by Chris Becker
Macro Wrap
Whenever I see a green 2 in front of all the equity market closing data on my Bloomberg when I wake up in the morning I know something “magical and wondrous” has happened. And indeed last night, we saw the return of risk as global capital shifted out of bonds and into equities and commodities, and thus the AUD which is now over 99 cents against the USD
Everything was fairly quiet as trader’s waited for the ECB to cut rates at its latest meeting and were disappointed, however President Draghi gave out all the “cue” words that spell possible stimulus sooner rather than later, and they continued their deluded forecasts for growth at 1% in 2013 and -0.1% for 2012.
What moved the US markets – and hence the world – were the comments from Federal Reserve officials that extending Operation Twist (called QE3 lite by some) is a definite option. This, combined with continued speculation that European policymakers “would do something” (i.e kick cans) sent the markets soaring. It was mainly financial stocks (sigh) in the US that moved things, as they would be the greatest benefactors of any planned stimulus, and even Failbook joined the party, up nearly 4%.
As a result of the risk switch, US T-notes were hit hard, with yields rising 10 points to 1.65% in a big reversal, with expected moves similar for our local market (just quietly, in the MB office we’ve been saying to go light on Aussie gov’t bonds, since they were all overbought and ready for a contraction)
The only major dataprints included the US Beige Book which indicated “economic activity expanded at a moderate pace” and German industrial production for April which surprisingly fell 2.2% on expected falls of less than 1% and is now negative over the year.
Today and the Week Ahead
So after yesterday’s surprising but deflating GDP print are we going to get a big surprise in today’s unemployment data? The market is expecting a print of 5.1% which means anywhere from 4.9% to 5.3% – remember there is a HUGE confidence error in the labour force data. I will only bet one thing – if it prints “down” say 0.1% to 4.8%, the bullhawks and usual suspects will go apoplectic with delight and wonder and pour scorn over anyone who dare question the economic strength and robustness of the perfect Australian economy. Hubris is a bitch.
The SPI Futures are up over 60 points, or 1.5% to 4110 points, reacting to the risk-on move.
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 gained over 10 points to 1.65% with German 10 year bunds basically yields up even more
- Aussie 10 years are already over 3% and likely to climb this morning as capital moves back to risk.
Currencies:
- The US Dollar fell sharply against the majors, with the Dollar Index (DXY) down 0.5% to 82.3 points
- The Euro gained to be just over 1.25 against the greenback
- The Australian dollar rose sharply, rising 1.6% to be above 99 cents against the USD
Equities:
- The Eurostoxx 50 finished up strongly, up 2.4% with gains across the board
- The German DAX finally took part, rising 2.1%, with the FTSE 100 opening up 2.4% after the non-Jubilee holiday.
- In the US the Dow was up 2.4%, S&P500 over 2.3% and the NASDAQ up 2.4%.
Commodities:
- WTI Crude was up 1.5% to $85.50USD per barrel, whilst ICE Brent was better, up 2.2% to be over $100 again
- Gold (USD) almost broke out of its trading range and was above $1642 at one stage and then fell back to close (PPT again tinfoilers?) where it opened at just under $1624 (my marker for a long position) and remains there this morning
Click here for our economic calendar.
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