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Markets Commentary

PMI data out of Japan overnight was something pretty dismal:

  • April exports crashed -10.1 %, worse than the exp. -9.8 and worse than last month’s -6.8% while
  • imports plunged -23.3% also far worse than exp. -18.8 and March -14.9%;
  • PMI 47.6, Exp. 48.3, last 48.2),
  • it was supposed to be a straight up for the USDJPY, and its carry linked E-mini. However, that this did not happen, and instead the Yen jumped, sinking the USDJPY as low as 109.3

Despite a miss and drop in the EU Composite PMI (at 52.9, below Exp. 53.2, and last 53.0), Germany reported a modest improvement in its mfg and service PMIs which provided some optimism to the session.

That however does not explain the sharp, sudden swings in the Dax and Stoxx 600, which from opening red, then turning green, were back in the red at last check. Energy companies posted the biggest decline of the equity benchmark’s 19 industry groups as commodities tumbled. Bayer AG lost 3.2 percent after disclosing an unsolicited $62 billion all-cash offer to acquire Monsanto Co. amid investor concern that it might overpay for a deal that would create the world’s biggest supplier of farm chemicals and genetically-modified seeds.

One recurring concern is what the Fed will do, and how this will impact the dollar. As a result, government bonds rose as investors weighed the timing of the Federal Reserve’s next increase in interest rates and the outlook for inflation.  As Bloomberg puts it, treasury 30-year yields fell for a third day. The yen rose from near this month’s low, spurred by the biggest trade surplus in six years and a U.S. rebuttal of Japan’s case for intervention to weaken the exchange rate.

Investors now see a 28 percent chance of a June rate hike, while the chances of a July increase have climbed to 48 percent. Regional Fed chiefs for St. Louis, San Francisco and Philadelphia are due to speak Monday.

Oil fell for a fourth day after Iran said again that it won’t countenance freezing output until its production is back at pre-sanctions levels, while iron ore tumbled on rising Chinese stockpiles and copper declined. The Stoxx Europe 600 Index fell, erasing an advance of 0.4 percent.

Market Snapshot

  • S&P 500 futures down 0.2% to 2046
  • Stoxx 600 up 0.5% to 336
  • DAX down 0.8% to 9838
  • S&P GSCI Index down 0.5% to 365.3
  • MSCI Asia Pacific up 0.4% to 126
  • Nikkei 225 down 0.5% to 16655
  • Hang Seng down 0.2% to 19809
  • Shanghai Composite up 0.6% to 2844
  • S&P/ASX 200 down 0.6% to 5319
  • US 10-yr yield down 1bp to 1.83%
  • German 10Yr yield down 1bp to 0.15%
  • Italian 10Yr yield down less than 1bp to 1.47%
  • Spanish 10Yr yield down less than 1bp to 1.56%
  • Dollar Index down 0.05% to 95.29
  • WTI Crude futures down 1.1% to $47.83
  • Brent Futures down 0.9% to $48.19
  • Gold spot down 0.2% to $1,250
  • Silver spot down 1% to $16.37

Top Global News

  • Bayer Drops Again as $62 Billion Monsanto Bid Spooks Investors
  • Fed Seen Talking Up Rate Hike by El-Erian as Global Yields Rise
  • Axa to Divest Its Tobacco Industry Assets Worth $2 Billion
  • Boeing Wins $11.3 Billion Order for 100 Planes From VietJet
  • Apple Asks for Up to 78m IPhone 7 From Suppliers: EDN
  • Google Said to Shift Chrome Under Search Unit Management: Recode
  • Euro-Area Growth Seen Slowing as Outlook Clouds Amid Weak Orders
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  • In Battle for Viacom, Shari Redstone Vaults Past Nemesis Dauman
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