The Atlanta Fed’s GDPNow is only forecasting +0.1% growth in 1Q US GDP from 0.7% a few days ago, showing the dovish turn by the Fed had a solid basis in the economic data. The rally in the oil price was a positive for equity markets on Friday and Asian markets are looking to move higher today as well. The Big Aussie miners had a very strong session on the FTSE, which is a good signal for the ASX, but, of course, for good gains today the under pressure banks will also have to find buyers.
The Baker Hughes oil drill rig count declined by 8 rigs on Friday, seeing three straight weeks of declines. The oil price is clearly in a very volatile state in the lead up to the oil producers meeting on 17 April, with optimism about a potential deal adding buoyancy to the spot price. In such a scenario, the decline in crude oil inventories in last week’s Department of Energy report and the decline in the drill rig count are adding some positive fundamental developments to the deal-induced oil price speculation. If this oil price buoyancy continues throughout the week in the lead up to 17 April that is going to be a major positive in the equity space, with the oil price correlation with equities jumping sharply last week.
The Asian session is slated to see the release of some major market moving releases. Aussie home loans data, Japanese machine orders and Chinese CPI and PPI are all released today. Aussie home loan data has a lot of month-to-month volatility and is expected to increase +2.0% MoM after a sharp 3.9% decline in January. But the focus will very much be on how owner-occupier lending is holding up after the new APRA regulations have severely slowed investor lending growth.
Chinese CPI is expected to increase 2.4% YoY from a prior 2.3%, but the real focus will be on food inflation. Food prices jumped 7.3% YoY in February, yet Core CPI and Non-Food CPI both eased. This potentially creates a headache for China’s central bank as further monetary policy easing is clearly necessary, but out of control food price inflation could restrain their ability to ease as much as is necessary. On the positive side, the weakness in the USD has eased pressure on China’s FX reserves and the corresponding pressure on liquidity conditions making monetary policy easing less pressing. However, further cuts to interest rates and the reserve requirement ratio will be needed to continue China’s resurgent 1Q activity momentum.
US earnings season kicks off today with Alcoa reporting after session, but the first of the big names don’t start reporting until Thursday with Blackrock, Wells Fargo and Bank of America all reporting then.