Markets Today: 2 Become 1

Anna Leadsom has stood down as a candidate for leadership of the UK Conservative Party, paving the way for Home Secretary Theresa May to be the next Prime Minister, expected to be formally installed Wednesday after PM Cameron’s resignation.

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Anna Leadsom has stood down as a candidate for leadership of the UK Conservative Party, paving the way for Home Secretary Theresa May to be the next Prime Minister, expected to be formally installed Wednesday after PM Cameron’s resignation.  Speaking to reporters outside Westminster, May said that “Brexit means Brexit and we are going to make a success of it”.  She also said that there needs to be a breather before formal negotiation start with the EU.

Sterling has had a relatively positive night in the wake of the announcement in a night of higher stocks and bond yields in the absence of major economic news.  Noted Fed hawk and FOMC voter Esther George has been speaking saying that the Fed should resume rate hikes after payrolls.

The Eurostoxx 600 index rose 1.64%, the FTSE by 1.40% and the Dow has just closed up 0.44% at the start of the US reporting season.  US 10y bond yields rose 7bps to 1.429% with German bund yields up 2.1 (to -0.168%) and UK yields up 2.3 bps to 0.758%.  Commodities have been mixed, the biggest mover being oil with WTI down $0.91/bbl to $44.50 (-1.98%) and Brent off 1.48% amid signs of rising Canadian production and, over recent weeks, signs of increased rig counts in the US.

Perhaps the biggest mover over the past 24 hours has been the increase in USD/JPY, to be trading at 102.79 this morning after Sunday’s Upper House elections that PM Abe won comfortably, Abe-san saying that he planned to use fiscal stimulus to support the economy, to the tune of ¥10tr in stimulus (around 2% of GDP), supporting risk sentiment that’s usually yen-negative. 10y JGBs closed yesterday at -0.267% (+1.5bps).

While risk sentiment has been positive, the commodity currencies have not made new headway on the topside.  The AUD/USD trades this morning at 0.7533 and the NZD at 0.7221, both consolidating.  LME base metals are higher and despite signs of still rising Australian iron ore production – Port Hedland June shipments rose to a new record in June, to 41.8mt, up 9.0% y/y – Chinese iron ore prices are holding, up $0.51/t yesterday to $55.68/t, a sign of resilient demand ahead of key Chinese activity data on Friday.

Coming up

After the weekly AU ANZ Roy Morgan Consumer Confidence survey for the week to July 10, the focus shifts to the NAB Business Survey for June, followed by a speech from Fed President Mester’s in Sydney at 1.30.  (She’s a FOMC voter and has been hawkish at times.) No comment on the Survey other than that the May survey still played to the ongoing improvement in the non-mining economy, the NAB Business Conditions Index at an elevated +10.

Fed President Loretta Mester is speaking at 11.30, the first of her two addresses this week downunder, this one to a banking and financial stability conference “Financial Stability Considerations for Monetary Policy”, followed at 1.30 by Luci Ellis, the RBA’s Head of Financial Stability Department, speaking to “Financial Stability and the Banking System”.  The market will be interested in any comments she might have on housing and how much prices remains a worry for the RBA.  Stevens’ July post-Board statement noted more widespread signs of house price rises.

After the final vintage of June German CPI, there’ll be some focus on the second day of the Eurogroup Finance Ministers meeting. In the US tonight, Fed Governor Tarullo, and President Bullard (voter; now a newly-rebirthed no more rate hikes as his baseline forecast), then US wholesale inventories for May, and JOLTs Job Openings reports.  Neel Kashkari non-voter), President of the Minneapolis Fed is speaking after the close of the US session, at 7.30am AEST tomorrow morning.

Overnight

On global stock markets, the S&P 500 was +0.34%. Bond markets saw US 10-years +7.24bp to 1.43%. In commodities, Brent crude oil -1.48% to $46.07, gold-0.2% to $1,356, iron ore +0.9% to $55.68. AUD is at 0.7534 and the range since yesterday 5pm Sydney time is 0.7524 to 0.7566.

Good luck.

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