Welcome to my daily Markets Musings.
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Market Summary (6.19am Friday June 15)
The ECB has decided to end its QE program by year’s end. That wasn’t unexpected. But what really set the cat among the pigeons was the bank's edict that it would hold rates steady in the EU “through the summer” of 2019.
That raises the prospect ECB president Mario Draghi – who’s term ends in October 2019 – may leave his post without ever having had to raise rates. And that prospect, coming less than 24 hours after the FOMC took a more hawkish tilt in the US knocked the Euro for six which in turn has seen the USD sharply higher across the board.
Indeed having traded up to a high of 1.1851 EURUSD is now sitting at 1.1580 having posted a loss of 1.77% since 7am my time yesterday morning. That Euro move has put pressure on the Pound which lost 0.66% to 1.3286, but USDJPY has run into a fall ahead of 111 and is only up around a quarter of a percent at 110.55.
Worth noting, data last night for retail sales in the US (0.8% headline for May, 5.9% yoy) were stronger than expected, while jobless claims remained strong and import and export prices were up a solid 0.6% apiece in May. This is clearly data that reinforces the Fed and ECB, among others, are on a different policy path.
So, of the commodity bloc the Aussie has fallen the most. No doubt this reflects the RBA’s own clear signal this week that, like the ECB, it too is on hold for an extended period. AUDUSD is down at 0.7488 for a loss of 1.15%. The Kiwi is down half a percent at 0.6988 while the CAD lost 0.8% with USDCAD trading at 1.3091.
Currency weakness can translate into economic advantage if sustained. So the Euro’s fall helped European bourses. The DAX rose 1.68% to 13,107, the CAC was 1.39% higher, the FTSEMIB climbed1.22%, while in London the FTSE 100 was 0.8% to the good.
Naturally a collapsing Aussie dollar has seen the SPI find some buyers as well and the soon to mature June contract is up 35 points to 6060 in what looks like a bullish outside day and suggests a good day ahead for the ASX. I’m not convinced though looking at the price action of the 26% of the index which remains under pressure and breaking down.
US traders are more circumspect than either local or European stock pickers. The S&P 500 is up 0.2% to 2,780. The Dow is around flat and the Nasdaq 100 rose a stellar 0.88%.
On commodity markets the Russians are out with a plan to increase oil production by 1.5 million bpd increase while the Saudis say a deal to take pressure of the market seems inevitable. Brent fell 1% to $75.98 but again WTI was bid and rose half a percent to $66.97. Elsewhere copper was 1.15% lower at $3.21 while gold actually rallied. Not much though, it’s at $1303.
Bitcoin, and other cryptos especially Ethereum, are higher after the SEC head said ETH is not a security. BTC is up 5% to $6,624.
Interestingly even with the solid US data the10 year Treasury is a point lower at 2.94% while the 2year is at 2.57%. Naturally, EU bonds were a little better bid.
On the docket today we have the BoJ meeting. Ut it would be a surprise if they surprised the market the way the ECB did. The RBA’s Luci Ellis is speaking at an infrastructure conference and then tonight we get German wholesale prices and EU inflation. In the US its industrial production and Michigan consumer confidence.
Have a great day and weekend.
Here's What I Picked Up (with a little more detail and a few charts)
Shorter than usual today as I have to give a talk in Newcastle this morning.
Have a great day's trading.
Chief Market Strategist
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Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support