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Market Update: Treasuries Rise as ECB Increases Covered Bond Buys

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Market Levels

  • US: Dow Futures: 17506.00 (0.43%), S&P 500 Futures: 2022.50 (0.47%), NASDAQ Futures: 4158.75 (0.60%)
  • Europe: CAC: 4454.97 (1.37%), DAX: 10271.28 (0.28%), FTSE: 6636.85 (0.77%).
  • Metals: Gold: 1285.40 (0.67%), Silver: 17.755 (0.03%), Copper: 2.5845 (-1.24%)
  • Energy: Crude Oil: 47.09 (-3.29%), Natural Gas: 2.895 (-7.42%)
  • Commodities: Corn: 3.835 (-0.90%), Soya Bean: 9.842 (-0.76%), Wheat: 5.312 (-0.28%)
  • Currency: EUR/USD: 1.1597 (-0.10%), GBP/USD: 1.5194 (0.54%), USD/JPY: 118.5720 (0.84%)
  • 10-year US Treasury: 1.8068% (-0.008), German 10-Year Yield: 0.454% (0.014), Japanese 10-Year Yield: 0.222% (0.003)

Financial and Economic News Update

Global equity markets trading higher: Stock markets around the globe are trading higher amidst increased investor optimism that the European Central Bank will introduce a full-scale quantitative easing program. Wall Street also looks set for a higher open on Tuesday as investors await the release of some key quarterly earnings. Before the opening bell, Johnson & Johnson (NYSE:JNJ) posted quarterly earnings that beat the average analysts’ estimate by a penny a share. In economic news, the January NAHB Housing Market Index will be out at 10:00 am ET, with analysts expecting a marginal rise in the index.

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Oil trading below $49: Brent crude was steady below the $49-mark after the International Monetary Fund Oil slashed its global economic growth projection for 2015. The IMF forecast the world economy to expand by 3.5 percent this year, lower than its previous estimates. Disappointing economic data from biggest energy consumer China also depressed oil prices. Data released by China’s National Bureau of Statistics showed that the country recorded its weakest annual expansion in 24 years. U.S. crude plunged more than 3 percent after resuming trading following the extended weekend.

Gold trading at its highest level in more than 4 months: Gold prices jumped close to a percent to its highest since early September as continued uncertainty in the global financial markets drove investors to the safe haven metal. Nervous traders and investors closely await the outcome of Thursday’s ECB meeting, which should see the launch of a new quantitative easing program. Buying accelerated after the breach of the previous session’s highs, which lead to a lot of stops being triggered.

Bond Market News

Treasuries rise amid increased hopes of ECB bond buying: Treasuries rose on Tuesday, ahead of a key European Central Bank meeting on January 22, at which President Mario Draghi is widely expected to unveil a program of government bond purchases. The current rally has also been helped by falling oil prices and the steady flow of capital from Europe where most government bond yields are at record lows. Treasuries have managed to return 2 percent this year through yesterday, compared to a loss of 1.8 percent in the S&P 500 Index.

Morgan Stanley reports dip in bond-trading revenue: Morgan Stanley (NYSE:MS)’s fourth quarter profit missed analysts’ estimates as revenue from fixed-income trading fell more than expected. The owner of the world’s largest brokerage said fixed-income trading revenue dropped 14 percent to $599 million, which is the lowest quarterly figure since the end of the financial crisis.

ECB increases covered bonds purchases: The European Central Bank increased its purchases of covered bonds by 1.8 billion euros ($2.1 billion) in the week to January 16, according to a Reuters report. The central bank, which is trying to expand its balance sheet to ease financing conditions in the region, also acquired 327 million euros worth of asset backed securities over the same weekly period.

EU Companies may face steep rise in funding costs: Companies based in the European Union may witness their borrowing costs rise alarmingly if the currency bloc’s market regulator rolls out its new transparency rules for bonds and swaps. The European Securities and Markets Authority is currently holding public consultations on the implementation of a proposal to increase the pre- and post-trade transparency requirements for bonds. Many analysts fear that the new bond-price disclosure rules would depress liquidity, and lead to a significant surge in borrowing costs.

New Zealand’s Kauri bond sales jump: Kauri bond sales have had their strongest start to a year as offshore issuers flood the market with new offerings. Foreign issuers have sold NZ$1.3 billion of notes so far this year versus NZ$925 million in the same period last year. Investors have been aggressively buying into New Zealand dollar bonds, attracted by a comparatively higher central bank cash rate.

Economic Calendar for Tuesday, January 20, 2015:

07:55 A.M. ET: Redbook Index (MoM) (January 16)
10:00 A.M. ET: NAHB Housing Market Index (January)
10:00 A.M. ET: Federal Reserve Governor Jerome Powell speaks.
11:00 A.M. ET: 4-Week Bill Announcement
09:15 A.M. ET: Capacity Utilization (December)
11:30 A.M. ET: 3-Month Bill Auction
11:30 A.M. ET: 6-Month Bill Auction

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David Goldstein

David is cool! :)

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