Rebound in Oil and Strong Corporate Earnings Boost Risk Sentiment

Bucking the global overnight price action, US stocks are rallying today while Treasuries and swaps are trading largely unchanged amid a rebound in oil prices and strong corporate earnings.  Stocks continue to be highly influenced by crude price action, which caught a bid on optimism that OPEC and non-OPEC producers could reach an agreement to curb supply.  OPEC has resisted calls to cut production for over a year in an effort to maintain market share versus rival producers.  Iraqi Oil Minister Adel Abdel Mahdi, however, said he sees “some flexibility” for a deal a day after senior OPEC officials and Russia stepped up talks for possible joint action.  Russian cooperation is viewed as key to any agreement.  WTI and Brent crude rallied 3.5% and 4%, respectively, but were held in check by pressure from weakness in Asian stock markets, as well as slashed oil price forecasts from the World Bank and Credit Suisse.

Data released this morning showed US home prices rose more than expected in November and at the fastest pace in 16 months.  The S&P/Case Shiller report showed home prices in Dallas, Denver and Portland are at new record levels, while San Francisco and Charlotte are knocking on the door of previous record highs.  A separate report showed consumer confidence improved in January to a three-month high as optimism over the labor market and wage growth overshadowed concern stemming from recent financial market volatility.  The Conference Board’s index of consumer sentiment climbed to 98.1 in January from a revised 96.3 in December.  Stocks were also given a boost from strong corporate earnings with 3M, Johnson & Johnson, Procter & Gamble, and Coach all meeting or exceeding expectations.  Apple’s highly anticipated earnings release comes after today’s market close.

There is a $26 billion two-year Treasury note auction at 1pm ET and there is also potential strong corporate issuance supply that could come to market if the risk sentiment amongst buyers of corporate debt holds up. Today is also day 1 of the two day January FOMC meeting, with no market impact expected until tomorrow’s statement is released.