Mon 29 May 2017

In Portfolioticker today

Today at the stock market

Global stocks were mixed and the USD and EUR traded sideways amid thin trading as investors weighed the latest comments from a Federal Reserve official on the path of U.S. borrowing costs and Mario Draghi’s dovish message to the European Parliament.

With markets in the U.K., U.S. and China closed for holidays, volumes were depressed, limiting price movements. Britain’s GBP led gains among G-10 currencies as it recouped some of Friday’s retreat, and Italian assets fell as former Prime Minister Matteo Renzi raised the prospect of an early election. Brazil’s BRL dropped in the wake of Friday’s decision by Moody’s Investors Service to lower the country’s credit outlook, while Mexico’s MXP was little changed even after bullish wagers fell. South Africa’s ZAR dropped after President Jacob Zuma survived a bid by some members of his party to oust him.

Beyond local politics, the key challenge for investors remains gauging the ability of the world’s economy to withstand rising borrowing costs. Despite the record highs posted by global equities, the rally in bond markets suggests traders are cautious. In a speech in Singapore on Monday, Fed Bank of San Francisco President John Williams reaffirmed his view that a total of 3 interest-rate increases makes sense for the Federal Funds Rate in 2017.

“The U.S. economy is about as close to the Fed’s dual-mandate goals as we’ve ever been,” Williams said. “With the attainment of our dual-mandate goals close at hand, it’s more important than ever for monetary policy to work toward what I like to call a ‘Goldilocks economy’ -– an economy that doesn’t run too hot or too cold.”Bloomberg

USA’s stock markets are closed for Memorial Day.

The portfolio today

USD and AUD denominated indices over the past 52 weeks (Chart: Bunting)
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting

Index values

Index Currency Today Change 31 Dec 16 YTD
USD-denominated Index USD 2.750 +0.00% 2.105 +30.64%
Valuation Rate USD/AUD 0.74917 -0.07% 0.72663 +3.10%
AUD-denominated Index AUD 3.671 +0.06% 2.895 +26.78%

FX: USD/AUD

USD

DXY movements
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg

Bloomberg’s Dollar Spot Index (DXY) fell less than 0.1%.
Britain’s GBP added 0.3% after a 1.1% decline Friday.
The EUR was little changed at USD 1.1181 after ECB President Mario Draghi said the euro area still needs exceptional support.
Japan’s JPY was little changed at 111.28 per USD.
Brazil’s BRL weakened 0.3%, while the Mexican MXP rose less than 0.1%.
South Africa’s ZAR led losses among 24 major emerging-market currencies.
The yield on 10-year Treasuries was 2.25% at the end of last week. There was no cash trading on the securities Monday because of the Memorial Day holiday.
The yield on 10-year Italian bonds jumped eight basis points after former Prime Minister Renzi raised the prospect of an early election
Bloomberg

AUD

AUD movements
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com

flag_europe ECB: Assessment of US Relationship with Europe

Mario Draghi has become the latest European policy maker to tell USA that it might be heading down the wrong path on trade.

The European Central Bank president used an appearance on Monday to tout the euro area’s 4-year recovery and say that the key risks are now from external factors. Then he turned his attention to the rhetoric coming from USA.

Draghi was speaking to the European Parliament in Brussels just a day after German Chancellor Angela Merkel bemoaned that reliable relationships forged since the end of World War II “are to some extent over,” signaling a potentially significant shift in the ties between USA and its trading partners under the administration of President Donald Trump. It also comes amid a euro area upturn that is being bolstered by domestic consumption as much as exports.

“The concerns of Mario Draghi are maybe just an echo of the comments made earlier by Merkel after the Group of Seven (G7) summit,” said Vincent Juvyns, global market strategist at J.P. Morgan Asset Management. “While the global environment is important for Europe, the economic momentum seems to be self-sustaining with local factors driving gross domestic product up at the moment.”

On his 9-day foreign trip, Trump hectored NATO allies for not spending enough on defense, and brought the U.S. to the brink of exiting the global Paris climate accord. He also called Germany’s trade surplus “very bad.”

Merkel, who is campaigning for a 4th term ahead of Sep 2017 elections, has since said that European leaders are “committed trans-Atlanticists” and consider strong relations with the USA “of great importance to all of us.”

Still, the Trump administration’s attitude failed to find favor with another ECB speaker on Monday, Austrian central-bank Governor Ewald Nowotny.

Governments have stepped up their warnings against a resurgence of protectionism, arguing that policies supposedly supporting domestic economies often do more harm than good. At the same time, they have acknowledged that globalization – while having extraordinary benefits – also created losers who must be better taken into account.

In the wake of Trump’s election, the U.K.’s vote to leave the European Union, and France’s flirtation with electing a euro-skeptic president, Draghi was at pains to make that point as well.

Draghi contrasted the caution about the global environment with the brightening outlook for the euro area. In his Brussels hearing, he described the euro area’s economic upswing as “increasingly solid” and broadening.

That kind of talk has fueled speculation over when the ECB will finally start to unwind its EUR 2.3 trillion (USD 2.6 trillion) bond-purchase program. That’s a topic Draghi declined to encourage, hinting that there’s little urgency to do much at the next ECB monetary policy meeting on 8 Jun 2017.

He may get more ammunition for that view this week. While data on Tuesday is likely to show economic confidence at the strongest in almost a decade, and figures the next day will probably reveal an unemployment rate at the lowest since early 2009, inflation is far less convincing. Economists predict that data due Wednesday will show the inflation rate fell to 1.5% in May 2017 from 1.9%. More worryingly for the ECB, core inflation is slated to slow to 1%.Bloomberg

Oil and Gas Futures

Futures prices

  • NYMEX West Texas Intermediate (WTI): $49.99/barrel +0.38% (12:59) Chart
  • ICE (London) Brent North Sea Crude: $52.29/barrel +0.27% (13:29) Chart
  • NYMEX Natural gas futures: $3.21/MMBTU -2.96% (12:59) Chart

flag_japan Japan update

Currency: USD/JPY

JPY movements
^ JPY movements against the USD over the past month (mouseover for inverse) Chart: xe.com

Stockmarket: Nikkei 225

N225 movements
^ Nikkei N225 movements over the past week Chart: Google Finance

flag_china China update

Currency: USD/CNY

CNY movements
^ CNY movements against the USD over the past month (mouseover for inverse) Chart: xe.com

Stockmarket: CSI300

China’s stock market is closed today and tomorrow for the Dragon Boat Festival.