Abrupt Reversal of Tuesday’s Stock Market Rally

May 11, 2016

Share prices in Europe have so far fallen Wednesday by 2.2% in Italy, 1.6% in Spain, 1.3% in Greece, 1.0% in France, 0.8% in Germany and 0.1% in the U.K..

Earlier in the Pacific Rim, stocks fell 0.7% in India, 0.4% in Hong Kong, 0.3% in Taiwan and Singapore and 0.1% in South Korea but rose by 0.6% in New Zealand and Australia, 0.8% in Indonesia and 0.2% in Japan and China.  U.S. stock futures are down.  Banks have been hurt by fading prospects for a June hike of the Federal funds rate.  A breakdown of merger plans sent Staples and Office Depot into freefall.

West Texas Intermediate crude oil edged 0.1% lower on balance to $44.63 but was considerably lower earlier today, weighing on the energy sector.

Comex gold advanced 0.8% to $1,275.30 per ounce.  Zinc advanced more than 1.5%.

Currency considerations have been a major factor dampening expectations regarding how soon the Fed will raise interest rates a second time.  The yen rose 0.4% to 108.78 per dollar.  The U.S. currency otherwise shows upticks of 0.2% against the euro and New Zealand dollar and 0.1% versus sterling and the Australian dollar but losses of 0.3% relative to the loonie and 0.2% against the yuan and Swiss franc.

The ten-year British gilt and Japanese JGB yields slipped a basis point.  The 10-year German bund is unchanged.  In futures trading, the 10-year Treasury edged a basis point lower to a mere 1.75%.  Such ended April at 1.83%.

The central banks of Iceland and Thailand left key monetary policy interest rates unchanged at 1.50% and 6.5% as expected.

British industrial production rose 0.3% in March, less than had been forecast, and was 0.2% lower than a year earlier.  For the first quarter, industrial production fell 0.4% compared to the previous quarter.  Factory output also dropped 0.4% on quarter and was 1.3% lower than the 1Q15 level.

Japan’s index of leading economic indicators fell 0.5 points to a 40-month low reading of 98.4 in March.  Government officials for an eleventh straight month described the trend of the index of coincident economic indicators as “weakening.”

Japanese international reserves rose just $410 million further in April but posted a $29.3 billion rise in the first third of 2016 to $1.2625 trillion.

Westpac’s Australian consumer sentiment index bounced up 8.5% in May following a 4% decline the month before.

Home loans in Australia fell 0.9% in March, reversing February’s slide.

Portuguese consumer prices were just 0.5% higher than a year earlier in April, and the jobless rate last quarter rose 0.2 percentage points on quarter to 12.4%.

Britain’s National Institute of Economic and Social Research revised its projections for 2016 inflation and growth slightly lower and thinks a Bank of England rate hike doubtful before November.

U.S. mortgage applications increased for the first time in three weeks last week, albeit only by 0.4%.  The 30-year fixed mortgage rate slipped 5 basis points.  Weekly U.S. oil inventories data are due later.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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