Below trend growth to continue
A perfect opportunity for a Bee Gees classic with more Jive Talkin’ amongst US Fed officials with Lacker and Dudley hitting the wires overnight following Wednesday’s more hawkish Fed Minutes.
A perfect opportunity for a Bee Gees classic with more Jive Talkin’ amongst US Fed officials with Lacker and Dudley hitting the wires overnight following Wednesday’s more hawkish Fed Minutes. Although such talk is significant for reinforcing the case for a June/July rate hike, markets mostly generally consolidated yesterday’s moves with the exception being equities which continued their post-US FOMC sell-off. There was little in the way of top tier data apart from UK Retail Sales which were strong in April (+1.5% m/m), while US Weekly Jobless Claims fell back to recent trends with claims at +278k down from +294k and a virtually unchanged Philadelphia Fed index at -1.8 from -1.6.
The market is currently ascribing around a 60% chance that the US Fed will hike rates by the July meeting, and NAB has pencilled in a July rate hike. Fed officials are seemingly content with such pricing with Dudley stating overnight he is “quite pleased to see that probability has in fact moved up” and that “I think a tightening in the summer, the June-July time frame, is a reasonable expectation”. One caveat to a June move is that the Brexit referendum (23 June) occurs one week after the June FOMC meeting and Dudley described this event as “another variable in the mix” and in our view probably makes July more likely.
In terms of market moves, European stocks were down 1.3%, with larger falls in London being dominated by mining stock, the FTSE was down 1.8%. S&P500 also fell by similar magnitudes at the open, but ground higher to end the session down 0.4% with a positive earnings report by Wal-Mart and Cisco providing some offset.
Currencies were also little moved in aggregate with the exception being the CAD which fell alongside the dip in the oil price – that has now mostly reversed on the back of possible supply disruptions in Nigeria with Brent now down just 0.3% to $48.79 a barrel. Despite most currencies being unchanged overnight in aggregate, this disguises the recent USD strength seen over recent days. The AUD was unchanged at 0.7228 but did trade with 71 handle for some time in the overnight session and reached a low of 0.7176. The Euro fell 0.1% against the dollar to be 1.1204 while the Yen appreciated 0.2% to be 109.94.
Major bond yields were also mostly unchanged with some volatility. US Treasury yields declined by 1 basis points to 1.85% while Bunds were unchanged at 0.17%, with yields having already risen strongly the previous day.
Commodities in general fell overnight with iron ore falling 5.8% to be $53.47 a tonne, while gold fell 1.5% to 1,254.90.
A quiet day ahead with little in the way of data from major markets. The G7 Finance Ministers/Central Bankers meeting in Japan today (and tomorrow) is likely to be the most significant event. Japanese Finance Minister Aso said earlier that “currencies will be discussed as needed as part of a broad debate on [the] global economy” – so worth keeping an eye out for wire headlines, quotes and the like.
For Australia there is no data, but the Secretaries of the Departments of Treasury and Finance will be releasing the Pre-Election and Fiscal Outlook (PEFO) today, probably sometime between 1‑3pm AEST. It is likely it will largely be a tick to what was in the May 3 Budget, except perhaps for the iron ore price assumption that seems in need of some downgrade by around $US5-10 a tonne. The budget has assumed a $US55 a tonne FOB level and a $10 downgrade would reduce tax receipts by around $5.3bn over two years according to the budget’s sensitivity analysis. Any downgrade would likely weigh on the forecast deficits for 2016-17 of $37.1bn and $26.1bn for 2017-18.
Otherwise on the international calendar NZ has Net Migration and Credit Card Spending figures today, the US has Existing Home Sales, and Canada is probably the more interesting one with Retail Sales and CPI ahead of the BoC meeting next week.
On global stock markets, the S&P 500 was -0.37%. Bond markets saw US 10-years -0.51bp to 1.85%. In commodities, Brent crude oil -0.16% to $48.85, gold-1.5% to $1,256, iron ore -5.8% to $53.47. AUD is at 0.7225and the range since yesterday 5pm Sydney time is 0.7182 to 0.7229.
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