by Chris Becker
Macro Wrap
It was Europe risk on, gold smashed, US stocks flat last night, sold off sharply in the last hour. However before the European open, ratings agency Fitch came out and slapped Japan with a two notch downgrade “for taking a “leisurely” approach to solving the country’s spiraling debt problems”, according to the WSJ. Although I agree with the rating – Japan’s debt to GDP is over 200% and approx. 40% of its tax revenue goes to servicing that debt – I thought of this post from WheninFinance.
Data releases were relatively minor, with UK CPI coming in bang on consensus at 0.6% for April, easing to 3% year on year. Two retail sales markers in the US, Redbook and ICSC-Goldman store sales disappointed, with the latter only up 3.8% year on year, the former only 2.7%, both decelerating. Existing home sales were on consensus at 4.62 million, with the yearly change now 10%, lending further weight to a recovery in the US housing market as mortgage rates bottom (?):
The big news was Facebook, which had few friends again, and less likes (yes I will mix and use that metaphor as much as I like (sic)), falling almost 9% to $31, well below its IPO support level of $38 per share. According to the Motley Fool the original IPO price of $45 was “worth every penny”. Can I suggest a calculator?
Today:
Data today locally is sparse and regionally only Japanese merchandise trade numbers, whilst tonight Yet Another European Summit will discuss the “grexit”. I like Blackadders’ take on how this came about (quick read, but hilarious).
The SPI Futures are suggesting a nearly 20 point or 0.5% drop for the ASX200 on the open, down to around 4110 points or so.
Bonds:
- US 10 year Treasuries were sold up slightly again, gaining 2 points to 1.76%. German 10 year bunds were sold off even more, losing almost 4 points to 1.46%, alongside UK 10 Gilts, yields rising 2.5 points to 1.86% on the CPI numbers (inflation in the Mother Country is approx. double our own…)
- Spain and Italy bonds were bought up very strongly, the former losing almost 20 points, but still above 6%, the latter just over 21 points to 5.55%. Perhaps speculation on Eurobonds is driving this? Why else would you buy them, FFS?
Currencies:
- The US Dollar (in USD index terms) reversed recent short term weakness to rise 0.59 to be at 81.67 points, but not because of Euro strength, which teeters just off its January lows at 1.2679, a break below would be disastrous for the “gold” currency:
- The Australian dollar reversed all its recent gains, and fell sharply below 99 then 98 cents in the final hours against the USD last night. A break below the key level of 96.5 cents, probably into another round of “this is not an emergency cut” of 50 basis points by the RBA, would likely send the risk proxy back to its 2010 average of 90 cents against King Dollar:
Equities:
- It was unicorns and rainbows on European markets, with almost all closing up 2% (Italy up 3.5%, still down 9% for the year). The Eurostoxx 50 was up 1.99%, with the German DAX the laggard up 1.65%.
- However, this did not translate to further action across the Atlantic in US equity markets, with the Dow flat, the S&P 500 flat while the NASDAQ lost nearly 0.3%, mainly because of Facebook, Dell and Apple. All the major US bourses are struggling to lift themselves off the mat from this stage of the correction.
Commodities:
- The crudes took back recent gains, with WTI Crude down 1.1% to just below $92USD per barrel, whilst ICE Brent was off by only 0.5% to just over $108 bbl
- Gold (USD) was assaulted on the London close, falling over $20USD per ounce and closed at $1568USD per ounce. This is not looking bullish for the “currency” metal. Silver remains just above $28USD per ounce.
- Dr Copper remains weak too, replicating the US bourses, trying to lift itself off the mat, now back to its pre-LTRO liquidity led low:
- Iron ore saw a tiny bid yesterday, up 20 cents to $131.10USD per metric tonne, also struggling to move after almost reaching $150 in the rebound rally from the bubble of last year.
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