August 16, 2016

Markets Today: An American Trilogy

Europe had a quiet day with many continental countries observing Assumption day. The Stoxx 600 index ended the day flat and the FTSE100 climbed 0.36% aided by another move lower in Sterling.

On this day 39 years ago paramedics were called to Graceland, the home and estate of Rock and Roll music legend Elvis Presley. Attempts were made to revive him, he was then taken to Baptist Memorial Hospital, but further efforts to resuscitate him failed and at 42 years old the king of rock and roll was pronounced dead.

While admittedly until this morning I had never heard Elvis’s hit “An American trilogy” (ranked 37 in Elvis Presley’s best-selling singles), the song title is quite suitable for today’s note given that all three American equity benchmarks have again made new record highs. The rise in oil prices and other commodities boosted commodity linked shares with mining, chemical and energy sectors outperforming.

Europe had a quiet day with many continental countries observing Assumption day. The Stoxx 600 index ended the day flat and the FTSE100 climbed 0.36% aided by another move lower in Sterling.

Indeed, Elvis Presley’s hit “Way Down” (6th best-selling single) could have been a fitting alternative title to today’s note. In what has been a risk on night, GBP has been the notable underperformer, the pound is way down on the G10 leader board and it’s back trading with a 1.28 handle against the USD. Ahead of the release of the July’s Fed minutes early on Thursday, softer US data continues to weigh on the USD and this time the Empire State Manufacturing index is the culprit, slipping to -4.2 in August from 0.6 in July and below the +2 expected.

In contrast, the risk on mood and rise in commodity prices has propelled the AUD up to the top of the G10 leader board. Over the past 24hrs the Aussie has gained 0.33% against the USD and after trading to an overnight high of 0.7692, it is currently trading at 0.7673. The rise in oil prices has helped the CAD outperformed (+0.26%), but softer trade data weighed on the NOK (-0.09%). Meanwhile the NZD has nudged its way back above the 0.72 mark and is currently trading at 0.7210.

10y US Treasury yields have reversed some of the gains recorded on Friday following the weaker than expected retail figures. The rise in equity and commodity markets seemingly trumping the softer US data. Relative to Sydney’s closing levels, 10y UST are about 5.5bps higher and currently trading at 1.55%. Another factor weighing on UST prices could have been a report from Bloomberg noting that Blackrock is reducing its exposure to long dated UST as increased hedging costs from Japan to Europe make investing in UST less alluring to some foreign investors.

Coming Up

RBNZ Governor Wheeler is currently speaking at the Chamber of Commerce in Tauranga, but given this is a “non-public” speech we do not anticipate that he will make any monetary policy remarks.

Australia gets its weekly consumer confidence reading at 9:30 AEST and then two hours later July’s new motor vehicle sales figures are published along with the release of the RBA August Meeting Minutes. Given the Minutes postdate the quarterly Statement on Monetary Policy we don’t expect to learn anything new in terms of the outlook for the economy or monetary policy.

Moving onto Europe, German Zew survey for August will be closely watched to see if there is a rebound in both the current situation and the expectations components following the large drops in July. The UK releases its CPI, RPI and PPI figures along with house prices, all for July. The market is looking for a print of 1.4%yoy for the core CPI reading.

The US has a busy day of data releases with housing starts building permits, CPI , real average weekly earnings and Industrial Production all due out and all for July. Given Friday’s disappointing retail sales figures and somewhat underwhelming consumer confidence reading, we suspect the focus today is likely to be on  the output side of the economy rather than prices, assuming of course no outliers in the new numbers.

A small payback is anticipated in housing starts and building permits after the solid June numbers while industrial production is seen to have increased by 0.3% from 0.6% previously. As for the inflation numbers, the consensus is for an unchanged headline number and for a 0.2% increase in the core number.

Fed Lockhart (non-voter, centrist) speaks in Knoxville, Tennessee where a Q&A session is expected. Early on Wednesday we have another Global Dairy Trade auction with recent futures prices suggesting an uptick of 5 to 10% gain in auction prices look feasible.


On global stock markets, the S&P 500 was +0.28%. Bond markets saw US 10-years +4.41bp to 1.56%. In commodities, Brent crude oil +2.53% to $48.27, gold+0.4% to $1,339, iron ore -0.2% to $60.22. AUD is at 0.7674 and the range since yesterday 5pm Sydney time is 0.766 to 0.7679.

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