by Chris Becker
Macro Wrap
Some calm returned to markets last night as an emergency meeting of the G7 finance ministers to once again “solve” the ongoing European crisis transpired, with the Spanish treasury minister saying the nation’s borrowing costs (unlike a sovereign nation, any country within the EMU – just like Queensland or Tasmania – must go to the bond markets to finance its budget deficit) have shut it out of the international bond market.
European markets were relatively quiet as the Services PMI – again in contraction mode for May at 46.7 across Europe – printed, with even Germany looking like slipping into outright contraction, with April manufacturing orders dropping by nearly 2%, down nearly 4% over the year.
US markets were buoyed somewhat by a positive non-manufacturing ISM print, which slightly beat consensus at 53.7, with new orders improving. It was mainly financial stocks that benefited, with Failbook (FB) falling another 4%, down over 31% since listing. There was also some “hold the phone on milkie wilkie” talk from two Federal Reserve presidents – in the leadup to The Bernank’s speech later this week to Congress – as they see no “significant change in 2012 outlook”. Must be looking at the same stats our RBA did in 2011….
In currency markets, continued stress about debt financing saw the Euro drop again, with the spread between German bunds and Spanish bonds reaching 548 basis points (i.e 5.48%!) whilst the Aussie put some gains on, reflecting the small bounce in risk since the modest sell-off of recent week.
Today and the Week Ahead
After the RBA decision to cut rates by 25bps yesterday, and the not so good current account deficit blowout, today’s GDP print for the 1st quarter will be interesting to say the least. Actually what’s more interesting is that we actually follow the stupid bloody thing, but there you go. Most are expected a 3% annualised print, but the CAD and Terms of Trade drop should take some hefty single digits away from that number.
Other local data today – remember its “Aussie Week” for data – is the AIG PCI for the construction sector, with nothing regionally until Europe tonight.
The SPI Futures are up 19 points, or around 0.4% to 4060 points, continuing the inevitable bounce.
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 dropped slightly with German 10 year bunds basically steady at 1.75%
- Peripheral yields in Italy and Spain fell slightly as well.
Currencies:
- The US Dollar took back previous losses, with the Dollar Index (DXY) up 0.3% to 82.8 points
- The Euro slipped to 1.245
- The Australian dollar as I said above followed other risk markets, and remains above 97.72 cents against the USD
Equities:
- The Eurostoxx 50 finished higher again, up 0.4% mainly due to peripheral markets
- The German DAX is still not taking part in any recovery, but at least finished only slightly down whilst the FTSE 100 was closed.
- US markets were much better, with the Dow up 0.22%, S&P500 over 0.5% and the NASDAQ up 0.66%.
Commodities:
- WTI Crude was flat at just above $84USD per barrel, whilst ICE Brent was unchanged at $98.84
- Gold (USD) had another flat night, closing at $1618 USD an ounce and remains there this morning
- 3 month copper fell nearly 1% to $7381 a tonne
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