Markets Today: Low

Rebel One being BTMFJ who were reported to be on the verge of rescinding their JGB Primary Dealership and Rebel Two being Commerzbank, reported to be considering storing cash in vaults rather than pay the ECB for the privilege of depositing excess cash with them.

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I should have titled yesterday’s missive ‘Rebel Rebel’ not Rebellion, in yet another homage to David Bowie. Rebel One being BTMFJ who were reported to be on the verge of rescinding their JGB Primary Dealership and Rebel Two being Commerzbank, reported to be considering storing cash in vaults rather than pay the ECB for the privilege of depositing excess cash with them.

Well it seems the latter news made waves early in the European session Thursday, our London team reporting that this was credited for the Euro being sold across the board, with reverberation felt across market and blamed for a big equity sell-off (Euro Stoxx 50 off 1.02%, the German Dax -1.25%  and the FTSE 100 -1.10%). With now only two weeks to go before the UK EU Referendum, ‘Brexit’ concerns are also very much to the fore.  Our UK colleagues also note the fresh falls in Eurozone bond yields and driven by the ongoing ECB bond buying programme, as also receiving some of the blame for the moves in all things EUR. 10yr Bund yields dropped to a new record low of 2bp overnight (closing at 3bps) while 10 year gilts hit a new record low of 1.22% before closing at 1.24%.

The weakness in European stocks for once didn’t go completely ignored by US markets, stocks closing modestly in the red (S&P500 -0.17% and the Dow -0.11%). US treasury yields are also showing the effects of negative risk sentiment and lower European yields, the 10 year note ending the New York session below 1.70% (-2.2bps to 1.68%, the lowest close so far in 2016).  The only US data point of note was weekly initial jobless claims, which remained low at 264k after 268k last week (revised from 267k). The trend in claims remains consistent with ongoing falls in the unemployment rate (see our Chart of the Day) though it is the apparent reduction in hiring – rather than rise in firing – that was responsible for the sharp fall in employment growth in May.

In currencies EUR/USD lost almost a big figure (1.14 to 1.13) and led by EUR/JPY moves – the latter down about 150 points at one point.  This has aided a partial reversal of the post-US payrolls US dollar weakness with broad USD indices up about 0.4% and with the NZD finishing the New York as the only currency to show gains against the dollar in the past 24 hours. A slightly firmer dollar has gone hand in hand with a reversal of some of this week’s commodity price strength. On the JPY, one of our FX traders yesterday was noting the uncanny similarities between the USD/JPY and AUD/NZD charts. This after the latter pierced the November 2015 low of 1.0489 in the wake of yesterday’s no-change decision by the RBNZ and, as one my BNZ FX Strategy colleague notes this morning, accompanied by ‘definitely no Draghi-like “we’ll do whatever it takes” message to get inflation higher’. AUD/USD is 30 points lower from where we left it yesterday.

Coming Up

There’s nothing on the Australian calendar this morning – next up of note is next Tuesday’s NAB business survey.  We expect to get China May loan data at some point and where the expectation is for a stronger numbers after the very soft April data (and which followed the surge in March).

The biggest market moving data point offshore should be the preliminary June University of Michigan consumer sentiment index. This showed surprising strength in May (94.7 from 89.0), hence expectations for a small pull-back this month (to 94.0).

Monday will be a holiday in most of Australia (but not the UK) for the Queens’ (90th) birthday. I read this morning that 70% of Brits would vote to retain the monarchy if asked today in a referendum. This means we’ll miss the monthly slug of China activity data for June, covering industrial production (expected unchanged at 6.0% Y/Y) retail sales (seen unchanged at 10.1%) and fixed asset investment (seen at 10.4% from 10.5%).

Overnight

On global stock markets, the S&P 500 was -0.17%. Bond markets saw US 10-years -1.55bp to 1.69%. In commodities, Brent crude oil -1.28% to $51.84, gold+0.8% to $1,270, iron ore +0.0% to $52.56. AUD is at 0.7434 and the range since yesterday 5pm Sydney time is 0.7422 to 0.7467.

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