Investors Catch Breath, Markets Consolidate

After a dramatic run since the US election, the capital markets are consolidating today. It is a bit too restrained to such a Turn Around Tuesday is unfolding. The euro is struggling to sustain corrective upticks through $1.08, and after a pullback is, the greenback pushed back above the JPY108 level like a beach ball held under water.  

In fairness, the selling pressure on US Treasuries, a key driver in the recent moves, seemed to dissipate yesterday, though the bears made a stand in late-afternoon turnover. The 10-year yield is off six basis points to 2.20%.It reached 2.30% at its peak yesterday. Another market that has born the pressure of the post-US election moves has been emerging market equities.The MSCI Emerging Market equity index is snapping a four-day more than 9% drop.However, its 0.3% gain off four-month lows is indicative of the thus far flattish consolidation after big moves. 

Gold is up around 0.4% from a five-month low. Oil is up nearly 2.2%. Both have fallen almost 4.5% in the past three sessions. On the other hand, the industrial metals, which have rallied strongly, are lower today, including copper, iron ore, and zinc. The recent surge in the Nikkei and Shanghai Composite has also faded with minor losses being reported. As a small aside, the Topix did manage to rise 0.2%, led by the financial sector (~+1.4%) as the three largest banks reported better than expected earnings (despite the negative interest rates). While the MSCI Asia Pacific Index eked out a small gain, the exchanges in Indonesia, Philippines, South Korea and Taiwan all reported net foreign equity sales continued today.  

There have been several economic reports. The two most interesting developments are that price pressures eased in the UK, despite sterling’s weakness, and Italy’s Q3 GDP rose faster than Germany’s.   

October consumer prices in the UK rose 0.1%. The market had looked for a 0.3% increase. This saw the year-over-year rate slip to 0.9% from 1.0%. The core retreated to 1.2% from 1.5%, matching the low of the year, last seen in May. Several MPC member and BOE Governor Carney will be speaking before Parliament today. Although the ONS says, there is little sign that outside of fuel the weaker pound is feeding through to general prices.However, the rise in producer input prices (4.6% a record jump) and output prices (2.1% year-over-year is the largest increase in almost five years) illustrates why some believe there is pressure building.