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Financial Markets Stabilized but Elevated VIX Suggests High Volatility Remains Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Wed Feb 07 18 00:41 ET

Financial markets stabilized. Regional stock indices generally rebounded as Asian markets open, though the magnitudes have reduced later in the session. Wall Street extended weakness earlier in the day but then pared the losses, with DJIA and S&P 500 indices settling +2.335 and +1.74% higher. European shares slumped, catching up with the selloff in the US market on Monday. The pan-European STOXX 600 index fell -2.3%, its seventh straight session decline. Treasuries were mixed. 10-year yield had a volatile day, plunging to a 2-week low of 2.648% at one point before ending the day at 2.766%, down 0.028% for the day. 2-year yield edged slightly higher to 2.093% at close after diving earlier in the day. Meanwhile, the Treasury sold US$26B of 3-year notes at a yield of 2.28%, the highest since 2007. In the commodity sector, crude oil prices remained under pressure. The losses were contained as API surprisingly reported a decline in US inventory. The front-month WTI and Brent contract fell -1.18% and -1.12% respectively.

The industry-sponsored API estimated that crude oil inventory dropped -1.05 mmb in the week ended January 30. For refined oil products, gasoline stockpile dropped -0.23 mmb while distillate soared +4.55 mmb. The EIA report today probably shows a +3.19 mmb increase in crude oil inventory. Gasoline stockpile might have added +0.46 mmb while distillate dropped -1.42 mmb.

On the dataflow, US trade deficit widened to US$ 53.1B in December, from US$ 50.4B a month ago. This not only exceeded consensus of US$ 52.1b but is also the largest deficit recorded in the post-GFC period. Both exports and imports expanded for the month. Yet, the growth in the latter surpassed that of the former. In Canada, international merchandise trade deficit widened to CAD 3.19B in December from CAD 2.71B in the prior month. The market had anticipated a narrowing to CAD 2.3B. Separately, the Ivey PMI unexpectedly fell to 55.2 in January from 60.4 a month ago. The market had anticipated a mild improvement to 60.7. In the Eurozone, German factory orders surprisingly jumped +3.8% m/m in December, after contracting -0.1% in November. The market had anticipated a milder increase to +0.7%.

Released earlier today, New Zealand employment increased +0.5% q/q in 4Q17, slightly better than expectation of +0.4% gain. However, this was markedly lower than the +2.2% growth in the third quarter. The unemployment rate dropped -0.1 percentage point to 4.5% in 4Q17, better than consensus of a rise to 4.7%. The market would also pay a lot of attention to the RBNZ meeting scheduled on NZ morning on Thursday. While it has been widely anticipated that policymakers would leave the OCR unchanged at 1.75%, the key is whether there is a change in the tone in the accompanying statement as well as Governor Spencer's speech at the press conference.

 

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