FOMC Minutes and a Missing Plane Rattle Market Nerves

May 19, 2016

A wide range of commodities have dropped sharply, including overnight declines of 1.5% in gold, 1.9% in oil and over 2.0% in copper.

Stocks and bonds also suffered.

  • Share prices dropped 1.3% in New Zealand and Singapore, 1.2% in India, 1.0% in Hong Kong, 0.8% in Taiwan, 0.6% in Indonesia and Australia, and 0.5% in South Korea.  But Japan’s Nikkei climbed 2.0%.  However, in Europe, stocks are off 1.3% in the U.K., 1.1% in Germany, 1.0% in Greece, 0.8% in France, and 0.5% in Switzerland and Spain.  Egypt’s market fell over 2.0%.
  • 10-year sovereign debt yields rose four basis points in the U.K., three bps in Germany, 2 bps in Japan, and the U.S. Treasury futures points to a yield rise (price fall) as well.

The dollar has benefited from safe-haven demand, continuing an inversely correlated pattern with stock market activity.  The U.S. currency advanced overnight by 0.6% against the Canadian dollar, 0.4% versus the Australian dollar, 0.2% relative to the euro and Swiss franc and 0.1% vis-a-vis the yuan.  The dollar, on the other hand, lost 0.4% against sterling, 0.2% versus the yen and 0.1% vis-a-vis the kiwi.

The risk of Fed tightening next month, which had seemed like a minuscule possibility at the start of this week, is now assigned a one in three chance in fed futures trading because of more hawkish-than-expected FOMC minutes released yesterday afternoon.  See review.

Egypt Air flight MS 804 from Paris to Cairo is missing and feared to have crashed into the Mediterranean Sea with over 65 people on board.  Terrorism is suspected.

Core domestic private machinery orders in Japan rebounded 5.5% in March following a 9.2% plunge in February.  Such increased 6.7% in the first quarter, still somewhat less than officials were anticipating, and are projected to fall 3.3% this quarter.  Foreign machinery orders soared 28.5% in March but were still 0.4% lower than in March 2015.

Japanese stock and bond transactions last week generated a net JPY 550 billion capital outflow versus a JPY 169 billion inflow in the first week of this month.

Japanese machine tool orders recorded a revised 26.3% on-year decline in April after drops of 21.2% in March, 21.5% in February and 17.2% in January.

Australian labor statistics in April were mixed, with the jobless rate holding steady at 5.7% but full-time jobs falling 9.3K and the participation rate edging down 0.1 percentage point to 64.8%.  The drop in full-time workers followed a 10.0K decrease in March but was offset by 20.2K additional part-time employees.

Construction output in the eurozone fell 0.9% in March and was 0.5% lower than a year earlier.  The first quarter saw such rise 1.1% versus 4Q15 and 1.9% compared to a year earlier.

British core retail sales volume (which excludes auto fuel) advanced twice as fast as predicted in April, notching a rise of 1.5% on month and 4.2% on year.  There was a 0.7% gain in February-April compared to the average level in the previous three months and a 3.5% increase versus February-April of 2015.  Total sales volume rose 1.3% in March and 4.3% on year.

Norway’s NOK 10.6 billion trade surplus in April was a 3-month high and considerably larger than its year-earlier size.

Central banks in Indonesia and Malaysia left key interest rates unchanged at 6.75% and 3.25%, respectively.  The South African Reserve Bank also announces an interest rate decision today, and officials there are thought likely to likewise keep the existing stance even though the rand has weakened extensively.  South African wholesale turnover rose 3.6% in March.

Real Filipino GDP grew 1.1% in the first quarter, and the higher 6.9% rate of on-year economic growth was the most in 11 quarters.

Scheduled U.S. data to be released today include the Chicago Fed National Activity Index, the Conference Board index of U.S. leading economic indicators, the Philly Fed manufacturing index, and weekly jobless insurance claims.

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

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