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Market Update: Oil Edges Higher and Gold Breaks $1300

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Market Levels

  • US: Dow Futures: 17392.00 (-0.40%), S&P 500 Futures: 2012.25 (-0.22%), NASDAQ Futures: 4158.00 (-0.22%)
  • Europe: CAC: 4414.93 (-0.70%), DAX: 10180.41 (-0.77%), FTSE: 6658.99 (0.59%).
  • Metals: Gold: 1302.00 (0.60%), Silver: 18.345 (2.17%), Copper: 2.568 (-1.00%)
  • Energy: Crude Oil: 47.39 (1.98%), Natural Gas: 2.956 (4.42%)
  • Commodities: Corn: 3.895 (-0.19%), Soya Bean: 9.835 (0.15%), Wheat: 5.440 (1.30%)
  • Currency: EUR/USD: 1.1632 (0.70%), GBP/USD: 1.5112 (-0.27%), USD/JPY: 117.2640 (-1.20%)
  • 10-year US Treasury: 1.7845% (-0.023), German 10-Year Yield: 0.489% (0.038), Japanese 10-Year Yield: 0.251% (-0.002)

Financial and Economic News Update

Global equity markets trading mostly lower: Stock markets around the globe are trading lower, a day ahead of a key ECB meeting, where the central bank is widely expected to launch a full-scale quantitative easing program. Wall Street also looks set for a lower open on Wednesday despite data showing better than expected U.S. housing starts. The Commerce Department said today that U.S. housing starts gained 4.4 percent in December to a seasonally adjusted annual pace of1.09 million units. Economists had projected starts rising to a 1.04million-unit pace last month. Before the opening bell, Netflix, Inc. (NASDAQ:NFLX) and UnitedHealth Group Inc. (NYSE:UNH) rallied in pre-market trading after both posted stronger than expected quarterly earnings.

Oil edges above $48: Brent crude inched above $48 a barrel, recovering from a drop in the previous trading session. Oil prices fell close to 5 percent on Tuesday after the International Monetary Fund slashed its 2015 outlook for global economic growth. The American Petroleum Institute will release its weekly inventory data later on Wednesday, while the more closely watched U.S. Energy Department data will follow on Thursday. Analysts expect both these data points to indicate another substantial build-up in crude stockpiles.

Gold breaks $1300 on stimulus hopes: Gold was trading above the $1300-mark, spurred by hopes of monetary stimulus from the ECB, and a softer dollar. The dollar fell against most other major currencies, making dollar-denominated gold relatively cheaper for other currency holders. Bullion prices have risen 10 percent since the start of the year, as investors seek safety amidst the economic uncertainties in Europe, and the looming prospect of a Greek default.

Bond Market News

Treasuries, German bonds drop amid market speculation that QE will fall short: Treasury 10-year bonds fell along with their German peers on concerns that the European Central Bank will deliver a smaller than expected quantitative-easing program. Traders became jittery after ECB Governing Council member Ewald Nowotny said bankers should have a longer term view, and not get carried away by one policy meeting. The median forecast is for a bond buying program in the region of 550 billion euros ($363 billion), according to a Bloomberg poll of analysts.

China’s money rate jumps the most in a month: Chinese money market rate increased on expectations that the country’s banks may hoard funds to meet a pick-up in demand for cash, ahead of the week long Lunar New Year holiday that start on February 18. The People’s Bank of China has been infusing liquidity into the system, but not through open market operations, which were last conducted in November. The seven-day repurchase rate rose 27 basis points to 4 percent in Shanghai, which is its biggest gain since December 19.

Investors anticipate “Giant” corporate bond deals in the coming months: Bankers and investors are bracing themselves for another year of mega corporate bond deals, according to a Wall Street Journal report. Last year saw U.S. investment grade companies complete 18 bond deals that were greater than $5 billion. And this year should be no different, as companies rush to take advantage of the strong demand while yields keep falling. According to the report, investors expect Halliburton Company (NYSE:HAL), Actavis plc (NYSE:ACT) and Reynolds American, Inc. (NYSE:RAI) to launch big bond sales in the coming months to help finance their recent acquisitions.

J.P. Morgan sets-up new unit to meet demand for credit index products: JPMorgan Chase & Co. (NYSE:JPM) has established a new unit that will solely focus on trading credit index products such as credit ETFs and credit default swap benchmarks. The bank said that the Global Credit Index business was created to cater to the growing demand for trading indexes instead of individual bonds, where a large number of investors complain that liquidity has been steadily drying up.

China considers opening the new Hong Kong – Shanghai link for bond trades: China is planning to allow international traders and investors to buy bonds through the new link between the bourses in Hong Kong and Shanghai. Analysts expect the proposal, which is still under consideration, to further open up the capital markets, and result in a reduction in the difference in borrowing costs in Hong Kong and mainland China.

Economic Calendar for Wednesday, January 21, 2015:

07:00 A.M. ET: MBA Mortgage Applications (January 16)
08:30 A.M. ET: Housing Starts (MoM) (December)
08:30 A.M. ET: Building Permits (MoM) (December)
08:55 A.M. ET: Redbook Index (MoM) (January 16)
11:30 A.M. ET: 4-Week Bill Auction

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Abhijit Sen

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