February 15, 2018, by Lorcan Roche Kelly
The recovery in the S&P 500 Index, which closed higher for a fourth day of gains yesterday, continues to set the tone for global stocks. Overnight, the MSCI Asia Pacific Index rose 1.5 percent in a broad rally, while Japan’s Topix index ended the session 1 percent higher despite continuing gains for the yen. In Europe, the Stoxx 600 index had gained 0.9 percent by 5:45 a.m. Eastern Time, with Airbus SE soaring as much as 10 percent after presenting a better-than-expected earnings outlook. S&P 500 futures climbed 0.7 percent in early trading.
The 10-year Treasury yield hit a high of 2.942 percent this morning as investors continue to reassess the outlook for U.S inflation and the path of Federal Reserve rate hikes. The number of increases this year expected by investors has risen to four in the wake of yesterday’s inflation data. Goldman Sachs Asset Management sees the 10-year yield hitting 3.5 percent within the next six months as monetary tightening continues.
In the wake of Jacob Zuma’s resignation after nine years as South Africa’s president yesterday, investor attention is already turning to how incoming leader Cyril Ramaphosa will deal with the problems facing the country. Initial reaction has been positive, with stocks and the South African rand rallying strongly in the immediate aftermath of Zuma’s decision to step down. In a state-of-the-nation address set for Friday, Ramaphosa will get a chance to detail plans to turn around South Africa’s moribund economy and improve the country’s reputation.
There seems to be no end in sight for the pressure on the U.S. dollar. With the recent spending and tax legislation, strategists are increasingly taking note of America’s budget and trade deficits and asking what could reverse the currency’s 12 percent decline since the beginning of 2017. The administration’s apparent happiness with the weakening greenback has only compounded concern. Factor in robust growth in the rest of the world – usually a catalyst for a weaker dollar – and analysts reckon the greenback is vulnerable to a 10 percent decline this year.
Initial jobless claims data are due at 8:30 a.m., with expectations for an increase to 228,000 from last week’s surprise drop to 221,000. Also at 8:30 a.m., U.S. PPI figures for January are released, and the latest Philadelphia Fed Business Outlook number is due. With the dollar and U.S. bonds under scrutiny, there may be more attention than usual paid to December’s TIC data at 4 p.m.