Results could influence speculation on whether the Fed will raise interest rates this month. Positive durable goods, inflation and GDP figures last week that put a March hike back on the table. Overnight, however, New York Fed President Dudley (one of the Fed’s Big 3 voters) took a dovish stance at a speech in China overnight suggesting the balance of risks has shifted to the downside. With the jury still out, we could see significant Fed speculation trading over the next few weeks.