Markets had more tell-tale signs of higher volatility as the day closed yesterday, with Brexit polls and fears dogging Sterling and equity markets on the defensive.  GBP/USD had broken down through 1.4150 and as European markets opened, German 10 year bund yields crossed the Rubicon into negative territory with one UK press editorial backing Brexit and two more polls showing intentions to vote to “leave” in the ascendancy.

Early in the London session the AUD was opened to a degree of selling, having traded in the high 73s/74 region in the morning, falling to 0.7330 before recovering as risk sentiment stabilised as the US session wore on.

As US markets close and Asia opens this morning, further damage to sentiment has been relatively limited.  While European equities had a rocky session, the Eurostoxx 600 index down 1.92% and the FTSE down 2.01%, US equities are closing down smalls, the Dow by 0.33% and the S&P 500 by 0.18%, helped in the wash-up perhaps by a solid US retail sales report for May, not to mention stronger than expected growth in Euro-zone industrial production for April and continued growth in the zone’s employment to 1.4% y/y.  The May UK CPI report was almost right on expectations, below consensus by a tenth, as was the core CPI that came in at 1.2% against 1.3% expected.

After strong April retail sales report (+1.3%), markets were expecting a further 0.3% in May, the result somewhat better at 0.5%.  The so-called retail sales “control group” that feeds into consumption estimates in GDP, rose by a solid 0.4% (consensus was 0.3%) with April also revised up a tenth.  Following this report, the Atlanta Fed’s GDPNow estimate for Q2 was revised up to 2.8% from 2.5% from higher than expected consumption that was revised up to 3.9% from 3.5% before the retail sales report.

All this points to signs of continued economic growth through the June quarter and keeps the July 28 FOMC in the frame for the Fed for a hike providing positive data prints continue, including a more growth-friendly June payrolls report as well as all the other event risk such as next week’s Brexit referendum.  After opening the session bid, US Treasury yields reversed course during the session, ending net for the session somewhat higher.

Coming up

NZ’s balance of payment for the March quarter (due 8.45 AEST) might provide some clues on tomorrow’s GDP report both in terms of trade volumes overall (reduced livestock slaughter and export but booming tourism) as well as and the impact from low dairy prices.  On that front there will be another update tonight with the latest global dairy auction where the futures markets suggest little change from the last auction with perhaps some upside tilt from positive price signals from energy and grains.  REINZ sales figures for May just released look pretty robust at first glance.

Locally there is the weekly and monthly AU consumer confidence/consumer sentiment reports that we expect to come and go with little to no market fanfare.  That’s pretty much it for the Asia session as far as scheduled data reports is concerned, with only final May Japanese machine tool orders out this afternoon at 4pm AEST.

Tonight there is the monthly UK labour market report, the market still on Brexit watch, with US PPI and industrial production also out tonight as the FOMC finalises the forecasts and Fed funds dot plot diagrams set for release at 04.00 AEST tomorrow morning that also comes with the full press conference from Fed Chair Yellen.  Finally, China’s new yuan loans and aggregate financing reports for May remain due for release any day now.

Overnight

On global stock markets, the S&P 500 was -0.18%. Bond markets saw US 10-years +0.34bp to 1.61%. In commodities, Brent crude oil -2.18% to $49.25, gold+0.1% to $1,289, iron ore -4.4% to $50.57. AUD is at 0.7347 and the range since yesterday 5pm Sydney time has been 0.7332 to 0.7386.

Good luck.

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