In a mostly quiet Wednesday session, Asian stocks rose overnight along with European bourses, which were led higher by miners after Rio Tinto posted higher profits for the first time in three years and a bigger-than-expected dividend, while India’s Sensex extended declines after the central bank unexpectedly left rates unchanged. US futures were little changed as oil continued to fall after API reported a huge inventory build
While the good news is that for December the US trade deficit narrowed modestly to $44.3 billion, better than expected, the bad news is that for all of 2016, the goods and services deficit was $502.3 billion, up $1.9 billion from $500.4 billion in 2015, and the biggest deficit going back to 2012.
The dollar rebounded from a key support level, strengthening against all major peers, pushing S&P futures higher as European shares rose, led by basic resources and real estate, while Asian stocks fall. Gold fell from its highest level since November as demand for some haven assets ebbed while global bonds declined. Oil dipped, pressured by a stronger dollar.
Donald Trump will face his moment, like it or not. Barack Obama faced it and decided to kick the can down the road and opt for yet more “stimulus.” How Trump deals with it will determine whether or not the US economy recovers from bad policies, or goes the way of Japan and Europe.
It is a relatively light week in the US, with mainly trade balance, JOLTS and consumer credit data out. The key economic release this week is University of Michigan consumer sentiment on Friday. In addition, there are a few scheduled speaking engagements from Fed officials this week. 86 S&P 500 companies reporting, representing 11% of the index market cap
In a relatively quiet session, which may see US traders sleep in a bit after last night's Superbowl thriller, European and Asian shares rose ahead of Mario Draghi’s testimony at the European Parliament, while US equity futures were fractionally higher (up 0.1% to 2,293) after stocks jumped the most in a week, as traders assessed the trajectory for interest rates while scrutinizing every new Trump tweet.
"If the border adjustment mechanism is implemented as proposed we think it will cause a global depression and a major equity market decline. It is still unclear whether it will happen but at the very least we expect that US trade policy will put downward pressure on global growth. When this becomes apparent commodities will correct meaningfully and we will reinvest in inflation beneficiaries."
“The euro exchange rate is, strictly speaking, too low for the German economy’s competitive position,” Wolfgang Schauble told Tagesspiegel. “When ECB chief Mario Draghi embarked on the expansive monetary policy, I told him he would drive up Germany’s export surplus . . . I promised then not to publicly criticise this [policy] course. But then I don’t want to be criticised for the consequences of this policy.”
With just 3 years left until the 2020 Olympics, Japan is likely desperate to reassure the world's athletes that all is well, but an admission from TEPCO - the Fukushima nuclear plant operator - that they discovered a hole at least one square meter in size beneath the reactor's pressure vessel, and lethal record-high radiation levels have been detected, will not likely reassure anyone.
"I still shake my head at the stupidity. One of the most overindebted countries in the history of modern finance trading with a 0% thirty year bond... But this week the market decided to test the BoJ’s resolve... The market is finally saying the demand for credit is enough to force the Bank of Japan to buy bonds to keep rates down. And that was the signal I was waiting for. I am shorting JGBs with both fists."
They’ve threatened to throw anyone in jail who’s caught trading bond notes at anything other than the official 1:1 exchange rate. Naturally these threats have only spurred the creation of a black market where Zimbabwe’s bond notes are bought and sold at their real values. Right now the bond notes are trading at 5% to 10% below the US dollar. But this is just the beginning.