Daily Market Color

Earnings Season Marches On

Stocks, Crude Climb Further

US stocks rose once again following the government’s agreement on a stopgap bill to temporarily extend funding through February 8th.  The NASDAQ (+0.7%) posted the largest gains on the day, highlighted by a 10% rise in Netflix shares to a new record high after the company’s quarterly earnings far exceeded expectations.  Of the companies that have reported their Q4 2017 results thus far, over 80% have beat median forecasts.  Emerging-market equities have generally enjoyed a similar move up to begin the year, with the MSCI Emerging Market Index touching its highest level in a decade.

 

 

Crude futures climbed to a new three-year high as a 10th consecutive week of reductions in US crude inventories was projected in a Bloomberg survey released today.  Stockpiles are estimated to be near their lowest level since February 2015 after a contraction of 2 million barrels last week.  A report from the International Monetary Fund also contributed to the rise in crude prices, with world economic growth revised 0.2% higher to 3.9% for both 2018 and 2019.  Overall, WTI crude gained 1.4% on the day to $64.50/barrel.

 

 

BOJ Leaves Stimulus Unchanged

The Bank of Japan concluded its policy meeting today with the decision to leave its existing stimulus in place.  Despite concerns over possible inflationary pressure coming from equity values in Tokyo, the central bank maintained its ultra-loose policy of a -0.1% benchmark rate and 0% target for the 10-year JGB yield via an 8-1 vote amongst board members.  “There is still some distance to 2 percent inflation, so we’re in no condition yet to debate the timing and method of an exit from ultra-easy monetary policy,” BOJ Governor Haruhiko Kuroda explained following the meeting.  According to its most recent economic report, the BOJ doesn’t project inflation to reach its target level until Q1 2020, albeit the text released after the meeting optimistically viewed current inflation as “moving sideways” compared to previous indications of deflation.

 

 

In US bond markets, Treasury prices climbed for a second day in sympathy with Japanese bonds.  Yields/swap rates finished 2-6 bps lower across the curve in a bull flattening pattern, as the 10-year note yield fell to 2.61%.  The US dollar declined 0.2% against major currencies (-0.5% against the JPY), falling to its lowest level of the (new) year.