Markets Today: Four more sleeps

US revised Q1 GDP came in at -0.7% so not quite as weak as the -0.9% expected (and note any upward revision from a review of seasonal adjustment methodology will not arrive until the Q2 estimate is first released in late July).

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Stocks fell as did benchmark bond yields on the last business day of the month and amid some mixed US economic signals. The US dollar was overall little changed despite a further 0.34% rise in EUR/USD to 1.0986 and a particularly sharp fall in the NZD, to below 71 cents at one point and Friday night’s clear under-performer.

US revised Q1 GDP came in at -0.7% so not quite as weak as the -0.9% expected (and note any upward revision from a review of seasonal adjustment methodology will not arrive until the Q2 estimate is first released in late July).

The Chicago PMI unexpectedly slumped, 46.2 from 52.3 and 53.0 expected but is not usually a reliable guide to the national ISM (due tonight). The better news was the final University of Michigan consumer sentiment index, revised up to 90.7 from the 88.6 preliminary estimate and 89.5 expected.

Canada’s March GDP print of -0.2%, with February revised to -0.1% from flat, meant that overall Q1 GDP is put at -0.6% (annualised rate) not the +0.3% expected. The data is showing the savage bite being taken out of the economy by the slump in oil prices and hence mining activity.  This will keep the Bank of Canada in play for possible further easing this year despite last week’s inaction.

With the exception of NOK (but not CAD) and which keyed off a near $3 surge in Brent crude, commodity currencies are still suffering, led by NZD which finished at 0.7107 but has re-started the week trading below Friday’s 0.7088 low.  Hard commodity prices remained under the pump (ex-gold, +$2.18 to $1190.6) with the LMEX index off 1.55% and the 62% fines China iron ore import price off $0.48 to $61.85.

AUD strongly outperformed NZD, the cross up 0.9% with AUD/USD off just 0.05% to 0.7645 and bringing the overall May decline to just over 4.5%. It has started the new week holding just above Friday’s 0.7629 low.

USD/JPY finished higher again, +0.16% to Y124.15 albeit back from Thursday’s Y124.37 high, with the overall May gain 4.13%.  GBP also lost 0.16% to $1.5291 and so has given back more than 5 cents of its post-election rally.

In bonds, US Treasury yields were lower across the curve, with favourable tailwind from Bunds where the 10 year lost 4.3bps to 0.487%.  US 2 year notes were -2.4bps to 0.6053% and 10s -1.4bps to 2.1214%.

In stocks, the Shanghai composite slightly extended Thursday’s rout, -0.18% and so 7.4% off its mid-week highs.  European stocks were very weak, the Eurostoxx 50 -2.19% led by a 2.26% drop in the German Dax.  The S&P500 finished -0.63% at 2107.4 but is still +1.1% in May.

Coming Up

There are now just four more sleeps until Friday, whereupon Greece will meet or miss its deadline for a €300mn payment to the IMF (though this may in reality be a soft deadline if Greece is able, and chooses, to roll all its June obligations to the IMF into one lump sum payments toward the end of the month – but which of course it won’t make either in the absence of a new deal between now and then).

Watch for headline out of Europe this morning, following a phone conference reportedly taking place about now between Greek PM Alex Tsipras, German chancellor Angela Merkel and French President Francoise Hollande, the preface to which is commentary from Tsipras in the French Le Monde newspaper Sunday accusing bailout monitors of making ‘absurd’ demands of Greece.

Friday will also bring us the latest US payrolls report and where a strong report is essential if thoughts of a Q3 Fed ‘lift-off’ are to stay alive.  Also important here will be tonight’s national US manufacturing ISM and where we suspect the ‘whisper’ number after Friday’s soft Chicago PMI will be a little lower than the 52.0 survey median (up from 51.5). The April US Personal Income, Spending, and PCE deflator readings will also be of interest.

In Europe, German CPI and UK manufacturing PMI top the bill, while in our time zone the official China PMIs for both manufacturing and services are both due at 11:00 AEST (with manufacturing expected to lift to 50.3 from 50.1, after the HSBC ‘flash’ estimate rose to 49.2 from 49.1).

It’s a busy start to the week in Australia (but not New Zealand, closed for the Queen’s birthday holiday).  Manufacturing PMI, TD Securities’ inflation gauge, building approvals, Company profits, Mineral and Petroleum Exploration and Business Inventories (latter two both GDP partials) will be keeping the economics fraternity very busy this morning.

Overnight

On global stock markets, the S&P 500 was -0.60%. Bond markets saw US 10-years -1.41bp to 2.12%. On commodity markets, Brent crude oil +4.76% to $65.56, gold+0.1% to $1,189, iron ore  -0.8% to $61.85. AUD is at 0.7644 and the range since Friday’s local close has been 0.7629 to 0.7665. Indicative range today 0.7595 – 0.7670 (For more market prices, please see p.2 of the pdf).

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