Europe
Favourable economic data including Spanish GDP and German unemployment as well as a number of corporate earnings reports helped European shares edge out small gains on Thursday.
German unemployment fell by 20k in January while consumer confidence improved to 9.7 from 9.3 last month according to GfK. Having wobbled in the middle end of last year, the German economy appears to be ticking along nicely boosted by the lower euro and the drop in energy costs. German equity and bond investors have the added advantage of extra liquidity to the tune of €60bn per month starting next week when the ECB begins QE.
Spanish GDP accelerated to 0.7% in the fourth quarter giving it an annual growth rate of 2%
The German DAX again popped up into new all-time highs above 11,250 on stronger economic data. Shares in Allianz (XETRA:ALVG) fell as much as 3% after reporting a fall in third quarter profit but Bayer AG NA (XETRA:BAYGN) topped the index when it forecasted 10% earnings growth in 2015.
UK
UK shares for a second day were not making much progress in either direction after fourth quarter growth met expectations while higher copper but lower oil prices caused a split amongst commodity sectors.
A second estimate of GDP growth in the UK for the fourth confirmed expansion of 0.5%, less than the 0.7% seen in the third quarter leaving annual growth at 2.7%. There was a slight change to the internals of the report but the theme remains that of a slight slowdown in the fourth quarter in the context of strong annual growth in the UK.
Higher Copper prices lifted UK-listed mining companies on Thursday coming off the back of better-than expected earnings in the sector. The energy sector wasn’t faring so well though with Oil prices falling after making positive inroads on Wednesday despite another build in US oil inventories.
There were no more new highs for the FTSE 100 on Thursday. The lack of immediate follow through could be a bad omen for future progress in the UK’s top benchmark. More likely though, it just reflects a culmination of unimpressive corporate earnings.
Royal Bank of Scotland (LONDON:RBS) Group PLC (LONDON:RBS) reported its seventh annual loss in a row after including a write-down of its US business Citizens Bank and charges relating to FX market rigging and mis-selling mortgages. The bank is drastically reducing its global footprint with the next move being to cut its investment banking business inside Asia and parts of the EMEA.
The underlying performance of RBS in the quarter was undoubtedly better when excluding one-off items; the trouble is those one-off items seemingly happen every quarter.
US
US stocks slipped in early trading as oil prices rolled back over and better economic data put into question the dovishness inferred by Janet Yellen in her recent testimony.
There was a mixed performance from some of the country’s best-known retailers. Sears Holdings Corporation (NASDAQ:SHLD) posted its 11th quarterly loss while Kohl's Corporation (NYSE:KSS) posted earnings above estimates.
Durable Goods orders grew by more than expected after three months of declines but excluding transportation the rise in orders missed expectations.
Headline CPI dropped more than expected but core prices firmed suggesting that the drop in energy prices has not yet fed through to the wider economy.
FX
The US dollar gained back some strength on Thursday following a turnaround in durable goods orders and a rise in the core consumer price index.
The notable move in FX markets was the euro as signs of infighting erupted back in Athens over the agreed-upon letter of suggested reforms.
EUR/USD dropped over 150 pips back towards 1.12 as motivations to sell euros and buy US dollars were presented on Thursday. Looking at EUR/JPY and USD/JPY suggests the decline in EUR/USD was more motivated as the former crashed by 1% but the latter only rose by less than 0.5% towards the end of the European session.
EUR/GBP also tanked back to new multi-year lows as GBP/USD fell back to 1.54 despite UK GDP meeting consensus.
Commodities
The Brent-WTI spread widened significantly today as WTI plummeted over 3% while Brent also declined 1%. There are modest signs of a recovery in global demand from the likes of Europe and China but in the US stockpiles are increasingly rapidly as supply still outstrips demand.
Chinese equities came back strong after their New Year’s celebrations on speculation the government will do more to stimulate the flagging economy. Copper prices rose simultaneously on the prospect of improved demand from China, breaking above $2.70 per lb for the first time in five weeks.
Gold and silver rallied early on with gold touching $1,220 per oz. but were giving a lot back as the US dollar strengthened after better US economic data.
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