It is a truly weird world we inhabit at the moment and the lack of any real response from markets to the geopolitcal turmoil going on is remarkable.
Sure European stocks fell last night but we are still very close to all-time highs, Certainly Euro rallied a few points also but that seemed in contrast to what the US data suggested. Gold is still in the $1270 oz region and Nymex crude still below $107 Bbl.
Maybe the enduring legacy of the GFC is that markets have like coffee, chilli, pain and alcohol built up a tolerance to shocks and only a truly big on will or can derail things.
That of course is a reasonable hypothesis – or it could simply be that investors are much closer to their index positions at the moment with less leverage in personal, professional and portfolio accounts so there is no need to head to the exits when their is instability.
The great moderation 2014 style – I don’t trust it but I can only trade the market in front of me and this is what we all have to deal with.
Anyway moving to overnight news and the IMF has cut its forecast for US growth for 2014 from 2.8% down to 2% as Q1 has under-performed and is at risk of a further downgrade at the final read to be released soon. Balancing this out though was the release of the New York Fed’s manufacturing index which rose to 19.28 against the 15 that the market expected.
But the Dow, Nasdaq and S&P 500 all recovered from early weakness with the Nasdaq up 0.24% at 4,321, the Dow was up 5 points or 0.03% at 16,781 while the S&P 500 rose 2 points or 0.10%.
In Europe given proximity to the geopolitical action, and missing the US rally, stocks were lower across the board with the FTSE fell 0.34% to 6,755, the DAX dropped 0.29% to 9,884 and the CAC in Paris fell 0.73% to 4,510. Milan and Madrid fell further down 0.86% and 0.95% respectively.
Locally the impact has seen June SPI 200 futures down 6 points to 5410 bid with September futures down 4 to 5,366 bid. On the Bond boards Aussie 3′s rose 2 points to 97.14 (2.86%) while the 10′s closed at 96.245 (3.755%).
On currency markets the US dollar lost it’s mojo a little with Sterling pushing briefly again above 1.67 but it sits at 1.6980 this morning. Euro pushed higher after basing last week and sits at 1.3572 and the Aussie is becalmed 10 points either side of 94 cents. If you are interested in the debate about the Aussie and why it is so strong I have written a piece for Business Insider which helps explain it – you can find it here.
On commodity markets Iron ore’s crash continues with the September 62% FE swap falling below $90 tonne to close at $88.67. Newcastle coal for September was down 15 cents a tonne to $72.70. Elsewhere while Brent crude (European based) surged Nymex Jun futures hardy budged closing at $106.58. Gold lost $3 oz to $1,271 while silver sits at $19.72. Copprose 2 cents lb to $3.05 while corn lost 1.34%, wheat was down 0.85% and soybeans were relatively calm dropping 0.28%.
On the data front today we get new motor vehicle sales for May and then really important UK CPI and PPI tonight. In Germany the ZEW economic sentiment is released along with US CPI which is also super important in the run up to the Fed’s meeting this week.
Greg McKenna
NB: Please note all references to rates above are approximate
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