by Chris Becker
Macro Wrap
Another volatile night in risk markets around the world, as news comes this morning that Spain has lost its last A rating status, as Moody’s downgrades it 3 steps to Baa3 – one level above junk (BREAKING: and have just done the same to Cyprus!) and some higher level data in the US putting pause to further stimulus.
The bad news in Europe continued as EMU industrial production declined 0.8% over May, now down 2.3% over the year: (chart courtesy of Econoday)
French, German and Italian CPI prints for May also came in – and for those worried about too low interest rates as the headline number hovered around 2-3% in these states through 2010/2011, it seems those concerns are alleviating. French CPI came in at minus 0.1%, flattening at 2% over the year, Italian – the most worrying – was flat again, but still at 3.2% through the year, whilst Germany saw deflation as well, down 0.2% and flat at 1.9% over the year.
The other major data releases were in the US where official retail sales figures for May came in bang on consensus expectations, i.e down 0.2%. Looking through annually, its still positive, but there has been a marked slowdown in the last couple of months which seems unseasonal as well. Remember the US economy is consumer based (the opposite of the Chinese economy) – this does not bode well for forward earnings forecasts.
This is showing through in business inventories, released last night for April, which are building higher than consensus, up 0.4%, with the inventories to sales ratio still stable for now:
With the uncertainty of policy makers and economic data playing havoc in the risk on/off algo’s, most markets were flat, mixed or down, with US stocks off nearly 1% and commodities flat.
The real action was again in debt markets – German bunds were sold off (because they are about to become Eurobunds?) and peripheral bonds continued to slip, with Italian yields staying above 6%, whilst due to the risk off mood in the US, Treasuries gained.
What to expect today and tonight
Today the Reserve Bank of New Zealand meets to discuss probably holding the cash rate at a super low 2.5%, although their housing bubble (particularly in Auckland and ChCh) is getting a little too hot. Further out regionally, the Bank of Japan will sit and make an announcement as well, and tonight we get EMU harmonised CPI (-0.2% expected for May), US jobless claims, CPI and current account prints.
Locally there are no data releases except the Melbourne Institute consumer inflation expectations print, which was last at 3.1% over the year.
Futures are looking very soft, down around 10 points for the ASX200 open.
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 fell back 7 points to 1.59% after recent rises, with German 10 year bunds yields jumping again, this time up 6 points to 1.48% – that’s another big move for bunds….something to watch?
- Peripheral bonds continue to slip Italy remains above the crucial 6% level gaining 4 points to 6.18%, whilst Spanish 10 years also gained 4 points to 6.68%
- Aussie 10 years are at 3.05% before trading, whilst NZ bonds have gained 3 points to 3.35% in early trade as the RBNZ holds fire at 2.5%
Currencies:
- The US Dollar Index barely moved again overnight, remaining at 82.18 as the Euro strengthened ever so slightly, now at 1.2573
- Traders are jumping in and out of the Australian dollar at the moment, it finished last night up 16 pips to 99.50 cents even against the USD, where its spiking this morning, although my inner day trader (burgeoning to get out after doing equity analysis these last few days/nights) reckons its going to be a weak day for the Aussie
Equities:
- The Eurostoxx 50 finished flat with strange activity in European bourses. The Spanish IBEX 35 actually was the strongest, up 1.4% Maybe Australia should ask for a downgrade from Moody’s?
- The German DAX fell slightly, with the FTSE 100 up two fifths of bugger all – very mixed night
- In the US the mood was clear, but dour, reversing a lot of the previous sessions gains. The Dow down 0.6%, the broader S&P500 down 0.7% and the NASDAQ down 0.9% -here’s a comparison chart (nice colors I know) – flat:
Commodities:
- Commodities continue to show the way and were mixed again. WTI Crude fell slightly to $82,50USD per barrel, whilst ICE Brent was flat at $97USD
- Gold (USD) built on previous gains, on speculation of more QE perhaps? It rose to $1618USD per ounce as of this morning. I’m still looking at the key levels of $1525 and $1625 – almost there on the positive breakout – I think this will be decided very soon:
- Iron ore continues to bounce off the $130 support level, climbing 60 cents per metric tonne yesterday to $133.70 a tonne. Are we seeing continued signs of risk returning to Chinese speculative markets? Chinese equities have been slowly inching up from their bear market bottoms….should we scratch?
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