June 30, 2016

Markets Today: Don’t leave me this way

Lots of soul searching not doubt from EU leaders on day two of their summit with UK PM Cameron back home.

Lots of soul searching not doubt from EU leaders on day two of their summit with UK PM Cameron back home.  They officially called for an “orderly exit” and for the ball to get rolling once a new UK PM is appointed.  It was made clear that if the UK wants the access along the lines of the Norway model, then they must abide by the EU’s “four freedoms”, goods, services, capital and people, the latter the political sticking point for UK voters.

Anyway, words and talk is one thing, actions are another and all that is still to play for.  The markets meanwhile are lifting their sights at least for now and starting to re-focus outside Brexit.  Equities had another good session, with the Eurostoxx 600 up 3.09%, banks by 2.51%, the FTSE by 3.58%, though European bond markets were singing to a somewhat different tune, yields generally lower, but US Treasury yields rose.  Industrial commodity prices were generally higher as the US$ lost some further ground, with WTI up $1.60 (+3.34%), copper on the LME up 0.42% and even Chinese iron ore price up 0.45% to $53.89/t.  Gold though also joined this makings of the risk-on party, up 0.33% to $1322.10/oz.

In currency markets more generally, the EUR and Sterling have spent the session consolidating into somewhat higher levels, GBP/USD trading in the 1.34s and the EUR/USD at just above 1.11.  Aussie has also been making some headway into the mid 0.74s, now having retraced up to one half of its Brexit-induced decline.

As for data, Germany’s June CPI was in line with 0.2% y/y expectations.  US personal spending was a little stronger than expected (helped by a lower savings rate offsetting weaker income growth) and helped by revisions.  The Atlanta Fed consequently revised up its GDPNow estimate for Q2 from 2.6% to 2.7%, consumer spending up from 4.1% to 4.3%.  The headline PCE deflator was lower at 0.9% y/y while the core deflator was steady at 0.2%/1.6% (hitting expectations), no closer to the Fed’s 2% target.  Elsewhere, the Fed released the results of its annual bank stress tests, clearing 31 of 33 big banks.

Coming up

With Brexit in a state of limbo for now, markets will likely return some focus to other matters, including the data flow and central bank guidance.  On that score today, after NZ building permits (8.45 AEST), there’s the Lloyds UK Business Barometer for June, at 9.10, followed at 9.50 by June UK Gfk Consumer Confidence, surveys next month and beyond that will take on elevated interest.  Of more potential importance today is the 9.50 AEST release preliminary estimate of Japanese Industrial Production for May, expected to decline by 0.2% after April’s 0.5% rise. The market will be interested in the state of, and outlook for, industry in the lead up to the yen’s recent surge.  Later this morning is the NZ ANZ Business Survey (11.00 AEST) and what it implies about the economy’s growth, about confidence and what it says on business inflation.

At 11.30 is RBA credit for May where we look for an unchanged 0.5% m/m.  in the detail, business credit bounced back last month to 0.8% (above its average of 0.6% in the previous six months), while housing credit will also come under focus given the pick-up again in Sydney and Melbourne house prices since the May rate cut.  Housing credit rose 0.4% in April, owner-occupied by 0.5% and investor by a languid 0.3%.  The ABS Job Vacancies report for the May quarter is also out at 11.30 providing a nice lead on employment. Vacancies have been accelerating since early 2014.

Tonight there’s German retail sales and unemployment, for May/June respectively, along with a further vintage of UK GDP for Q1; no revision from 0.4%/2.0% is expected.  Then there is EC CPI, US weekly jobless claims, the Chicago PMI and April monthly Canadian GDP.


On global stock markets, the S&P 500 was +1.70%. Bond markets saw US 10-years +4.74bp to 1.51%. In commodities, Brent crude oil +3.17% to $50.12, gold+0.3% to $1,322, iron ore +0.4% to $53.89. AUD is at 0.7449 and the range since yesterday 5pm Sydney time is 0.7398 to 0.7452.

Good luck.

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