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Markets Commentary

After two violently volatile days in which the market soared (Monday) then promptly retraced all gains (Tuesday), the overnight session has been relatively calm with futures and oil both unchanged even as the BBG dollar index rose to the highest level since April 4.

Macro data from both Japan, where the GDP came well above the expected 0.3%, instead printing 1.7% annualized, which pushed stocks lower as it meant the probability of more BOJ interventions or a delay of the sales tax hike both dropped.

Meanwhile, in China we got proof of the ongoing housing bubble when new property prices were reproted to have soared 12.4% Y/Y in April, which in turn pushed the local stock market to two month lows amid concerns the rampant housingbubble sector could divert funds from stocks. Yes, China is trading on the “risk” one bubble will burst another bubble.

At the end of the day, however, it was all about two Fed speakers yesterday and, as Bloomberg put it, financial markets reawakening to the risk that the U.S. expedites interest-rate increases, and that’s buoying the dollar while denting emerging markets and commodities.

Treasuries fell, pushing two-year yields to highest since April, after Atlanta Federal Reserve President Dennis Lockhart and San Francisco’s John Williams said Tuesday two rate hikes may be warranted this year.

Chinese stocks tumbled to a two-month low, while the rand led the selloff versus the greenback amid mounting political tension in South Africa.

Copper and gold fell for the first time in four days.

“The mood of markets is pretty temperamental at the moment with sudden reversals in sentiment seemingly occurring every few days. The S&P 500 closed -0.94% last night, wiping out Monday’s gains. Fedspeak seemed to be a driver and it was interesting to see the US 2s10s curve hit its flattest level since 2007″. DB’s Jim Reid summarized the situation.

And while oil is largely unchanged as of this moment with WTI trading in the mid-$48 range, buoyed by renewed fears from the Canadian wildfires which appear set to keep millions of barrels of production offline for several more days, keep a close eye on copper, which this morning is down 1.6% to $2.06/lb, hitting its lowest price in three months.

 

“Expectations appear to be that minutes will signal that a summer hike is on the cards,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. The “solidly hawkish” rhetoric from Fed non-voting members of late is proving to be dollar positive, as the possibility of a hike is not priced in by markets, he said.

 

 

Minutes from the Fed’s April meeting will also be in focus for clues on the trajectory of interest rates after hawkish comments from regional presidents. The first month with even odds of higher borrowing costs also moved up to November from December.

Market Summary

  • S&P 500 futures down less than 0.1% to 2043
  • Stoxx 600 down 0.1% to 335
  • FTSE 100 down 0.4% to 6141
  • DAX down 0.3% to 9864
  • MSCI Asia Pacific down 0.7% to 127
  • Nikkei 225 down less than 0.1% to 16645
  • Hang Seng down 1.5% to 19826
  • Shanghai Composite down 1.3% to 2808
  • S&P/ASX 200 down 0.7% to 5356
  • US 10-yr yield up 1bp to 1.78%
  • German 10Yr yield up 1bp to 0.14%
  • Italian 10Yr yield down less than 1bp to 1.45%
  • Spanish 10Yr yield up less than 1bp to 1.57%
  • Dollar Index up 0.37% to 94.9
  • WTI Crude futures down 0.3% to $48.16
  • Brent Futures down 0.5% to $49.05
  • Gold spot down 0.5% to $1,272
  • Silver spot down 1.2% to $17.04

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  • BlackRock Hires Ex-Hedge Fund Founder Ferrier for Private Credit
  • Goldman Sachs Asset Said to Consider Aussie Equities Unit Sale
  • Fed Alarm Has $8.5b Swedish Fund Manager Dumping Risk

 

 

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