Morning Report
Today's economic developments and market movements.
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Key themes: Financial markets continue to focus on President Trump’s announcements. Speaking at the World Economic Forum, he called for lower oil prices, inflation and interest rates.
US dollar depreciated and short-term bond yields declined, but longer-term yields were higher reversing some of the losses earlier this week.
Equity markets were mixed, and commodity prices were generally lower, with the global impacts from Trump’s policies remaining a key concern.
Share markets: Asian equity indices made notable gains in the early hours of yesterday’s trading session, following the announcement of Chinese authorities about the new measures aimed at supporting its stock market. But the fortunes reversed over the course of the day as South Korea’s Q4 GDP numbers were softer than expected and markets continue to digest implications of Trump’s first days in the office. The CSI 300 managed to remain in green, in the end posting a 0.2% increase.
The positive sentiment was maintained in European and US trading hours. The Eurostoxx 50, FTSE 100 and S&P 500 were all up 0.2%, with the latter reaching a 6100 mark.
The domestic equity market was softer yesterday, maintaining the downward trend seen since around midday on Wednesday and losing 0.6% on the day.
Interest rates: President Trump’s comments at Davos about lower oil prices, inflation and interest rates sparked a really at the short-end of major yield curves. Having risen earlier in the day, the 2-year US Treasury yield eventually lost only 1bp. Meanwhile, prospects of more investment and higher growth in the US helped to push yields on longer maturity bonds higher. The 10-year US Treasury yield rose 3bp reversing the drop seen earlier this week and reaching 4.64%, the highest level since the middle of last week. Meanwhile, the 10-year UK GIlt yield remained little changed as the Chancellor Rachel Reeves suggested that the government is prepared to act if needed to address concerns about UK’s public finances.
It was a relatively quiet session for the Australian government bonds yesterday, with only marginal changes across the curve. Bond futures suggest that yields should go higher today, as the market prices in the overnight news.
Foreign exchange: After a few volatile days, initially it seemed the USD index found a somewhat stronger footing in yesterday’s trading session. But later President Trump’s remarks contributed to a larger drop in the index, with a total currency depreciation of 0.1% on the day. This provided a positive backdrop for gains in other major currencies. AUD briefly tested 0.63 before easing back slightly, still reporting a 0.2% appreciation. Having dipped below 1.04 earlier in the day, EUR gained 0.1%, while GBP appreciated 0.3%. Yen also strengthen ahead of today’s Bank of Japan policy meeting, where a interest rate hike is expected.
Commodities: Crude oil price faced conflicting drivers, with the EIA reporting the 9th consecutive drop in crude inventories, and President Trump telling Davos that he is “going to ask Saudi Arabia and OPEC to bring down the cost of oil” adding “you’ve got to bring it down”. The President got his wish on the day with the WTI price down to a two-week low of $74.3, Brent falling to $$78.1.
Metals prices were mixed in narrow ranges with traders unwilling to commit given conflicting messages on tariffs. Copper is oscillating either side of $9,200 and aluminium starting to find support just above $2,600. In iron ore markets, prices softened on signs that restocking ahead of the Lunar New Year holidays had come to an end.
Australia: There were no significant data releases on Thursday.
Euro area: The European Commission consumer confidence index rose slightly in the January preliminary reading from -14.5 in December to -14.2. Confidence has been around this level for the past six months as uncertainty over the economic recovery in euro area growth persists.
New Zealand: Having surged in the 2022-2023 period, more recently net immigration to New Zealand has settled at lower but still positive path. The latest figures for November showed that net immigration ticked higher to 2070, the highest level since June. It was driven by a small pick-up in arrivals, while the number of departures was broadly unchanged from October.
United States: President Trump addressed the World Economic Forum in Davos overnight. His message focused on improving the US’ position in global trade by rapidly increasing domestic production by both US and foreign firms. Tariffs were referred to as means to encourage this transition, with Canada, Mexico and Europe the focus of the discussion, not China. The President announced that Saudi Arabia had pledged to invest $600bn in the US over the coming Presidential term, albeit without detail on their focus, and highlighted again this week’s AI infrastructure deal with SoftBank, Open AI and Oracle. More broadly, there was a recognition that the US needed to significantly increase its power production; the focus for the President was on non-renewable sources. Another key focus of the speech was inflation and interest rates. President Trump called for the price of oil to fall and emphasised an expectation that inflation would decelerate abruptly, allowing further interest rate reductions. Regulation was also highlighted as a problem, but one that could be bypassed by executive order.
On the data front, US initial jobless claims edged higher last week from 217k to 223k, a very low level compared to historical norms. Meanwhile, the Kansas City Fed manufacturing activity index was unchanged at -5 in January, pointing to weakness and uncertainty for manufacturers in the region.
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