Here is what you need to know.
Central banks are cutting rates. The Reserve Bank of New Zealand unexpectedly cut its key rate 25 basis points to 3.25%. New Zealand’s central bank warned, “A further significant downward adjustment [in the exchange rate] is justified,” and that further rate cuts may be appropriate. The New Zealand dollar is down 2.7% at .7011, and at its lowest level since August 2010. Meanwhile, the Bank of Korea lowered its benchmark interest rate 25 basis points to a record low 1.25%. The rate cut was the fourth by South Korea’s central bank, and comes amid slowing growth and increased concern over the MERs outbreak. South Korea’s won finished down 0.1% at 1108.55 per dollar.
China data was mixed. Industrial production rose 6.1% in April, compared to last year, making for the fastest growth since January. New loans also topped estimates, coming in at 901 billion yuan, up from 860 billion. Meanwhile retail sales matched their previous reading at 10.1% year-over-year. Fixed asset invesment was the lone disappointment, printing up 11.4% year-to-date over year, down from the previous reading of up 12.0%. China’s yuan was little changed at 6.2067 per dollar.
Australia’s jobs data crushed expectations. The Australian economy added 42,000 jobs in May, which was almost three and a half times more than economists were expecting. The strong number pushed the unemployment rate down to 6.0% from 6.1% when analysts were anticipating a rise to 6.2%. However, economists are sceptical of the report as the unemployment rate in mining areas inexplicably tumbled to 5.1% from 5.6%. Australia’s dollar is down 0.4% at .7731.
The World Bank wants the Fed to hold off on rate hikes. Kaushik Basu, the World Bank’s chief economist, believes the Fed should wait on raising interest rates to avoid exchange rate disruptions and hurting global growth. The bank cut its global 2015 growth forecast for developed economies to 4.4% from 4.8%, and lowered its US growth outlook to 2.7% from 3.2%. It believes India will be the fastest growing economy with growth of 7.5%.
Pimco is betting on inflation. The money manager likes TIPs. Scott Mather, the chief investment officer for U.S. core strategies, says, “We see value in U.S. inflation-linked bonds.” He continued, “The extraordinary policy response of the past few years could result in more inflation than expected.” Interestingly, the April CPI data showed consumer prices fell 0.2% in April, making for the biggest drop in six years.
Credit Suisse thinks the chance of an equity bubble is 60%-to-70%. The investment bank doesn’t think stocks are currently in a bubble, but added, “bull markets in most assets end in bubbles.” The analysts suggest loose monetary policy, the impact of oil prices and the scope for a big rise in retail buying are the three forces that could cause the bubble. As for the stock market going more than 3.5 years without a correction, Credit Suisse notes there have only been two instances where stocks have gone longer without a 10% drop.
Nike scored a $US1 billion deal with the NBA. The deal, which begins for the 2017-2018 season, allows Nike to become the exclusive on-court provider of gear for the NBA, WNBA and NBA D-League. Currently, Adidas provides uniforms for the league.
Men’s Warehouse posted a strong quarter. The retailer announced adjusted earnings of $US0.54 per share, topping the Wall Street estimate by $US0.03. Revenue rose 4.4% to $US885.09 million, beating the $US857.7 that was anticipated. The company announced a 10-year deal that will put 300 tuxedo rental shops in Macy’s stores.
Stock markets around the world are higher. Germany’s DAX (+0.6%) leads the advance in Europe after Japan’s Nikkei (+1.7%) paced the gains in Asia. S%P 500 futures are down 1.50 points at 2105.50.
US economic data is heavy. Initial and continuing claims, retail sales and import/export data will be released at 8:30 a.m. ET while business inventories is set to cross the wires at 10 a.m. ET. Natural gas inventories are due out at 10:30 a.m. ET. The U.S. Treasury will reopen $US13 billion 30-year bonds at 1 p.m. ET.