Things all looked good in Asia with the Nikkei closing up a little over 1%, Hang Seng following its lead gaining 1.2% and so it was only Shanghai that returned a small negative on the day. All was good following the strong US session and so we were lead mostly by energy and miners (BHP on the ASX closed +3.7%). The RBA showed rates were cut only at the last minutes as most were initially in favor of holding still. As a result of these minutes the AUD jumped from 72.80 to 73.50 and as we stand this evening in late US trading at 73.30 as equities give back some of the earlier gains.
Europe really was a game of two-halves! The morning found confidence having seen the strong close in US trading and also the fact that most core Asian markets had accepted the trend. Strong energy prices tended to lead stocks firmer with many talking of $50 oil the hot topic. This was the game plan until lunchtime when the US cash markets opened. Lunchtime data were encouraging with CPI seen as the fastest in 3 years, Industrial Output printed +0.7% against an expected +0.3%. The problem this afternoon was that many dealers are concerned the FED will act sooner especially after today’s data and the US Treasury market reflected those concerns. Given the recent rally and the old adage, “Sell in May buy again St. Ledgers Day” (September), many are reluctant to support falling prices or indeed invest!
DOW cash market was heavy from the open and selling seemed relentless all day. Obviously, the data was good and many are concerned about possible FED action but having seen today’s selling erode much of this years gains it just takes the market back to January 1st. This is typical while some are claiming this fells like 2000, there is not spike high to justify that. It feels more like churning back and forth before 1985 when the Dow test 1,000 3 times before it finally broke out.
Meanwhile, Gold regained most of yesterdays late decline closing this evening at $1280 (+0.5%). Here too, it appears more like wasting time churning back and forth before any serious decision is made in this market which appear to be scheduled for the week beginning May 30th. With the chaos of BREXIT June 23rd and the US Presidential elections, it is hard to see where this market can make any sustained move without a conviction of the future.
The US Treasury market saw a volatile day with selling in the morning only to recover and make additional ground in the afternoon. Well, that was correct for the longer end but after the data fears are more along the lines of a two part curve. The front end was heavy with two rate hikes being priced into 2016 again. 2yr notes lost 4bp to close 0.825% while 10’s gained only 1bp closing at 1.76%. This has brought the 2/10 curve into +93.5bp. In Europe the bid remains for all areas of the curve and with peripherals still bid (thanks to the ECB). German 10yr Bund closed 0.13%, closing the US/Bund spread at +163bp. Italy closed 1.45% (-2bp), Greece 7.19% (-1bp), Turkey 9.90% (-5bp), Portugal 3.04% (-7bp) and Gilt 10yr at 1.37% (-2bp).