US markets sold off between 3:00 pm and 5:00 am yesterday around Alcoa’s earnings report. The aluminium producer beat the street on earnings but sales were disappointing and the company cut its guidance for 2016 world aluminium demand to 5% from 6% driven by lower demand forecasts for aerospace, trucking and other sectors.
Alcoa (NYSE:AA) didn’t crush the stock market, however, as indices around the world stabilized overnight and have been rebounding this morning. A better than expected business conditions report combined with rising oil and copper prices propelled Australian stocks to a 1% gain which suggests that Canadian energy producers and miners could catch a tailwind today despite Alcoa. This action also suggests that some of Alcoa’s troubles may still be related to the higher USD. Even though the greenback has started to retreat, as we saw when it was rising last year, it may take a couple of quarters before the positive impact of a lower USD for USD companies kicks in.
Rising crude oil prices suggest that street may be looking for a repeat of last week’s API (later this afternoon) and DOE (tomorrow mid-morning) inventory declines heading into the Doha producers meeting on the weekend where a production freeze is expected to be confirmed. Rising copper, meanwhile suggests improving sentiment toward China’s economy heading toward this week’s big China trade, GDP and retail sales reports.
In currency action today, GBP is the class of the field once again rallying against both USD and EUR. Rising inflation in the UK announced this morning suggests that the Bank of England may come under increased pressure to raise interest rates following the Brexit referendum in June. SEK is also rallying after Sweden also reported a pickup in inflation. This is particularly significant because Sweden is a negative interest rate country and this suggests that deflation pressures may be starting to recede which could bring an end to the monetary stimulus cycle.
European indices are mixed with the Dax up slightly and the FTSE down slightly. US index futures for the Dow and S&P are trading up about 0.3% while Alcoa traded lower in the aftermarket last night. Inflation reports continue with US import prices due this morning but the main focus may be on another parade of Fed speakers through the day. Last night, Dallas Fed President Kaplan, a non-voter this year, indicated he’s not in favour of an April rate hike but sees June as possible, I suspect a common opinion at the Fed currently.
Corporate News
Alcoa $0.07 vs street $0.02, sales $4.9B vs street $5.2B, cuts 2016 aluminium global growth forecast to 5% from 6%, dragged by softness in aerospace, trucking and other sectors.
Economic News
Significant announcements released overnight include:
UK consumer prices 0.5% vs street 0.4%
UK core CPI 1.5% vs street 1.3%
UK retail prices 1.6% vs street 1.4%
UK producer input prices (6.5%) vs street (6.2%) vs previous (8.1%)
UK producer output prices (0.9%) vs street (1.0%)
UK ONS house prices 7.6% vs previous 7.9%
UK same store sales (0.7%) vs street 2.0% and previous 0.1%
Germany consumer prices 0.3% as expected
Sweden consumer prices 0.8% vs street 0.7% vs previous 0.4%
Australia NAB bus conditions 12 vs previous 8
Australia NZB bus confidence 6 vs previous 3
NA REINZ house sales 8.2% vs previous 5.7%
Japan machine tool orders (221.2%) vs previous (22.5%)
Upcoming significant announcements include:
8:30 am EDT US import prices street (4.8%) vs previous (6.1%)
9:00 am EDT FOMC Harker speaking
3:00 pm EDT FOMC Williams speaking
4:00 pm EDT FOMC Lacker speaking