by Chris Becker
Macro Wrap
I bet (sic) investors will rue the fact that outright speculation has been moving their asset values around for the last couple of years – if you want confirmation of that, check out this Bloomberg headline explaining last night’s up 1% move across US markets:
US STOCKS ADVANCE ON CENTRAL BANK SPECULATION
This was all from one Fed Reserve member supporting more stimulus, whilst the ECB backed the EC move for a banking union. Meanwhile, in the real world, Spanish bonds continued their sell off – hitting 6.78% at one point – as Fitch downgraded 18 of their banks. Those nasty bond vigilantes (the pencils in the backs of policy “makers”/wafflers around the world) have quickly turned on Italy, with 10 year bond yields shooting past 6% last night now at 6.14%, almost at the 500 basis point spread with the untouchable German bund (currently at 1.42%), which was sold off itself quite a bit last night for the first time in a long time.
What data came out? UK industrial production showed a welcome slowdown in the slowdown, with the year-on-year trend only down 1% from -2.6% of last month, but manufacturing output is slumping again, down 0.7% on the month. Secondary weekly retail sales surveys from ICSC/Goldman and Redbook also displayed weakness, the former dropping into negative territory (but still growing at 2.9% annually), the latter also slowing down appreciably from 3.1% to 2% year on year.
The US Treasury budget was released for May, a staggering -$125 billion deficit, which may have added to the sell-offs in Treasuries.
What to expect today and tonight
Today at 10.30 we’ll get that another “non-Tier 1, so don’t worry about it” Westpac consumer confidence release, whilst regionally, Japanese new private sector machine orders are released, with expectations of a burly rise in production.
Futures are looking good – up around 20 points or nearly 0.5% to 4090 points.
Here’s a quick summary of last night’s move in markets. For a longer term view, check out my Trading Week article here.
Bonds:
- US 10 year Treasuries yields rose 8 points to 1.66%, with German 10 year bunds yields jumping 12 points to 1.42% – that’s a big move for bunds….something to watch?
- Peripheral bonds exploded – again! Italy remains above the crucial 6% level gaining 13 points to 6.14%, whilst Spanish 10 years gained nearly 20 points to 6.65%
- Aussie 10 years have reversed in early trade, yields up 10 points to be above 3% again, at 3.07%
Currencies:
- The US Dollar Index barely moved overnight, remaining at 82.42 as losses against Pound Sterling and Euro – which settled above 1.25 – were offset by gains in the Nordic’s, Swissie and Loonie
- Traders are loving the Australian dollar jumped over 1 cent (or 1%) to 99.65 cents against the USD this morning. As a risk proxy, the AUD is King.
Equities:
- So if the Aussie is up, equities are up! The Eurostoxx 50 finished up 0.3%, although mainly due to the FTSE and DAX, with the Spanish IBEX 35 and Italian FTSE MIB down 0.7% – now down nearly 15% YTD
- The German DAX was up 0.3%, with the FTSE 100 up almost 1% the biggest gainers telco’s and financials
- In the US the mood was even better – now milkie wilkies? The Dow up 1.3%, the broader S&P500 up 1.2% – taking back yesterdays losses – and the NASDAQ also up 1.2%
Commodities:
- The commodities complex wasn’t as ebullient, with mixed results. WTI Crude was up almost 1% to $83USD per barrel, whilst ICE Brent – the “euro” of oil – fell 0.7% to remain under $100USD per barrel at $97
- Gold (USD) finally moved somewhat last night up $20USD to $1610USD per ounce – possibly moving out of its trading range now on QE speculation? I’m still looking at the key levels of $1525 and $1625
- Iron ore is bouncing off the $130 support level, climbing almost $1 per metric tonne yesterday to $133.10 a tonne, but also remains in a trading range since November last year. Are we seeing the first signs of risk returning to Chinese speculative markets?
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