February 9, 2018, 6:50 am EST
After taking another tumble Thursday, major markets indices in the US, Japan and Europe are trying to regain their footing this morning, trading up off of yesterday’s lows near the low end of yesterday’s ranges. The Hang Seng, however, sold off again and remains under pressure following weaker than expected Chinese inflation, which, along with a smaller than expected trade surplus, have raised questions about the health of the Chinese economy.
Markets have gone through quite a correction over the last week and when shocks like this happen, it takes a number of days for trading to stabilize. There does appear to be a trading range emerging between this week’s washout lows and rebound tops where trading could be contained in the near term. Overall, this week’s action indicates that 2018 is likely to be a year of higher volatility and less complacency than 2017.
US interest rates (treasury yields) continue to climb, indicating that the street is anticipating a more hawkish Fed going forward than we have seen in recent years, supported by a strong economy and rising inflation. This outlook continues to support a US Dollar recovery which is keeping other currencies back on their heels. In particular, the greenback is gaining ground on gold and JPY, a sign that the flight into safe havens may be easing.
Commodities are trading flat to lower this morning. WTI crude is stabilizing near $60.00 with Brent trying to find a floor near $65.00. Copper is under pressure again on more China weakness, while Natural Gas is down 2.2% as we move into the latter stages of home heating season. Grains are also lower again this morning with wheat falling 1.0%
Canada is in the spotlight for trading today. The monthly Canada jobs report is due at 8:30 am EST. For the second month in a row, the street is expecting job growth to slow dramatically this time to 10K from 78K. I still think the street is being overly pessimistic about Canada, especially with the oil price still trending upward for the last month. I think we could see a 25K increase this month. Canada also dominates earnings reporting with results due from CAE, Cameco and Emera.
Please note that I will not be publishing market commentary next week.
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