– It was an interesting night with the Aussie dollar and its “dollar bloc” cousins the Kiwi and the CAD pole-axed by the confluence of Yellen reaffirming her intention to raise rates this year, the Bank of Canada rate cut and a weak dairy auction in New Zealand. It’s taken the Aussie (0.7375) and Kiwi (0.6589) to new six year lows and the Canadian dollar, above 1.29, hit an 11 year low. Yellen’s comments also knocked the Euro, but nowhere near as much, while the pound remains supported by the previous night’s comments from Bank of England governor Mark Carney that rates in the UK will be on the up sometime soon.
– Elsewhere overnight, protests and a strike in Greece, plus a few resignations from ministers show how fractious this deal has become. Prime minister Tsipras is having his cake and eating it too by saying its a terrible deal but we have to do it anyway. Clearly he’s a slave for angry Syriza colleagues, he’s helped fuel the unrest. Parliament is voting now so we’ll know the outcome this morning.
– Back to Yellen, and while she was grilled about the Fed leaks she did get a chance to give markets a clear warning that rates will be rising soon. “Economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy,” she said. She also noted the gradual nature of any hikes. But bond guru Jeff Gundlach reckons she won’t be raising rates this year. That flies in the face of comments this morning from NAB’s co-head of currency strategy Ray Attrill who reported San Francisco Fed president and Yellen confidante John Williams “just crossed the wires saying that September would be a ‘very plausible’ time to start raising interest rates.”
– On the data front last night Yellen did get some support from the increase in the PPI for June of 0.4%, twice what was expected. There was also a rebound in NY Empire State manufacturing activity, which bounced to 3.9 from the 3.2 expected. Industrial production was also stronger than expected, up 0.3%.
– It all added up to a mixed night on US stocks with the early rally giving way to weakness before the closing rally got the market closer to flat for the day. In Europe it was the reverse with early weakness giving way to strength which left stocks flat in the UK but higher in Europe.
– Locally the ASX had another strong day yesterday with the 200 index up 1.05%. Some part of this was the data out of China. But as Chris Pash wrote yesterday Energy stocks benefited from the rally in oil. But those same stocks might be under pressure today given the US dollar’s strength saw the oil price reverse with a huge 2.7% fall last night. The banks were better bid yesterday “led by Westpac at $34.00, up 1.16%, and the Commonwealth 1.01% to $87.12.” It was almost impossible to miss but BHP is taking a huge writedown on its US shale oil operations by about $US2.8 billion ($AU3.76 billion) following falling global prices. Its shares fell, in a rising market, by 0.74% to $26.90.
Overnight the SPI200 futures are up five points to 5,589. But let’s see what the day brings.
– In Asia yesterday it was a strange day of skepticism and disapoointment for those who though the recent government action had put a floor under the stockmarket. For the second day in a row stocks fell with the Shanghai Composite index down 3.02%, even though the data — GDP, retail sales, industrial production and urban fixed asset investment — was stronger than expected. Let’s see what the authorities have in store for those pesky sellers today. Elsewhere in Asia yesterday the BoJ did, well, not much really, leaving monetary policy steady. But it did lower its GDP forecast to 1.7% from April’s expectation of 2.0%. However, at the close of play the Nikkei still managed to close 0.38% higher.
– On global bond markets there were rallies all round. US 10’s closed down 5 to 2.35%. That’s kind of weird. German 10’s strong recovery from the highs continued with another 7 point rally to 0.77%. Italian and Spanish bonds had similar rallies but UK rates only dipped a pip to 2.14%. For local traders the Aussie 10’s rallied 8 points to 2.96% while the 3’s are 6 pips lower at 1.997%.
– On commodity markets, as highlighted, Nymex crude was slapped lower with a fall of 2.7% for the front contract to $51.41. And it looked like crude might have been trying to base the Iranian situation, given the structural downward shift in prices as fresh exports come online. At least that’s what traders are worried about. Gold is now below $1,150 and at a four month low. Copper dipped 0.55% to $2.52 and Dalian iron ore lost 1.25% to 365. Overnight futures in the US saw the September 62% Fe China swap down $1 a tonne to 46.00.
– On the data front today the NAB’s larger quarterly business survey is slated to be released. But it’s otherwise quiet in Australia except for inflation expectations. Retail sales in Switzerland are out along with EU CPI, trade and an ECB interest rate decision. Mario Draghi’s Associated Press media conference is going to be huge in the context of Greece. In the US Janet Yellen gets a second go, this time in the senate, and we get jobless claims too.
Here’s the overnight scoreboard (7.42am AEST):
- Dow Jones flat at 18,050
- Nasdaq down 0.12% to 5,098
- S&P 500 down 0.07% to 2,107
- London (FTSE 100) flat at 6,7533
- Frankfurt (DAX) up 0.2% to 11,539
- Tokyo (Nikkei) up 0.4% to 20,463
- Shanghai (composite) down 3.02% to 3,805
- Hong Kong (Hang Seng) down 0.26% to 25,055
- ASX Futures overnight (SPI September) +5 points to 5,589
- US 10 Year Bonds -5 to 2.35%
- German 10 Year Bonds -7 to 0.77%
- Australian 10 Year Bonds -6 to 2.94%
- AUDUSD: 0.7375
- EURUSD: 1.0948
- USDJPY: 123.75
- GBPUSD: 1.5634
- USDCAD: 1.2918
- Crude: $51.41
- Gold: $1,149
- Dalian Iron Ore (September): 365