Share markets rise as oil prices edge higher

Share Markets: 

Share markets in the US and Europe rose as oil prices edged higher and as US consumer confidence rose.

Flow-on effects from the recent Central Bank of Switzerland policy change also appear to have lifted US stocks. In Europe, the FTSE 100 rose 0.8% while the Dax was up 1.3%. 

In the US, the Dow rose 1.1% and the S&P 500 ended the session 1.3% higher. The Australian market appears set for a solid opening.

Interest Rates: 

US 10 year government bond yields jumped 10 basis points following their sharp decline so far in 2015.

Renewed interest in equities sat behind the spike.

In Australia, bond yields continued to decline as demand for government paper remains firm in the wake of financial market turmoil following the policy announcement in Switzerland last week to end the Swiss franc cap against the euro.

Three year Australian government bond yields fell 9 basis points to 2.08% while the overnight cash rate remains at 2.50%.

Foreign Exchange: 

The US dollar index made a fresh 11-year high over the weekend.

At the same time, the euro fell to an 11-year low as market expectations of ECB QE next week remain high. 

The AUD begins the week marginally weaker against the USD but marginally firmer against the euro, yen, UK pound and the NZD.

Commodities: 

The price of oil moved higher as the US economy continued to show signs of growth and as the low oil price saw US drilling activity decline. Copper and gold prices also picked up.

Australia:  

No significant data released.

China:

National Bureau of Statistics data showed new home prices in December fell in 68 of the 70 major cities it monitors.

The average decline came in at 4.3%. At the same time, however, property sales volumes in December were up 9% on November, possibly due to policy concessions and a decline in official interest rates.

Japan:

The tertiary industry index rose 0.2% in November, following a 0.1% decline in October.

Europe: 

The Eurozone's annual headline inflation rate was unrevised at negative 0.2% in December, although the annual core rate was revised down a tick to 0.7%. 

The ECB meets this week and further announcements regarding its quantitative easing program, including the purchase of sovereign bonds, are expected

New Zealand: 

No significant data released.

United Kingdom:

No significant data released.

United States: 

US industrial production fell 0.1% in December, constrained by autos, down 0.9%, and utilities plunging 7.3%.

The latter was a function of the weather normalising after November's cold snap, unwinding demand for gas and electric heating power.

Overall, manufacturing rose 0.3% in December after November was revised up from 1.1% to 1.3%.

The headline decline in industrial production masks underlying industrial strength. Annual growth in factory output and broader industrial production are both running at 4.9%, either at or close to cyclical highs.

US consumer prices fell 0.4% in December led by a 4.7% fall in energy (gasoline prices fell 9.4%), with some offset from a 0.3% rise in food prices.

Core CPI was flat in December, with falls in apparel, new and used autos, alcohol and transportation services (airfares down 5%) offset by modest gains elsewhere.

The annual core rate of inflation of 1.6% matched its cyclical low of 1.6% in February last year.

The annual pace of headline inflation came in at 0.8% in December. With inflation remaining low, the Fed can remain patient as it assesses the right time to begin retightening monetary policy.

US consumer sentiment rose to a decade high of 98.2 in the preliminary January reading of the University of Michigan index.

Expectations and current conditions both continued to rise.

Ongoing falls in gasoline prices would be a major factor at play, but it should also be noted that medium to longer term inflation expectations at 2.8% in January remain at the midpoint of the 2.6-3.0% range of the past few years.

Short term inflation expectations have fallen however, to their lowest since 2010 in January, at 2.4%.


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