by Chris Becker
Macro Wrap
There’s nothing else you can call last night’s actions on world equity and peripheral debt markets (especially if you’re a fan of Bruce Willis sci-fi). A quick glance at any quote board and its greener than The Hulk’s undies – with Italian and Spanish markets happier than a fox in a henhouse.
What brought about all this? Two words. Milkie wilkie – for those unfamiliar with the technical jargon of economics and markets, that means printing money to paper over structural problems within an economy because politicians won’t be leaders and central banks have run out of options and metamoney puts a gun to their head to keep printing or they’ll sell down asset prices.
More or less.
Last night was the first night of the FOMC meeting (equivalent to our RBA meeting to decide rates), where a third round of QE (quantitative easing, a fancy word for milkie wilkies) is being contemplated. We won’t know for sure until Thursday morning AEST but its’ looking more and more likely to be a big boob affair.
Helping the situation was a positive result in housing starts in the US – remember all major modern economies are not driven by productive activities, innovation, or the like, but how quickly we can sell houses to each other and how much we can borrow out of thin air to pay back banks so we can continue the shell game. Oh and speculate on commodity prices too. Trust me, it works, no problems.
Building permits were up to 780K in May, on expectations of only 739K – at their highest level since September 2008. Since up til now the “recovery” in the US has been on the back of a huge surge in education debt, the “recovery” is moving towards housing debt again:
Second tier retail sales data also came out – which was mixed over May, but showing growth over the year. In Europe, UK CPI was released and showed deflation for May (-0.1%) and yearly inflation decelerating, now at 2.8% – whilst in Germany a monthly survey on economic conditions was extremely bearish, but this will be ignored mostly.
What to expect today and tonight
Regionally the Bank of Japan releases its minutes and then we have merchandise trade balance data for May. Locally theres four releases:
- Conference Board Leading Index (prior was 0.2%)
- Westpac Leading Index (prior was 0.4%)
- DEWR Internet skilled vacancies (prior was -0.8%)
- ABS Dwelling starts (1Q, prior was -6.9%)
That’ll keep Grandpa busy.
SPI futures are up almost 40 points before the open of the ASX200, probably at around 4150-4160 points on reaction to last nights action.
Here’s a quick snapshot of last night, see you this arvo for the ASX Shares Daily wrap and enjoy your day!
Bonds:
- US 10 year Treasuries yields eased to 1.62%, whilst German 10 year bunds were sold off sharply, up 11 basis points to 1.52%
- Spanish and Italian bonds saw the biggest moves – and how! Down 12 and 16 points, so down below 7% and 6% – crisis over, huzzah!
- Aussie 10 years were at 3.08% yesterday and on this risk on move and combo with RBA minutes minutae will probably be sold off this morning
Currencies:
- US Dollar Index slumped 0.56 points, mainly due to Pound Sterling and Euro strength, which surged over 108 basis points against the USD to 1.2685
- The Australian dollar jumped nearly 1 cent and touched 1.02 against the USD briefly and remains there this morning. Get thee to eBay!
Equities:
- Oh to be trading European stocks right now. The Eurostoxx 50 finished up nearly 2% yesterday on a completely green board with gains spread fairly evenly everywhere.
- The German DAX was up nearly 2%, with the FTSE 100 up 1.7%, Italian FTSE up 3.3% and Spanish IBEX up 2.7%
- This carried over to the US, but not as much – the Dow was up 0.7%, the broader S&P500 up 1% and the NASDAQ up 1.2%
Commodities:
- Commodities were relatively weak in comparison WTI Crude was flat at just under$84USD per barrel, ICE Brent slipping 0.4% to $95.76USD
- Gold (USD) continues to frustrate long players and slipped throughout the night which was interesting. It reached over $1630USD an ounce but is now at $1619USD this morning – I would like to see a break above $1635 or so and some more momentum before shutting the gate. Other precious metals were flat and copper on the LME saw a nice bounce
- Iron ore continues to build now well above the $130 support level, and climbed 60 cents to $136.60 per metric tonne.
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