The roller coaster ride continues

Oil prices fell once again on Tuesday, and equity sentiment followed suit. February is showing all the signs of repeating January’s volatility as this roller coaster ride looks like its set to continue for a while yet. We pointed out at the start of the week what a busy one it is for macro data. On Monday we had US inflation data in the form of the personal consumption expenditure price index. The index was flat month on month and had grown by only 1.4% year on year. The Institute for Supply Management and the research company Markit produced their index readings for December US manufacturing. Markit’s survey was more optimistic than the ISM’s. The ISM reading came in at 48.2 suggesting the manufacturing base is shrinking, Markit’s index came in at 52.4. It would appear greater significance is placed on the ISM reading.

The UK manufacturing base appears more robust than most large developed economy as December’s Markit index reading came in 52.9, a rise from the previous month of 51.8.

The European economy has shown signs of improvement over the past months, this improvement is still not reflected in employment numbers, or it would appear in inflation. The unemployment rate for the euro area fell marginally in December to 10.4%, and the producers price index fell 3% year on year. Pieces of data such as these are only likely to add to Mario Draghi’s desire to push ahead in March.

Bond markets in the US continue to lose faith in the likelihood that the Federal Reserve will be able to fulfil their desire to raise rates four times this year. Two year yields have fallen to 75bp and the ten year which at one point in the past year reached 2.4%, fell back below 1.9% on Tuesday. Almost acknowledging this point was Fed vice chair Fischer, was quoted on Monday saying in the face of the volatility he did not know what the Fed’s next move might be.

The FT reported on Monday that the steel sector is set to return for growth in 2016, with so many negative macro headlines this feels like a little ray of sunshine through a cloudy sky, as the steel sector is often seen a lead indicator for global growth. Two contrasting pieces of evidence that could demonstrate the impact the fall in oil has on different parts of the global economy. A Merrill Lynch piece of research suggests that the unprecedented fall in oil prices has handed back $3tn back to the consumer and sees demand for oil increase at the fastest rate in ten years. The global economy in total is circa $77tn, an extra $3tn is a solid boost. On the flip side Nigeria became the latest emerging market to ask for funds from the IMF to support their economy as the fall in the oil price bites. 

Posted on February 3, 2016 .