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Market Update pm

Sterling Tumbles after Weak Production Data

Sterling drops sharply today after weaker than expected economic data.

UK industrial production dropped -0.7% mom, rose 0.9% yoy in November versus expectation of 0.0% mom, 1.7% yoy.

Manufacturing production dropped -0.4% mom, -1.2% yoy versus expectation of 0.1% mom, -0.8% yoy.

BRC retail sales monitor rose 0.1% yoy in December.

BoE rate decision will be a focus later in the week but the central bank is expected to keep interest rate and asset purchase target unchanged. While there are still some speculations that BoE would hike rates mid this year, more economists are pushing away their expectations. Some now expect BoE to delay rate hike to Q4, or even to 2017.

Three major factors are:

  •  the uncertainty over EU referendum,
  • return of global risk aversion and
  • persistent weakness in energy prices and its impact on inflation.

In Eurozone, ECB governing council member Josef Bonnici said that “the oil price fall has some positive impacts through raising the purchasing power of euro zone households and this reinforces the asset purchase programme.” And, “there is also an impact on inflation, not in the desired direction, so there is some degree of offsetting between these factors.”

Stocks &Currencies 12 Jan 2016

 

China dumps Treasuries, Investors elsewhere see no Better Place to Be

Chinese Holdings of U.S. Treasuries Fell Last Year

The big draw-down in reserves and the surprise weakening of the yuan is fueling concern the slowdown in China is even worse than most anticipate and will drag down the rest of the world. In December, economists surveyed by Bloomberg said China’s economy, second only to the U.S. in size, will grow 6.5 percent this year, which would be the least since 1990.

To BlackRock, that takeaway is far more important to debt investors than any temporary supply-demand issues raised by China’s sales of Treasuries.

“You have these technical factors, but that’s losing sight of the forest for the trees,” said Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock, which oversees $4.5 trillion. “If China’s a big seller of Treasuries, and that gets everyone else thinking it’s massively deflationary, people will get fearful and go to quality. That’s where the demand for Treasuries will come from.”

So far, U.S. money managers have stepped in to fill the void. They bought 42 percent of the notes and bonds sold at U.S. debt auctions last year, the highest share since the Treasury started breaking out the data five years ago and more than twice the long-term average.

American investors of all types are also boosting their holdings of Treasuries by the greatest percentage since the financial crisis erupted in 2008, data compiled by Bloomberg show.

The lack of risk appetite may keep Treasuries in demand well into 2016. Jitters over China, the rout in equities and tumbling oil prices are already dimming the prospects for growth and inflation in the U.S., and convincing traders the Fed will have to go easy on rates this year.

OIL :

Crude carnage continues and despite the best efforts of the USDJPY pumpers, US equity markets are tumbling along with oil (and copper)…

Crude Curve Collapses – Market Sees Sub-$50 Oil Through 2021

The crude curve has just collapsed, especially since the rebound after China’s Golden Week reprieve ended around October 15.

As Alhambra’s Jeff Snider notes, the entire futures curve is under $50, an upsetting commentary on everything from US “demand” to long-term implications and especially those that are derived from economists’ somehow continued insistence that this is all just “transitory.”

 

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