tocks and Sterling spent the day under pressure again but the biggest declines were reserved for crude oil where WTI fell 5.0% and Brent dropped 4.6%. Both contracts have been struggling with the $50.00 level but support caved today on signs that Nigerian production has started to increase again as facilities that had been attacked are repaired and return to production.
This could be an excuse though as the return of Canadian production following the oil sands shutdowns hasn’t had the same kind of impact (although it may have limited the upside lately). An increase in US drill rigs announced Friday afternoon before the long weekend may also get some of the blame although traders should recognize that drilling activity always picks up in the summer as spring seasonal road bans end and equipment can move again.
Sentiment toward the energy group was broadly negative with gasoline and natural gas both falling 6% on the day. Falling energy prices dragged on energy stocks and oil sensitive currencies like CAD and NOK. Resource currencies in general have been under pressure with AUD, NZD and SEK all dropping over 1% to USD over the last 24 hours.
US traders returned from their holiday in a downbeat mood with ongoing political and economic uncertainty weighing on risk markets. Stocks in the US fell about 1.0% while continental indices like the Dax, CAC and IBEX fell 1.6%-2.2%. The FTSE was the top performer rising 0.3% after GBP fell to its lowest level in decades against USD. While Brexit uncertainty weighed on sentiment, traders in stocks recognized that this big devaluation in GBP can be seen as a big boost for the UK economy along with the £150B in bank lending capacity Bank of England Governor Carney freed up today.
A lot of capital continues to flood into defensive havens, driving up JPY against other majors while sending bond prices soaring and yields falling. Gold also continues to climb.
It's hard to tell at this point whether this is a final capitulation washout or the start of another downleg. There is still a lot of uncertainty out there but Swiss bonds pricing in negative rates for the next 30 years or more has me thinking fear trades are getting pretty crowded. Meanwhile, some of the political uncertainties may be settling down with Theresa May taking a commanding lead into the second round of voting among conservatives for their next leaders while the FBI completed its investigation into Hillary Clinton’s emails criticizing her actions but recommending no charges be laid against her.
With limited news today, Asia Pacific markets could be dominated by the reaction to commodity price moves and global forces. The rest of the week is dominated by north American news including US service PMI and FOMC minutes tomorrow, ADP payrolls on Thursday and the big nonfarm payrolls report on Friday. Although a July rate hike looks unlikely unless payrolls really turn around, this week’s news could have a significant impact on corporate earnings expectations heading into earnings season later this month.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
US factory orders (1.0%) vs street (0.8%) vs previous 1.9%
US factory orders ex transport 0.1%, previous revised down to 0.3% from 0.5%
Eurozone retail sales 1.6% vs street 1.7%
Sweden industrial production 1.7% vs previous 3.5%
Service PMI reports:
Germany 53.7 vs street 53.2
France 49.9 as expected
Italy 51.9 vs street 50.4
Spain 56.0 vs street 55.0
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
12:00 am BST UK BRC Shop prices previous (1.8%)
7:00 am BST Germany factory orders street 0.9%
7:00 am BST Sweden unemployment rate previous 3.6%
8:00 am BST Spain industrial output street 2.2%
8:00 am BST ECB Draghi speaking
8:30 am BST Sweden Riksbank interest rate and monetary policy report
8:30 am EDT Canada trade balance street ($2.7B)
8:30 am EDT US trade balance street ($40.0B)
9:00 am EDT FOMC Tarullo speaking
2:00 pm EDT Fed June meeting minutes
9:45 am EDT US Markit service PMI street 51.3
10:00 am EDT US ISM non-manufacturing PMI street 53.3 vs previous 52.9
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