Stock markets around the world have taken the baton from oil overnight. Chinese exports surged above expectations last month, particularly in CNY terms which has been taken by traders as a sign of improving global economic conditions. The Hang Seng has been leading the charge rallying 3.1% while mainland China indices rose 1.4% and the Nikkei climbed 2.8% also getting help from a retreating yen.
US index futures are climbing again this morning with Dow and S&P futures up 0.5% and NASDAQ futures up 0.7%, rising a bit less than European markets where FTSE is up 1.3% and the Dax is up 2.0%. US traders may be waiting for retail sales and producer price reports before getting too enthusiastic.
Despite a big 6.2 mmbbl jump in US API inventories, WTI crude oil has held up really well overnight. Not that long ago such a report would have sent oil down the drain. This time, however, bears were only able to put a lid on a rally not send oil hurtling back downward. Even OPEC cutting its 2016 demand forecast by 50,000 bbl/d to 1.2 mmbbl/d hasn’t been able to put a dent in the price.
This indicates that the oil market has attracted significant support ahead of this weekend’s Qatar oil producers meeting where a production freeze deal is expected to be nailed down. Oil and gasoline could be active again later this morning around the weekly DOE inventory reports.
Between crude oil action and the Bank of Canada decision, today could see significant activity in Canadian stocks and CAD. With Canada retail sales growing 2.1%, core CPI 1.9%, Jan GDP up 1.5%, housing starts above 200K, and 40K jobs added last month including 35K full time there’s no reason for the central bank to cut rates and with CAD having bounced back dramatically since the last meeting, there’s no reason for a rate hike either. Based on this, the Bank of Canada looks likely to take a neutral stance and not make any policy changes.
Currency trading finds USD on the rebound this morning, with gold down about 1.0%, JPY, GBP, EUR and continental currencies down 0.5%-1.0%, and resource currencies like CAD, AUD and NZD down less than 0.5%. Overall, this action, combined with rising stocks and commodities indicates a shift among traders back into risk-on mode with capital leaving defensive havens for more aggressive stances.
I find this shift in market sentiment particularly interesting coming at a time when I’m seeing a lot of commentary out there suggesting this could be the worst earnings season since the last recession. I disagree with that assessment and think that the markets are telling us expectations may be overly pessimistic and that there’s potential for significant positive surprises this time around.
The surprises may be getting underway as JPMorgan Chase (NYSE:JPM) has reported earnings per share of $1.35, well above the $1.26 the street was expecting, which could give US bank stocks a boost this morning.