Warm weather and hot US economy cool markets

The New Year’s rally ended up not lasting very long despite a number of positive economic announcements. The better than expected Chinese manufacturing PMI report helped to boost Asia Pacific stocks and commodity prices. A better than expected US manufacturing PMI report sent the markets downward instead.

It appears that traders took the strong US ISM PMI report, particularly a big jump in the prices paid component and new orders as a sign that inflation pressures could be building which could increase pressure on the Fed to raise more aggressively. That kept a tailwind behind USD and increased the headwinds on stocks. Once again a charge by the Dow fell short of 20,000 while the NASDAQ 100 remains stuck below 5,000.

Indices weren’t helped by a big tumble in energy prices which took energy stocks down the drain with them. Unseasonably warm weather in consuming regions sparked a 10% plunge in natural gas while turning a 2.5% gain in WTI into a 2.5% loss. Colder temperatures are apparently on the way which could spark a reversal at some point.

Today could see Japanese markets take the spotlight on their return to trading from a holiday and with Japanese manufacturing PMI due today. Around the rest of the world, service PMI reports may be the main focus. The Fed minutes probably will be a non-event unless we see some kind of hint on whether to expect another increase in March or not.

Corporate News

There have been no major announcements after the US close today.

Economic News

Significant announcements released overnight include:

US construction spending 0.9% vs street 0.5%

Germany unemployment change (17K) vs street (5K)
Germany consumer prices 1.7% vs street 1.4% vs previous 0.8%
Australia commodity index 45.5% vs previous 32.1%
Singapore GDP 1.8% vs street 0.3%

Manufacturing PMI reports:

Canada 51.8 vs previous 51.5

US Markit 54.3 vs street 54.2

US ISM 54.7 vs street 53.7
US ISM prices paid 65.5 vs street 55.5
US ISM new orders 60.2 vs previous 53.0
US ISM employment 53.1 vs previous 52.3

UK 56.1 vs street 53.3

China Caixin 51.9 vs street 50.9
Australia 55.4 vs previous 54.2

Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)

8:00 am GMT Spain unemployment street (50K) vs previous 25K

10:00 am GMT Eurozone consumer prices street 1.0% vs previous 0.6%
10:00 am GMT Eurozone core CPI street 0.8%

2:00 pm EST US FOMC meeting minutes

Service PMI reports:

11:30 am AEDT Japan manufacturing previous 51.9

4:00 pm AEDT India previous 46.7

8:15 am GMT Spain street 52.6
8:45 am GMT Italy street 53.0
8:50 am GMT France street 52.8
8:55 am GMT Germany street 53.8

9:30 am GMT UK construction street 52.5

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