The turn of the year was relatively peaceful with a continuation of weaker global manufacturing data through the PMI releases, which did not hinder the continuation of a global stock market rally. This rally, spurred on by the high level of liquidity supplied by the major central banks, reached a new all-time high in the S&P with the FTSE 100 a whisker away from achieving a similar performance. That was until the airstrike in Iran by US forces. Thereafter, a risk-off market developed with stocks falling and US Treasuries rallying with the 10-year up over a point. Gold and oil also rallied with gold reaching new highs last seen in 2013, and Brent pushed through the $70 a barrel level.
Bond spreads widened marginally across our Middle East positions, as longer-dated issues saw some selling, with bonds off around 50 cents in price. By way of example Qatari sovereign paper maturing in 2040 was trading at 144.50 on 31st December and this morning they are bid at 144.00. The Aramco bond maturing in 2039 was priced around 107.25 at year-end and this morning they are bid at 106.65; so very little impact in pricing. We continue to monitor the situation closely and will take the appropriate action should the situation escalate. Elsewhere, bonds are broadly unchanged as market liquidity returns with sovereign paper in Europe rallying a couple of basis points to catch up with the US Treasury market.
This week is pretty busy on the data front, with Non-Farm Payrolls (NFP) in the US on Friday preceded by non-manufacturing ISM, PMI data, durable goods, factory orders, ADP employment and trade data. By way of a note, the last release of NFP came in way above the calls at 266k while the ADP measure was way below the calls at just 67k. This time they are both expected in the 160k region, so worth watching. In the UK we have services PMI and in the Euro area in totality we have PMI, CPI, PPI, as well as retail sales and unemployment. Particularly of interest will be the industrial production data in France and Germany. In China, we also have a “gaggle” of releases with CPI, PPI, money supply, Caixin PMI, and aggregate financing data.
In the land of central banks, nothing this week apart from the last Riksbank minutes. We will have a number of Fed speakers to contend with, along with $38bn in three-year notes, $24bn in ten year notes and $16bn in thirty year bonds in the weeks’ US Treasury auctions.