late rebound in US treasuries
saw US equity markets pull back from their lows in late US trading after some rather colourful comments from Dallas Fed chief Richard Fisher which compared bond traders to “feral hogs” and warning the markets against thinking that the Fed could be bluffing with respect to its tapering talk.
This late pullback is unlikely to see Europe’s markets start the day in confident mood this morning, given that investors here still have one eye on events in China as the central bank continued with its reluctance to pump extra liquidity into its banking system, as it attempts to rein in irresponsible lending by its domestic banks.
US bond markets certainly believe that the Fed is serious about tapering given the over 30% rise in yields, from 1.93% to 2.53% since Ben Bernanke suggested the Fed was moving in that direction on the 22nd May.
US stock markets on the other hand seem to be reacting somewhat better to the prospect of Fed tapering than overseas markets which have endured double digit percentage drops from their recent highs, in contrast to the single digit falls of the S&P500 and the Dow Jones.
The FTSE100, for example has fallen over 800 points from 14 year highs, in only 24 trading days, as has the German DAX, though it could be argued that some of these losses have the added worry of concerns about China and the feeble European economy to contend with as part of the overall mix.
When these China and local concerns are added to the fact that the world’s biggest central bank is preparing to turn off the liquidity tap, then investors not unreasonably are likely to cash in some of their chips, especially when there is little likelihood of another central bank, like the ECB, prepared to fill the potential vacuum.
Today’s economic data out of Europe is likely to reinforce the bleak economic outlook with the final Dutch Q1 GDP numbers which are expected to be confirmed at -0.1%, while Italian retail sales for April are expected to decline 0.1%, a slight improvement on March’s 0.3% decline.
It remains, somewhat perversely, the likelihood of continued improved US economic data that could well drive further declines in stock markets in the longer term with a host of economic releases due out today starting with May durable goods orders which are expected to rise 3%, probably helped by increasing aircraft orders.
The state of the housing market will also be analysed for continued improvements with the latest Case-Shiller report as well as new home sales for May expected to rise 1.3%, down slightly from April’s 2.3%.
Given the recent decline in stock markets we could see June consumer confidence take a knock and come down from 76.2 to 75.0, while the latest Richmond Fed survey is expected to show an improvement in June, back to positive territory of 1, from -2 in May.
Also on the docket today outgoing Bank of England governor Mervyn King makes his last ever appearance to MP’s at the latest inflation report hearings ahead of Mark Carney’s arrival next week.
Carpetright will announce their annual results today, with the most recent update in April showing an increase of 5.6% for the 12 weeks previous against last year, with the boost attributed to a cold spring, a refurbishment project to many of its UK stores and the expansion of its laminate and bed ranges. Analysts have forecasted underlying pre-tax profits of £9.6m against last years £4m. The stock has seen a lot of short interest over the past 18 months and despite the seemingly brighter picture, analysts still have a sell bias on the firm, with Goldman’s and Deutsche both re-affirming sell ratings in April. Investors will also look to the numbers to give a little more clarity on the health of the UK housing sector.
Domino Printing will release an interim statement to the market today, after appointing a new sales director last month in a bid to improve service for its UK customers. The most recent broker rating came from UBS, who kicked off with a “Buy” recommendation and 750p price target, the stock traded just shy of 600 on yesterday’s close.
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