– It was a very interesting night in a macro sense last night with a convergence of comment from Fed chair Janet Yellen that there were pockets of overvaluation in the stock market and another piece of weak European data which traders actually took notice of.
– It meant that the euro finally went down, that European stocks were lower, peripheral bonds rose and a sense – although tentative – that stock markets might be ahead of themselves.
– Looking first to Janet Yellen, our colleagues at BI US report that she noted “Valuation metrics in some sectors do appear substantially stretched — particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year.” Not exactly irrational exuberance but a warning nonetheless.
– She note that overall valuations aren’t stretched but and at the close US markets were off their lows with the Dow finishing back in the black up 6 points or 0.03% at 17,061. The S&P 500 recovered to be only down 4 points at 1,973 for a loss of 0.21% and the Nasdaq only lost 0.55% in the end to 4,416.
– In Europe, the ZEW Centre for European Economic Research reported that investor confidence declined more than expected, falling to 27.1 from 29.8 last month. It’s the seventh month in a row that confidence has fallen and it finally knocked euro lower which will please Mario Draghi and EU exporters.
– But stocks closed close to their lows with the DAX down 0.65% to 9,719, the CAC lost 1.04% at 4,305 while more tellingly (given moves in their bond markets) stocks in Milan and Madrid fell 1.33% and 1.23% respectively.
– UK stocks were down less (-0.54% at 6,710) but still lower after a big jump in inflation to its fastest pace of the year, printing 1.9% year on year in June from 1.5% in May. This tempers recent weaker data which was questioning Mark Carney’s plans toward ending monetary accommodation.
– The net result locally is that after a small fall yesterday on the physical market, futures traders have somehow managed to take the SPI 200 futures for September 6 points higher. Let’s see how the physical market goes today.
– In Asia yesterday, the Nikkei was up 0.64% to 15,395, the Hang Seng was 0.49% higher at 23,460 and stocks in Shanghai were up 0.16% to 2,070. Today is huge in Asia – indeed, the reverberations are global – with the release of Chinese Q2 GDP. The market is looking for 1.8% on the quarter and an annual rate of 7.4%.
– On Currency markets, euro fell as a result of the data and the obvious need for Draghi and his ECB Governing Council to follow their words with actual quantitative easing. Euro is at 1.3568 this morning, down 0.37%.
– Sterling went the other way, however, after the inflation data was released and it is up 0.35% at 1.7142. USDJPY is up a little at 101.68 and the Aussie is slipping down at 0.9368. My sense on the battler is that the combination of Yellen, Stevens, data and a sense of mild overvaluation in stocks is seeing traders and investors just step back from the Aussie (I’ve been short for a while now).
– On Commodity markets, Iron Ore drifted back a smidge with September 62% Fe futures down 20 cents a tonne to $98.38. Newcastle Coal continues what feels like an inexorable slide, down another 60 cents to $68.65 tonne.
– Elsewhere on Commodities, July Nymex Crude fell 70 cents to $100.20 Bbl while Copper was unchanged at $3,24 lb. Gold was smashed again, dropping back below $1,300 to $1,295 off $9.40 oz. Silver closed largely unchanged at $20.70. On the Ags, Corn fell 1.97%, Soybeans was 1.38% lower but Wheat pushed a bit higher up 0.14%.
On the data front, the Westpac leading index for Australia is out today but it’s the Chinese GDP that is the key release. It is released along with industrial production and retail sales. EU trade is out tonight along with UK employment data before PPI and industrial production data in the US. Janet Yellen also has day two on Capitol Hill.