It’s Wednesday. You can do it.
– We’ll start with bonds today because the 5-point sell-off in US 10-year Treasuries which lifted the yield to 2.65% and a capital loss for the longs of 1.96% is the big story, coming just a day before the FOMC announces its interest rate decision.
– The catalyst was the higher-than-expected increase in US consumer prices which rose 0.4% in May against expectations of 0.2%. This means the year-on-year rate accelerated a little to 2.1% which is exactly what the Fed wants. With US factory data released the previous night running strongly, this data helps paint a picture of a return to growth after the weather-related economic weakness in Q1 and shortens the till the FOMC will increase interest rates.
– Sure, housing starts were lower, giving back 6.5% in May after the big 13.2% rise in April. But they are still above 1 million units and chain store sales are up 3.5% year-on-year.
– The impact on other markets was not lost with rates higher in Germany, Italy, Spain and the UK. On the continent, Bunds closed at 1.41%, up 4 for a capital loss of more than 3% while in Italy and Spain, the 10s closed at 2.84% and 2.71% respectively for losses of more than 2%. In the UK, 10-year Gilts rose to 2.78% for a loss of 0.97%.
– Locally, the 10-year futures have lost 3 points to 96.255 (3.745%) while the 3s lost 2 points to 97.16 (2.84%). These moves have been tempered by the RBA’s dovish minutes yesterday.
– So the wash-up would usually have been that stocks fell but this is a market buoyed by free money – which we still have – so US stocks closed higher. The Dow rose 0.16% to 16,808, the Nasdaq was 0.37% higher at 4,337 and the S&P 500 was 4 points higher to 1,942 – a gain of 0.22%.
– In Europe, stocks were higher as well with the FTSE up 0.18% to 6,767, the DAX up 0.36% to 9,920 while the CAC was 0.58% to 4,536. Milanese stocks hardly budged, up 0.09% while Madrid stocks were up 0.46%.
– Locally, the June and September SPI 200 futures are down 3 points to 5394 and 5,350 respectively. It’s been a negative but indecisive 24 hours for Australian stocks but the $1 rise in September 62% FE iron ore swaps to $89.67 might help the market a little today.
– In Asia yesterday, the Nikkei was up 0.29% on low volume but overnight strength in USDJPY to 102.15 is likely to be a positive force for Japanese stocks today. In Shanghai, stocks fell 0.91% after a big fall in FDI from 5.0% year-on-year in March to just 2.8% in April. Also worth noting was the Shanghai exchange has restricted who can buy high yield bonds to help steer retail buyers away from risky issues. The Hang Seng fell 0.41% yesterday to 23,204.
– Today the markets in Asia will be focused on the BoJ minutes, Japanese trade and the Chinese house price index.
– Currency traders, like their counterparts in the bond markets, didn’t miss the importance of the pick-up in US CPI with the US dollar stronger across the board. This strength saw the Aussie abort its European rally and it sits at 0.9335 this morning. Euro is lower as well, back down at 1.3546 and the US dollar strength has knocked sterling from its perch above 1.70. It sits at 1.6959 this morning.
– On Commodity markets, as noted above, Iron Ore was higher for a change while September Newcastle coal fell 15 cents to $72.55. Nymex June Crude fell half a per cent to $106.60 while Gold sits at $1,270 and silver closes in on $20 oz at $19.72 this morning. Copper gained another cent per pound to $3.06 while Soybeans were the big mover on the Ags, down 1.65%. Corn fell 0.51% and Wheat rose 0.13%.
Today in Australia, we see the release of economic leading indicators but forex traders will be focused at the other end of the day when the BoE minutes are released and then the FOMC decision early tomorrow morning.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I featured Flight Centre as a stock to watch on 20 May when it first began to test its 200 day moving average. At that stage it had not closed below the average since July 2012. After an initial bounce, the first close below the average came on 4 June and was followed by a near vertical move lower as concerns mount over the health of the consumers’ “discretionary” wallet.
Of interest now for chart followers, is Monday’s move to quickly close the gap created by Friday’s lower opening. This is starting to look like an exhaustion gap. This possibility will look even more likely if price can hold around these levels for a while. Although the medium term downtrend still looks to be in place, an exhaustion gap might be the first signs of a corrective bounce that could give potential sellers a better opportunity.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.