Markets are trading with a significant negative tone Tuesday, with concerns over possible fiscal tightening in China, still dominating price action. This comes not only after South Korea raised their interest rates overnight; a move widely expected, but also as news comes to the fore, that China will also be introducing measures to curb rising food prices.
The economic calendar sees a busy day in North America, with the US seeing weekly sales data in both the Redbook and Goldman Store Sales, the October PPI, Industrial Production and the Housing Market Index. At the same time the Canadian September Manufacturing Survey data is also due up.
US stock futures have been underperforming in pre-market trade Tuesday, hit by the broader sell off in the stock markets after the Korean rate hike helped weigh on Asian, and then European stocks overnight.
The financial and real estate sector have generally been leading losses, as fears mount they will be hit hardest by any slow down in growth in Asia, while mining and resource stocks are also underperforming in Europe on the back of sharp losses in the commodity markets in recent sessions.
The boost on Wall St yesterday on the back of the Caterpillar acquisition, is expected to continue to offer some respite for the industrials when the market opens, although a strong rebound in the Treasury market is expected to keep money of the equity books.
In somewhat of a paradoxical move, US Treasuries saw a sharp sell off yesterday, despite the forthcoming start of the Fed buyback program (the facility used in quantitative easing), with yields on the 10-year hitting a 3-month high at 2.95%.
This sharp drop and corresponding rise in yields has brought back some investors today however, although generally speaking gains are somewhat lacklustre, the curve flattening slightly as the long end outperforms.
In Europe the peripheral sovereign bonds are seeing some respite from their ongoing weakness today, as speculation grows that EU minister will push Ireland and Portugal to spell out their plans to handle the debt when they meet in Brussels today.
This also comes amid growing speculation that Ireland will be the beneficiary of some EU bailout funds, despite the Irish government insisting that is not the case, after news the country is in “ongoing contact” with international officials.
This growing stability in the Eurozone peripheral bonds was reflected in the Spanish auction of 12 and 18-month bills today, where the Spanish debt agency, Tesoro Publico, announced they sold a combined €6.4 billion; the 12-month covered 1.9 times, and the 18-month seeing a bid to cover of 3.7 times.
In the FX market, the greenback is under pressure today following comments from the New York Fed President William Dudley yesterday, after he said that an exit from the US Federals Reserve ‘loose’ monetary policy could be years away.
As Eurozone peripheral bonds stabilise, so too has the euro, managing to squeeze out some gains today against most currency pairs, helped further by some decent German ZEW numbers. Sterling in the mean time has also seen strength coming through this morning; cable jumping 30 pips following the higher than expected CPI numbers released for the UK today.
Disclosure: no position