by Chris Becker and Greg McKenna
Macro Wrap
We saw a bit of position squaring yesterday for month end after assets like the Aussie dollar made a fresh low for the year before rallying. Likewise in US equities the early weakness gave way to a better performance but by the end of play the pressure was unable to be withstood and they finished in slightly negative territory.
As two of Europes top officials warn of the end of the Euro (Rehn and Draghi) and money floods out of the Spanish banking system the awful truth is that this mess is as far from resolution as it was when this debacle started 5 years ago next month.
So is it any surprise that markets had a shocker in May on this recognition that the global economic recovery, the ephemeral one that is still coming, the ineptitude of European policy makers and the burgeoning problems in the European banking system all combined to see equities, commodities, risk currencies and peripheral bond spreads sell off while core bond markets such as the US and Germany rallied. In Australia our bonds rallied to new lows on the back of both and a weakening growth profile.
In the US last night we had no relief from the bearish mood with top tier data releases coming in weak, as covered here by Houses and Holes, with employment growth stalling and GDP growth decelerating (under 2%). Not a good preview for tonights unemployment print and ISM manufacturing survey.
Here is a snap shot of the performance of the main “macro” markets we follow for May – as John Mauldin says, you might want an adult beverage with you when you read them.
It doesn’t make great reading and the problem is that there is little chance of respite sustainably anytime soon – sure we might get a relief rally if Greece votes in favour of austerity but you can forget Greece now – SPAIN IS THE GAME YOU NEED TO WATCH. They just might have to exit for self interest and because they are simply too big to save.
We have been preaching capital preservation since March – we’ve been bang on the money and I expect that this mantra might be rusted on for a while.
Today
Local data today is heavy – the May AIG PMI, RBA Commodity Prices and the RPData/Rismark house price index. So a whole economy snapshot basically in one day – houses, holes and empty factories.
Regionaly we get Chinese (and other peripheral Asian) manufacturing PMI for May, with last months result contracting (slightly) at 49.3 what will be this time around? Then of course, the onslaught of PMI’s for Europe and US tonight, alongside the ISM and employment print. Busy busy.
The SPI Futures are down 0.5% or 20 points to 4050 points.
Bonds:
- US 10 year Treasuries yields fell to another new low – 1.55% – with German 10 year bunds and UK 10 Gilts also trawling new lows, yields falling 7 points each to a very Japanese 1.19% and 1.56%
- Italy came back from the brink of a crisis level of 6% slipping slightly to 5.86%, whilst Spain remains well above at 6.5% coming just below its 500 point spread over the “risk-free” bund
- In early trade, the Aussie ten year is at an ‘amazing’ 2.84%, falling 7 points. Even the Kiwi 10 year is low – at 3.38%. Are bond markets signalling something? A big red flag to the non-classically trained traders and econ dudes, but just this to the mainstream.
Currencies:
- The US Dollar remains strong, staying above 83 points, with the Euro unchanged overnight
- The USD/Yen cross fell 76 pips to 78.31, which does not bode well for the Nikkei 225 (marked in green below) and therefore, our own bourse
- After getting kicked in the guts yesterday, the Australian dollar like the Euro had a quiet night, slipping slightly to 97.22 cents against the USD, and slipping again in early morning trade.
Equities:
- The Eurostoxx 50 finished in the green last night – but only just and mainly because of the FTSE100 which rose nearly 0.5%
- All other Euro markets were flat, or very slightly down, as month end window dressing took some volatility off the table, although the Swiss and Swedish markets saw 1% drops – who knows why….
- US markets were also mildly sold off, with the Dow off 0.2%, S&P500 the same and the NASDAQ losing 0.3%. Failbook recovered by more than 10% off its intra-session low surprisingly, but still 15% off its IPO price. Apple also looks like recovering out of its funk, hitting resistance at $580 a share.
Commodities:
- Finally to commodities, the underbelly of the risk-on complex. WTI Crude was steady, but weak at $86.54USD per barrel, whilst the real mover was ICE Brent off another 1.5% after the previous session sell off, and dicing with the $100 level. Regular readers of Trading Week would know that this market was at the $120 -125 level for a long time and remains a great barometer of global risk appetite.
- Gold (USD) was basically steady through the night, closing at $1560 USD an ounce, where it remains this morning whilst Dr Copper continues to take the hits, down 0.7% in London, at $7425 a tonne
- Iron ore spot price was unchanged at$134.80USD per metric tonne.
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