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Stocks charge ahead as USD keeps sliding on Yellen reaction and strong UK/Europe data

Stock markets around the world have been in rally mode overnight and into this morning. The Hang Seng rose 1.4% while in Europe today, the Dax is up 1.75%, the CAC is up 1.25% and the FTSE is up 0.5%. US index futures for the Dow and S&P are up 0.3%. The S&P is up at its highest level so far in 2016. USD, gold and JPY are all down about 0.2% as traders go back into risk-on mode. Commodities are mixed with WTI and Brent up 0.4%-0.6% while copper tumbled 2.25% and grains have been mixed.  

A number of factors have converged to drive today’s moves. Positive momentum from yesterday’s US afternoon trading has been working its way through markets with deciding to take a dovish read from Fed Chair Yellen’s comments. She dropped a previous reference to interest rate increases coming soon, but enthusiasm related to this could get overdone as the overall tone of the speech was quite neutral. She also noted that people should not read too much into one number (which I think will get revised upward next month as often happens after an outlier report), noted rising wage and consumer spending growth. She also mentioned FOMC member forecasts are coming next week (which could be raised in June to signal a July hike) and indicated that in a normal economy rates would be higher by now.     

Valeant Pharmaceuticals may come under pressure today after the company reported Q1 results that came in well below expectations ($1.27 vs street $1.36) and cut its EPS ($6.60-$7.00 from $8.50-$9.50). the company blamed recent turmoil and disruptions but indicted that it expects to have its financial reporting back on track this week. Resource stocks may be active gain today in response to commodity price swings with base metal miners vulnerable as copper slides.

In Europe today, continental indices are playing catch up to the larger gains in the UK today. Economic data has been positive on both sides of the English Channel with Eurozone GDP, Germany industrial production, UK same store sales and UK house prices all beating the street. The continental data suggests an improving economy while the UK data indicates that the Brexit debate has not been the drag on the UK economy that some had claimed.

In currency trading, USD is in retreat again today as traders adjust expectations to a potentially less hawkish Fed. JPY and gold are also falling as capital rotates back out to more aggressive stances. CAD, NOK and RUB are up moderately against USD with WTI and Brent trading at or slightly above $50 per barrel.

GBP spiked higher overnight in what was blamed on a “fat finger” trading error but following a correction, has resumed its broad upward course against USD, EUR and JPY, indicating that traders are ready for a neck and neck run right to the wire with today’s Brexit polls giving Remain a very slim (too close to call really) lead. AUD has been very strong overnight after the Reserve Bank of Australia held interest rates steady and took a neutral stance in its statement crushing speculation of more dovishness after it delivered a surprise rate cut at its previous meeting. .   

Corporate News

Valeant Pharmaceuticals    $1.27 vs street $1.36, cuts full year EPS guidance to $6.60-$7.00 from $8.50-$9.50.

Economic News

Significant announcements released overnight include:

Australia RBA interest rate    1.75% no change as expected
India RBI interest rate        6.50% no change as expected

Latest UK Brexit polls:

    ORB/Telegraph        Remain 48%    Leave 47%
    Times/YouGov        Remain 43%    Leave 42%

Eurozone GDP            1.7% vs street 1.5%
Eurozone household consump    0.6% over quarter vs street 0.5%

UK same store sales        0.5% vs street 0.3% vs previous (0.9%)
UK Halifax house prices        9.2% vs street 8.9%
UK Halifax house prices/mnth    0.6% vs street 0.3%

Germany industrial production    1.2% vs street 1.0% vs previous 0.3%
Norway industrial production     (5.2%) vs previous (4.0%)

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)  

10:00 am EDT        Canada Ivey PMI        street 51.0 vs previous 53.1


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