Markets Today: Blame Canada

The late great Robin Williams sang this theme song to the 1999 South Park movie at the Academy Awards, penned by Matt Stone and Trey Parker, in which Sheila blames Canada for the kids’ bad language (and more besides) after watching the expletive-ridden Canadian movie Terrence and Phillip: (expletive deleted) of Fire.

By

The late great Robin Williams sang this theme song to the 1999 South Park movie at the Academy Awards, penned by Matt Stone and Trey Parker, in which Sheila blames Canada for the kids’ bad language (and more besides) after watching the expletive-ridden Canadian movie Terrence and Phillip: (expletive deleted) of Fire.

Canada was also to blame for what little price action there was on Friday, in FX at least, in which the Canadian dollar was the only currency to end the day down against a generally falling US dollar, following much weaker than expected Canadian CPI.  Headline inflation fell to 1.3% from 1.6% and 1.5% expected, in doing so putting the kybosh on thoughts of an imminent policy tightening by the Bank of Canada (and just as market were starting to wonder if the RBA might be the next central bank cab off the rank in signalling that emergency policy settings might no longer be required).

Last week was billed as a likely to be a nothing week given the sparse economic and events calendar, unless something came along out of left field, and so it proved. On a Friday NY close-to-close basis, the US dollar is 0.1-0.2% higher, US stocks are virtually unchanged and Treasury yields are very narrowly mixed.

US data was of little consequence, New Home Sales coming in stronger than expected after accounting for a big upwards revision to the prior month but for what is a highly volatile series, while the little watched Markit US PMIs came in a bit below expectations and down on May (see Economics/data below).

Earlier, Eurozone French, German and EZ PMIs showed manufacturing readings up and a bit better than expected but service sector readings a fair bit weaker, to leave composite PMIs down on May and a bit softer than expected but still at very strong absolute (i.e. expansionary) levels.

We heard from both extremes of the current FOMC hawk/dove spectrum courtesy of Loretta Mester and James Bullard, but of little market consequence. Mester wants to push on with rates rises (though not necessarily straight away, while Bullard is insistent the Fed should now pause

On the fate of the Health Care reform bill being discussed by the Senate, indications Friday were that 5 republican Senators won’t support it in current form (more than two dissents and it can’t pass).

In US stocks, the S&P finished Friday 0.16% higher and is 0.2% up on the week. The Dow lost just 0.01% to be unchanged on the week and the NASDAQ gained 0.46% and is 1.8% up on the week, so recouping a good chunk of the prior week’s losses. The VIX finished the day 0.46 lower at 10.03 and 0.36 down on the week.

In FX, the dollar was weaker across the board bar USD/CAD, the narrow DXY index -0.34% to be 0.1% up on the week and the broader BBDXY index -0.24% Friday and +0.2% on the week.  With the exception of the 0.26% rise in USD/CAD post CPI (to 1.3267) and a virtually unchanged USD/JPY at Y111.28, there wasn’t much to choose between other G10 currencies, most of them 0.3-0.4% up (EUR/USD to 1.1194, AUD/USD to 0.7568, NZD/USD to 0.7285, GBP/USD to 1.2718). AUD has restarted the week little changed,

In rates 2 year Treasuries were unchanged at 1.342% (+2.5bps on the week); 10s were -0.6bp to 2.149% 0.9bp down on the week.

Commodities were stronger across the board. Gold added $8.6 to 1,256 but is only $2 up on the week. Oil came back 30 cents but WTI crude is still $1.73 lower on the week at $43.10 and Brent $1.83 down at $45.54. Friday’s Baker Hughes U.S. oil rig count rose by another 11 rigs to 758, now the 23rd straight weekly rise. The LMEX index gained 0.56% while iron ore added 20 cents to $56.75 and is up $1 on the week.    

Coming Up

It’s another quiet week for data, before things hot up next week when we start to get June US economic data, including the ISM surveys and payrolls.  This week’s highlights, such as they are, come in the US from Friday’s PCE inflation data (before that durable goods orders are tonight); Friday also brings the latest official China PMI readings covering both manufacturing and services and where the manufacturing reading is expected to be down 2/10% and services up by a similar amount. Locally, the RBA’s May credit data is the only release of note, though is rarely a market mover.

Much more interesting than the data calendar this week is the number of central bank on the speaking roster. In particular, at the ECB forum in Sintra, Portugal starting today and ending Wednesday (the new (global) version of Jackson Hole?)  ECB President Mario Draghi and former Fed chair Ben Bernanke kick off the proceedings with dinner speeches tonight (Bernanke’s provocatively titled “When growth is not enough”).  Over the coming three days, as well as a bunch of academic luminaries (Stamford, MIT and Harvard feature prominently) there is a panel on Wednesday featuring no less than Mark Carney, Mario Draghi, Haruhiko Kuroda and Stephen Poloz.  Elsewhere, Janet Yellen speaks Wednesday.

Overnight

On global stock markets, the S&P 500 was +0.16%. Bond markets saw US 10-years -0.54bp to 2.14%. In commodities, Brent crude oil +0.71% to $45.54, gold+0.7% to $1,256, iron ore +0.4% to $56.75, steam coal +0.1% to $80.65, met. coal +0.2% to $145.25. AUD is at 0.7563 and the range since Friday 5pm Sydney time is 0.7538 to 0.7588.

For full analysis, download report

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets