US credit markets did not recover quite as readily as equities, and were obviously concerned by the biggest monthly decline in construction spending since January 2011. The dramatic decline also saw US 2Q GDP forecasts lowered, with the Atlanta Fed’s GDPNow estimate moving to 2.5% from 2.9%. The DXY Dollar Index lost 0.5% off the data.
Many are decrying the woeful global data for driving yesterday’s selloff in the markets, but the data out of the EU and the US does continue to show slow improvement. The US and EU manufacturing PMIs both continued to see expansionary above-50 levels. And while US construction spending was unquestionably poor, it was noticeably at odds with almost every single other US housing data point for April. The concerns for global growth certainly should be more focussed on China and Japan.
Which brings us to the massive gain seen in the Japanese yen overnight. The USD/JPY cross dropped 1.1% overnight. Many are pointing to the fact that the proposed two-and-a-half year delay to the introduction of a 10% tax hike creates less of a need for further stimulus from the Bank of Japan at their mid-June meeting. But this had arguably already been price into the currency over the past week. The USD/JPY looked like it had pulled back a bit after pushing up into the 111 handle, but it really sold off sharply after yesterday’s release of China’s Caixin Manufacturing PMI saw a back-to-back monthly decline. Global concerns around China may have also prompted renewed buying of the Japanese yen as a safe-haven asset.
Markets in the region look set to open relatively flat, except for Japan where the Nikkei is expected to decline 0.6% from the yen strength. BHP and CBA’s ADRs both declined overnight, and so did copper and iron ore. This does not provide a strong set up for the ASX today, but it looks like it will open relatively flat.
The other big development was increased speculation that this evening’s OPEC meeting may not be a total non-event as rumours began to circulate that an output “ceiling” could be agreed on. This could be a more palatable proposal than the “supply freeze” deal, but it seems a ceiling that would have a meaningful impact on the market would still be quite difficult to agree on. Nonetheless, the WTI oil price gained 0.3% overnight and could move higher on any further positive news from the meeting.