The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
Naturally, they steered towards data-watching. Recent incoming data seems to be showing a clearer pick-up in economic growth, which predictably strengthened expectations of a September FOMC rate hike.
Yesterday’s better-than-expected wholesale trade and second-tier JOLTS data further supported the case.
Overnight markets did not quite react to the improving US data due to news out of Greece stealing the limelight.
European and US equities rallied more than 1% as Germany appeared to waver from its hard stance and mooted a staggered debt repayment for Greece. However, I wonder if the stock rebound is warranted or sustainable. Bond yields continued to rise with German 10-year bunds jumping past 1%.
US treasuries also flirted with the key 2.5% mark. The pace of the selloff in the fixed income markets remained worrying. 10-year bunds spiked around 100% since the start of June, surging 100 bps, giving credence to Bill Gross’ ‘short of a lifetime’ remark.
In the currency market, a surprise RBNZ rate cut (Only 37.5% out of economists predicted it) dragged NZD/USD down by almost 200 pips, to 0.7020-0.7030. Low inflation as well as milk prices, and domestic demand probably justify the cut. The kiwi is now at the lowest level in nearly five years. Meanwhile, USD/JPY recovered from overnight lows, and was last seen hanging on to the 123 handle.
Crude oil recovered overnight as US stockpiles fell more than expected in the second week of June. The decline was also the sixth consecutive weekly drop. Although falling US crude inventories could provide relief to the global supply overhang, total supplies at 470.6 million barrels are still over 20% higher from a year ago.
It suggests that any real improvement in the supply glut will only have a significant impact on oil prices after a longer period of time. With OPEC maintaining its production amount at 30 million, this could take a while.
In Asia, we’ll be looking at a clutch of China data out at midday. The market will be looking for very mild improvements in industrial production and retail sales.