Japan returned to trading overnight and caught up quickly with the Nikkei gaining 2.5%. The New Year’s party for other countries, however already appears to be over with US index futures up marginally and European indices down marginally.
There was more good economic news from around the world overnight, with Japan manufacturing PMI, UK construction PMI and Germany service PMI plus Spanish employment all coming in above expectations. Signs of a stronger global economy, combined with indications of rising inflation yesterday in the US and Germany plus the Eurozone today, mean that central banks are unlikely to add to monetary stimulus this year, ending the easy money party that has sent stocks soaring in recent years.
While an improving environment for business can be seen as positive for corporate earnings in the long-term, the adjustment away from monetary crack to a normalized environment could put stock markets into consolidation mode for several months at some point this year.
Improving economies in Asia and Europe have boosted the outlook for resource demand helping WTI and Brent crude oil to bounce back a bit from Tuesday's takedown. Copper, meanwhile, has added another 0.9% to this week's gains. Unseasonably warm weather is keeping the pressure on natural gas. However, rising commodity prices may add to inflation pressures and add to the push away from full on central bank stimulus. These gains may help to support resource stocks, resource currencies like CAD have been on the rebound today.
The main event in North America today is the release of the minutes from the last FOMC meeting. The decision to raise rates at the meeting and the dot plot forecast are priced into the market already, but any indication of how many rate hikes to expect this year or when the next increase may arrive could impact trading today, particularly in USD and other currencies.
The US dollar has faded a bit this morning, particularly relative to precious metals (gold and silver are both up 0.4%) and the euro which is back above $1.0400, indicating some traders may be thinking the minutes could be less hawkish than the feeling at the time.