Markets Today: Inch by inch

It’s been another night of measured markets with both European and US equities closing higher, US Treasury yields a little higher net on the day and the USD marking time. There has been a little more evident appetite for Sterling, while the Canadian dollar was also a little stronger, helped by higher oil prices and the Bank of Canada leaving rates on hold, as expected.

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It’s been another night of measured markets with both European and US equities closing higher, US Treasury yields a little higher net on the day and the USD marking time.  There has been a little more evident appetite for Sterling, while the Canadian dollar was also a little stronger, helped by higher oil prices and the Bank of Canada leaving rates on hold, as expected.

WTI and Brent are on their intra-day highs (up $1.08 and $1.25 to $49.69 and $49.86 respectively), adding support to US energy stocks and a risk-on mood.  The US EIA reporting a larger than expected weekly inventory drawdown of 4.23m bbl, the market expecting a 2m fall with weekly US oil output down 24k bbl.

The AUD sits back almost on 0.72 this morning with the VIX back down, oil up, LME base metals mixed, while Chinese iron ore and steel prices were softer yesterday, spot iron ore down $0.85/t to $50.41, down 1.85%.

The NZD has seen some selling in the past 30 mins or so with dairy giant Fonterra announcing its initial 2016-17 milk price forecast of NZ$4.25/kg, a little shy of expectations.  The NZD/USD has dipped from 0.6765/70 to 0.6735, the AUD/NZD at 1.0680.

The BoC left rates as expected at 0.5%, the BoC saying it expects the Alberta fires to cut 1.25% points from Q2 GDP before a Q3 rebound.  They also noted disappointing business investment and intentions, uneven structural adjustment, with “roughly balanced” inflation risks.

There have also been three Fed speakers, Fed President Harker saying that he still expects two, maybe three rates rises this year.  President Kashkari spoke of a moderate growth outlook with inflation climbing back to target.  The US Treasury yield curve closed by up to two bps higher for the day, the market also seeing little news on the data front, the advance goods balance for April coming in at a lower than expected deficit that should mechanically add a little to the US growth story into the June quarter.

The Euro was unmoved in response to a stronger than expected German Ifo Survey for May and the European FinMin meeting that has cut a deal to secure yet more funds for Greece.

Coming up

Most of the local interest will be in the AU New Private Capital Expenditure release, and there are two main elements to consider. The first is the actual volume change in Capex in the quarter where NAB expects a decline of 5% as further declines in mining expenditure from the wind-down in major LNG project spending continues.

As far as the second element is concerned, the second estimate of 2016-17 expectations, NAB expects that the first estimate of $82.6 billion will be revised up somewhat to a current estimate of $92.3 billion. That could yet get some assistance from a steady-to-higher uplift in business confidence, conditions and capacity utilisation through April when the Capex survey was undertaken.

There is the potential for a little more price action in the overnight session with more Fed speak (this time from Bullard again and Fed Governor Powell), but durable goods, jobless claims and pending home sales, especially durable goods orders could offer some interest.

As well, the RBA’s Guy Debelle is speaking in NY to launch of the Global FX Code of Conduct though there is always the potential for questions/views on the AUD, though it’s hard to see him swaying at all from Stevens’ by the book “shock absorber” role for the currency remarks on Tuesday.

Overnight

On global stock markets, the S&P 500 was +0.70%. Bond markets saw US 10-years +0.35bp to 1.87%. On commodity markets, Brent crude oil +2.63% to $49.89, gold-0.4% to $1,227, iron ore -1.9% to $50.41. AUD is at 0.7199 and the range was 0.7182 to 0.7210.

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