European Outlook: The global stock rally continued in Asia overnight and the Nikkei closed with a 1.81% gain. The fact that the DOW managed to finally pass the 20000 mark has boosted investor confidence and banks, insurers and brokers led the Toix higher. Rising long term yields are creating a better climate also in Europe where the DAX managed to close above the 11800 mark Wednesday. U.K. and U.S. stock futures are still moving higher and further gains on bourses will likely keep upward pressure on yields and support a further steepening of the yield curve. The FTSE 100 is likely to continue to underperform as Sterling moves higher. OIl prices are also picking up and the front end WTI future is trading above USD 53 per barrel.
BOE Carney Risk in Fintech Boom: Reuters reported, the fast-growing financial technology (Fintech) sector could hold big “systemic risks” for the banking sector and the broader economy which need to be addressed by bank regulators around the world, Bank of England Governor Mark Carney said on Wednesday. “The challenge for policymakers is to ensure that Fintech develops in a way that maximises the opportunities and minimizes the risks for society,” Carney said in his speech. ” After all, the history of financial innovation is littered with examples that led to early booms, growing unintended consequences, and eventual busts.”
New Zealand: The dollar rose to a 2 ½ high after inflation climbed back into the Reserve Bank’s target band, effectively scrapping the prospect of further rate cuts. Government figures yesterday showed that CPI rose 0.4 per cent in the December quarter for an annual increase of 1.3 per cent as the recovery in global oil prices pushed up local petrol costs and as the rampant housing market continues to drive rapid house price gains. The local currency climbed as high as 73.12 US cents, the highest since November 9, and recently traded at 73.07 cents from 72.70 cents immediately before the release, while two-year swaps rose 4 basis points to 2.42 per cent.
German IFO: Unexpectedly drops in January. The headline reading fell to just 109.8 from 111.0 in the previous month, the lowest number since September. The decline was driven largely by a huge drop in expectations reading, which fell back to 103.2, the lowest since August and down from 105.5 in December. The current conditions indicator improved slightly to 116.9 from 116.7 in December. The breakdown showed that contrary to the improvement in the manufacturing PMI yesterday, the manufacturing reading in the Ifo declined, although this was in a broader down move across all sectors. The overall reading remains at high levels, consistent with ongoing growth, but at least the Ifo suggests that growth dynamics have slowed down somewhat at the start of the year.
Main Macro Events Today
- UK GDP – Quarterly GDP figures expected to fall to 0.5% from 0.6% last time.
- USD Home Sales – December new home sales data expected to show a 2.0% headline decrease to a 580k pace from 592k in November and 563k in October. Other housing measures have been mixed. The NAHB jumped to 69 from 63 in November and starts improved on the month but existing home sales slowed to 5.490 mln from 5.650 mln in November.
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