Chart of the Day
Renewed hopes for a US stimulus deal seemed to reverse many of the concerning signs we saw on Friday and Monday, with the S&P 500 and Nasdaq both rising by over 1% yesterday and the small-cap Russell 2000 jumping by 2.4%. While it makes sense for the Russell to outperform given the stimulus deal should be most beneficial for the types of firms that make up the small-cap index, it does still seem unusual to see that the Russell is now outperforming the S&P 500 by a few percent on a year-to-date basis, despite the huge hit to the economy.
US industrial production was fairly soft in November, rising by just 0.4% on the month and still down by almost 5% since last year.
While the ISM manufacturing index appears to bode well for a continued recovery, the sharp decline in the first regional survey, the Empire State manufacturing index, in December does not bode well for the national picture.
Across the border, Canadian housing starts surged again. That was apparently partly due to warm weather, but it goes to show it’s not just the US housing market outperforming expectations this year.
Over in Russia, confidence in the manufacturing sector has surged to its highest since after the Great Recession, and also bodes well for a recovery. The weaker ruble, which dropped alongside the fall in oil prices earlier this year, may be helping.
Over in Australia, the Westpac leading index suggests the recovery is gaining substantial momentum.
The boost to investor sentiment helped pull the VIX index back down, while the MOVE index of bond market volatility was little changed.
Bond traders might of course be wary about the effects of further stimulus on yields, although the smaller size of the hinted program compared to expectations doesn’t seem to have caused much concern, with US yields only inching higher.
Traders have grown more confident about a Brexit deal for the UK, with the GBP now back above where it was a couple of weeks ago against the USD.
Of course, that was partly a weaker dollar story, reflecting improved global sentiment, with the EM currencies also gaining ground.
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