While a global rally for equities is stealing headlines, commodity markets are also on a tear with both Brent crude oil and copper up by almost 5 percent for the week. Despite the rebound for some energy products, the forward curve in futures markets continues to reflect muted longer-term expectations as greater efficiency and increased global supply dampen enthusiasm. For markets adjusting to a post-Federal Reserve tightening environment, this continued lack of inflationary pressure opens the door to further loosening in developing economies. While the prospects of a currency war among the more rapidly growing global economies casts a shadow over markets, some leaders are sending a message that these worries are overblown. Overnight, Chinese Premier Li Keqiang, speaking at a World Economic Forum event in Dalian, China asserted his nation’s intention to make no more moves to devalue its currency in pursuit of competitive advantage for exports.
Japanese equities surge. In Japan, the benchmark Nikkei 225 Index rose by almost 8 percent in trading overnight as Prime Minister Shinzo Abe pledged to reduce corporate taxes. The sudden spike in share prices, the largest since 2008, was echoed in stock market rallies throughout the region, including in China, where the Shanghai Composite Index rose by nearly 2.3 percent for the session.
China to adjust GDP calculations. The National Bureau of Statistics announced on Wednesday that it will alter its calculation method for gross domestic product to adhere more closely to international conventions. The move, which will make growth data more responsive to seasonal fluctuations, will be deployed for third quarter figures slated for release in October.
U.K. factory output slows. July industrial production data released today by the Office for National Statistics was much softer than anticipated by economists at a contraction of 0.4 percent versus June. In advance of Thursday’s Bank of England rate announcement, this signal of sluggish activity measures adds to dovish expectations. Currently, ten-year Gilts trade at an almost decade-high yield spread to equivalent U.S. Treasuries.
Apple to reveal new products. In San Francisco today, Apple will hold an annual trade event that will include the debut of new consumer products. In addition to a new-generation iPhone, analysts anticipate the company introducing a new, larger iPad and wearable devices.
Portfolio Perspectives: Have Equities Found Their Feet?
“Distinguishing between a short-squeeze and a bounce seems to be splitting hairs — futile in the moment. The move up in Asian shares led by Japan rests on talk of more policy action and that makes the bounce back even more dangerous — as the mood swing from despair to joy becomes childlike, as if markets have become a character from Winnie-the-Pooh — Tiggers bounce and are wonderful.”
Robert Savage, CCTrack
“The 2.5% jump in the S&P 500 Index left spot VIX sitting at 24.90. Although down sharply from the August 24 high just above 40, the history of similar-magnitude shocks suggests that spot may not dip below the long-term mean around 20 for some time.”
James Strugger, MKM Partners