Dr Alex Joiner ANZ Bank's economist for Macroeconomics & Interest Rate Strategy, gives his read-out of the overnight market movements.
Bonds
US Treasury bond yields retraced early gains overnight as US stocks came off their highs and an $8bn auction of inflation-linked 10-year notes (TIPS) found solid demand. The yield on the 2-year note ended the session slightly higher at 0.8%. The yield on the 10-year note ended little changed at 2.48% after touching 2.6% earlier in the session.
Australian bond futures outperformed the US market in a volatile session. The 3-year Mar-09 bond future contract rose 2basis points to 96.45 and the 10-year Mar-09 bond future contract climbed 4basis points to 95.74.
Equities
US equities were higher overnight on hopes that President-elect Barack Obama's tax cuts and fiscal stimulus plans would bolster the economy. At the time of writing, the DJIA was up 0.6% to 9003, the S&P500 was up 0.6% to 933 and the Nasdaq was 1.4% higher to 1650. European equities were also higher, helped by speculation of further interest rate cuts in the near future. The DJ Euro Stoxx 50 closed higher 1.0% to 2578 and the FTSE100 closed up 1.3% to 4639.
The Australian SPI 200 March futures contract rose 60 points to 3776.
Currencies
Early US dollar gains were pared back later in the session as minutes of the December FOMC meeting indicated that policy makers were keen to keep interest rates low for an extended period of time in order to support the US economy. Meanwhile, the EUR weakened on a slower than expected inflation read in the Euro zone, giving the ECB more room to cut interest rates. The EUR/USD fell as low as 1.3313 before recovering around 1.35 on the release of the Fed minutes, while the UK's pound surged over 4 US cents to within a whisker of GBP/USD1.50. The EUR/GBP fell to 0.9050, and the USD/JPY weakened to 94.62 before recovering around 93.80.
The Australian dollar made solid gains against most major currencies as risk appetite continues to improve. The AUD/USD surged 2 US cents from below 0.7050 to around 0.7250, the AUD/EUR appreciated above 0.5350, while the AUD/JPY is 2 JPY higher around 68. However, a strong GBP matched AUD gains, with the AUD/GBP moving as high as 0.4930 before retreating back around 0.4850.
Commodities
Oil prices were slightly higher overnight, despite reports of a worsening US economy, as the conflict in the Gaza Strip continued and on signs that OPEC production cuts were flowing through to producers. Crude oil for February delivery rose 0.7% to US$51.09 a barrel.
Spot gold was higher 0.7% to US$865 an ounce on speculation that the US dollar would lose momentum.
Base metals were mixed last night, partially supported by hopes of a US economic stimulus package and as major index funds rebalanced their portfolios. LME copper futures rose 7.8% whilst aluminium and nickel futures were 1.4% and 2.7% lower respectively.
US wheat futures climbed 4.3% on speculation of increased export demand. Soybean and corn futures were 2.9% and 3.9% higher respectively on poor weather conditions in South America and higher oil prices.
Overnight Data and Events
The US ISM non-manufacturing index unexpectedly improved by 3.3 points to 40.6 in December. Most of the sub-indexes were higher, including business activity, new orders, and employment, although all remain at low levels. Employment in particular is at just 34.7, a level consistent with significant job losses.
US Factory Orders dropped by 4.6% in November, weaker than expectations for a 2.3% fall. This followed a revised 6.0% drop in October.
US pending home sales were down by 4% in November, weaker than expectations for a 1% drop. This follows a revised 4.2% fall in October (originally reported at -0.7%).
The flash estimate of Eurozone CPI for December showed a fall in headline inflation to 1.6% YoY from 2.1% YoY in November. Headline inflation was lower than expectations for a drop to 1.8% and is the lowest rate in 26 months, supporting expectations for a rate cut from the European Central Bank next week.
The UK Services PMI was broadly unchanged at 40.2 in December, better than expectations for a fall to 39.0%.
UK Nationwide House Prices dropped by 2.5% in December, weaker than expectations for a 1.5% fall, to be 15.9% lower over the year.
UK Nationwide Consumer Confidence fell by 4 points to 47 in December.
The South Korean Government announced a 50 trillion won ($53bn) plan to invest in infrastructure and environmental projects. The plan is estimated to create over 140,000 jobs this year.
Upcoming Data and Events
NZ: Trade Balance (Nov): Market: -$775.0M Last: -$$942.0M - 21:45 GMT
Australia: Retail Sales (Nov) _ sa mom: ANZ: -1.1% Market: -0.4% Last: 0.7% - 00:30 GMT
AU: Retail Sales (Nov) - trend mom: ANZ: 0.0% Market: 0.1% Last: 0.2% - 00:30 GMT
EU: Euro-zone PPI (Nov) - mom: Market: -1.0% Last: -0.8% - 10:00 GMT
