Instead of the boilerplate optimistic views we usually receive from central banks, governments and supranational organizations; the message we were delivered was one of concern.
Hope for an accelerant to US growth is being tempered, the UK has warned it remains exposed amid Brexit discussions, Germany stated easy policy is a threat rather than boon and the Chinese premier inadvertently drew greater focus to the country’s financial exposures and global rise of protectionism.
Wall Street: US capital markets opened the day with the same lack of commitment we have come to expect in the current seasonal lull – but it didn’t close quiet. By the New York session’s final print, the Dow was down 0.5%, S&P 500 off 0.8% and the tech-heavy Nasdaq tumbled 1.6%. Given the latter index has been the highest flyer, it comes as no surprise that it suffered the most aggressive drop. Taking its cue, the VIX jumped above 11 – though, it's worth remember this is still an extremely low reading.
The ultimate trigger for the day was news that the Senate had delayed the vote on its most recent healthcare bill. While this hasn’t stalled the effort, it is yet another delay that is weighing confidence that the bigger economic programs further down the line (regulation, tax reform and infrastructure spending) may never gain real traction. In the meantime, the markets are priced for all of those windfalls.
Chinese Premier Upbeat: Short positions in Iron ore are likely feeling uncomfortable after a confident speech was given in Dalian at the World Economic Forum by Premier Li Keqiang. Li said that China would encourage foreign businesses to keep profits in China and relax restrictions on foreign businesses' shareholding while also cutting capacity in steel and coal sectors, which helped lift base metals. Li's positive comments on ‘proactive’ fiscal policy are likely received as risk sentiment relief after Beijing regulators announced they are looking to avoid a 'Lehman moment' by investigating bank exposure from aggressive acquirers like Dalian Wanda, Fosun, HNA and Anbang to check "systemic risk."
Global Financial Stability Reports: We have received an unexpectedly-broad financial stability review for the global economy over the past 48 hours. The Bank of Japan’s flow of funds reported funds were increasingly being diverted into savings rather than productive economic and financial means Monday. From Germany Tuesday, the Finance Ministry’s joint evaluation of the country’s health settled in on low rates – the very thing keeping many of its neighbors afloat – as the country’s greatest risk. Bank of England Governor Mark Carney gave a press conference for his group’s FSR which called on British banks to increase their capital buffers by 11.4 billion pounds to account for domestic and external risks. And, the IMF lowered its growth forecast for the US with the stated reason that the expectations for windfall ‘Trump’ policies were in jeopardy and could not be counted on for the next phase of growth. Quite the jolt for ‘Summer Doldrums.’
Central Banker Panel: Top global event risk for the next 24 hours is a panel being held for the third day of the ECB’s summit on central banking. This discussion will bring the leaders of the European Central Bank, Bank of Japan, Bank of England and Bank of Canada together. Collectively, this represents the most dovish policy groups of the global central bank scene (and Canada). While this can prove a collegiate discussion on navigating uncertain times, it is highly likely that this opportunity will be utilized to set expectations for the inevitable effort to normalize from extreme accommodation. Specific plans at this venue are unlikely, but given these institutions have treated forward guidance as a serious tool; this is an opportune time to collectively set the course so as head off surprises latter that could undermine efforts before they ever got underway.
Australia Dollar: The Australian Dollar is finding the 0.7600/50 a very difficult zone to crack. As Janet Yellen spoke on Tuesday afternoon and news of a delayed US Senate Healthcare Vote surfaced, a pickup in FX volatility took over, and AUD began to drift lower. AUD volatility is likely to be externally driven. Recent trends elsewhere is a strong EUR on an optimistic ECB President Draghi, a persistently weaker JPY, and a confused USD. During Yellen's speech, her key insight was regarding the low US employment level when she said the current level is, "below the level, most of my colleagues regard as sustainable." This comment could be taken as a view that the Fed sees inflation support coming soon.
ASX: Materials, the second-heaviest weighted sector in the index was the biggest index gainer lead by the news that ALS Ltd (ALQ AU) was expected to increase their exploration budget for gold miners. In concerning news, Australia & New Zealand Banking Group (ANZ AU) told a Californian court their commodities trading unit suffered "substantial losses" due to falsified receipts for Nickel receipts they were holding at Glencore Plc's Access World warehouse. ANZ said that 83 of the 84 receipts they held would not be honored, which brings back memories of the cases of metal financing scams that occurred in 2014 at the Qingdao port in China.
Commodities: The relief rally in crude oil continues thanks in large part to a weaker dollar. The fourth consecutive daily gain in oil is the largest sequential gains in a month. While Bulls may be getting relief, the outlook remains grim after comments at the EIA conference in Washington from key Permian player Pioneer's chairman, Scott Sheffield said that low production costs would keep US production running strong for at least 25 years. Crude is working on its worst performance in the month of June, which tends to host a 'summer surge' since 1988. The weak USD seemed to do less for Gold, which rose +0.3% on Tuesday to $1,248 oz. after Monday's 'fat finger' trade took the price to $1,236 before rebounding.
S&P/ASX 200 down 5.968 points or -0.1% to 5714.19
AUD +0.004% to 0.7589 US cents
On Wall St, Dow -0.29%, S&P 500 -0.55%, Nasdaq -1.29%
In New York, BHP +0.57%, Rio +1.17%
In Europe, Stoxx 50 -0.66%, FTSE -0.17%, CAC -0.70%, DAX -0.78%
Spot gold +0.42% at US$1250.16 an ounce
Brent crude +1.59% to US$46.55 a barrel
Iron ore +0.45% to US$55.60 a tonne
Dalian iron ore at 428.00 yuan, +0.93%
LME aluminium (cash) -0.12% to $US1855.00 a tonne
LME copper (cash) -0.16% to US$5771.25 a tonne
By John Kicklighter and Tyler Yell