Stock markets around the world have regained their footing overnight as the market adjustment to the prospects of a June interest rate hike work their way through the system. The first phase saw stocks decline on anticipation of reduced liquidity support. The second phase now appears underway with traders recognizing the Fed talking rate hikes is a sign of a strong economy and positive prospects for corporate earnings.

Today finds the Dax up 0.8% and the FTSE up 1.3% while index futures for the Dow and S&P are up 0.2% on follow through from yesterday afternoon’s recovery. The most important levels for US markets today at 17,500 for the Dow and 2,040 for the FTSE. These levels represent the necklines of head and shoulders tops that have been forming. Whether these indices close the week above or below these technically critical levels may indicate if a seasonal selloff is starting or failing.


Crude oil is holding steady, continuing to attract support at a higher level after an attempt by the bears to push the price back down failed yesterday. NOK and RUB have been bouncing back along with oil prices. CAD, however, is underperforming its peers ahead of today’s Canadian retail sales and inflation reports, the last major data announcements ahead of next week’s Bank of Canada meeting.

Overall, currency markets are relatively quiet today with traders waiting to see what may come out of the ongoing G-7 Finance ministers meeting in Japan. Currencies and currency wars are often a hot topic of discussion at these gatherings so any comments on forex or fiscal and monetary policy coming out of this meetings could have a significant impact on trading to start next week.

Today’s action in UK markets appears particularly interesting as it shows that the markets fear of Brexit risks continues to fade. Overnight reports had one speaker from the Bank of England suggesting that recent softness in parts of the UK economy may not be Brexit related and another suggesting that the UK may need stimulus even in the event of a Remain vote. In other words, the increasingly shrill cries of doom from the global establishment over what could happen in a Leave victory are looking increasingly overblown and tiresome.

Earlier this week, FOMC members Dudley and Lacker suggested that the Fed could hold off from raising interest rates in June due to uncertainty over the Brexit vote coming a week or so after the June FOMC meeting. This to me appears to be a red herring. The negative reaction to developments favouring the Leave side has been fading for months.

A decision by the Fed to delay a rate hike on Brexit concerns could be seen as the US letting Britain tell them what to do and throwing away nearly 240 years of US independence in the middle of an election campaign and two weeks before the Fourth of July. Imagine what Donald Trump could have to say about that.

Meanwhile this morning, a new TNS online poll shows Leave support at 41%, leading over Remain at 38% with 21% undecided and on this news the FTSE is up strong and the pound is down against USD in line with other majors. This action shows that markets have come to terms with the potential for a Brexit and are not overly worried about it anymore.

 

Corporate News

Gap    $0.32 in line, withdraws guidance due to restructuring but noted sales would have to increase to meet old guidance. To close 75 stores. S&P reportedly cuts its credit rating to junk status.

 

Economic News

Significant announcements released overnight include:

There have been no major economic data announcements overnight.


Announcements due later today include:


8:30 am EDT        Canada retail sales        street (0.6%) vs previous (0.4%)
8:30 am EDT        Canada retail ex auto        street (0.4%)

8:30 am EDT        Canada consumer prices    street 0.3% vs previous 0.6%
8:30 am EDT        Canada core CPI        street 1.7% vs previous 1.3%

9:00 am EDT        FOMC Tarullo speaking

10:00 am EDT        US existing home sales        street 5.40M

May 19-21        G7 finance ministers meet in Japan