Markets Moved by Fed Rhetoric and British Opinion Surveys

June 6, 2016

With less than three weeks until the U.K. voter referendum on whether to remain part of the European Union, two surveys showed more people wanting to exit than to stay, although the margin was narrow in each case.  Sterling has fallen 0.7% against the dollar, but the Ftse is 1.0% stronger.

Commodities are up in lagged reaction to Friday’s weak U.S. jobs report.  West Texas Intermediate crude oil popped up 1.0% to $49.10 per barrel.  Zinc appreciated over even further.

However, Fed officials have deployed a revisionist interpretation of the data’s ramifications on policy.  While markets on Friday concluded the meager rise in jobs means a longer delay before the Fed tightens again, Eric Rosengren, the Boston Fed President and big policy dove until recently, opined that a rate hike relatively soon remains likely, noting that 4.7% unemployment and sufficient GDP growth point to a need for further normalization.  Loretta Mester, president of the Cleveland Fed gave the same message in a separate speech.  Both Rosengren and Mester spoke from Europe.

Bank of Canada Governor Poloz also played down the importance of the May U.S. labor report, claiming such not to be representative of underlying conditions.  He expected Fed tightening soon.

New Zealand’s market was closed for the Queen’s birthday.  South Korean markets were shut today as well for Memorial Day.

The dollar recovered 0.7% against sterling, 0.5% versus the yen, 0.4% vis-a-vis the kiwi, 0.3% relative to the yuan, 0.2% against the euro, and 0.1% relative to the loonie and Australian  dollar.  The dollar fell 0.2% against the Swiss franc.

The 10-year Japanese sovereign debt yield fell three basis points to -0.14%.  Its British counterpart is unchanged and German  counterpart edged a basis point higher.

Share prices around the Pacific Rim rose 0.9% in Indonesia, 0.8% in Australia and Singapore, 0.6% in Hong Kong but fell 0.4% in Japan and 0.2% in both India and China.

Continental European stock markets are little changed.  Everyone is waiting to see what Fed Chair Yellen says in a speech today planned from Philadelphia.

Gold is steady at $1,243.40 per troy ounce.

The Sentix measure of investor sentiment toward the eurozone improved more than projected to a 6-month high of 9.9 in June from readings of 6.2 in May, 5.7 in April and 5.0 in March.

Real German industrial orders relapsed 2.0% in April following a 2.6% increase in March.  The drop was unexpected and concentrated in a 4.3% plunge in foreign demand and a 2.4% drop in domestic orders for capital goods.  April orders were 0.5% lower than the April 2015 and 1Q16 levels.

More purchasing manager surveys were published.

  • Euroland’s retail PMI rebounded 2.7 points to a 7-month high of 50.6 in May.  France’s retail PMI was also at a 7-month high of 50.6, while Germany’s retail PMI of 54.0 was at a 2-month high after April’s 3-month low.  From a 14-month low of 42.6 in April, Italy’s PMI rose 2.6 points but at 45.2 still signaled fairly pronounced contraction.
  • The global composite PMI of services and manufacturing fell 0.5 to just 51.1 in May, a 3-month low.
  • Germany’s construction PMI dropped 0.7 points to a 6-month low of 52.7 in May, and prices accelerated.
  • Brazil’s composite PMI of services and manufacturing fell 0.7 points to a record low reading of 38.3.
  • The non-oil PMI readings in May of Egypt, Saudi Arabia and the United Arab Emirates were each higher than April levels.  Egypt’s 47.6 score was still below the 50 no change level but at a 3-month high.  The Saudi reading of 54.8 constitutes a 6-month high, and the U.A.E. PMI rose 1.2 points to a 2-month high of 54.0.

British car sales in May were 2.5% greater than a year earlier.  Czech retail sales in April surpassed their year-earlier level by 5.7%.

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

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