The growing potential for a US interest rate hike in June has had a significant impact on trading in North America today. Non-voting FOMC members Williams and Lockhart both reiterated today that June is a live meeting and that we could see 2 or 3 rate hikes this year. Stronger than expected growth in weekly earnings and industrial production building on Friday’s blow the doors down retail sales report have given these comments data support.
The growing potential for a US interest rate hike in June has had a significant impact on trading in North America today. Non-voting FOMC members Williams and Lockhart both reiterated today that June is a live meeting and that we could see 2 or 3 rate hikes this year. Stronger than expected growth in weekly earnings and industrial production building on Friday’s blow the doors down retail sales report have given these comments data support. Traders appear to be coming around to the possibility with US bonds now pricing in a 15% chance of a June hike up from below 5% less than a week ago. Meanwhile US indices have been acting like the liquidity party is ending with the Dow falling 1.1%, underperforming a flat S&P/TSX, a 0.6% drop in the Dax and a 0.2% gain for the FTSE. USD held steady as the Dollar Index trading near 95.00 indicates currency traders are already pricing in two hikes this year. The US decline has weighed on other indices today and may send some downward momentum toward the start of today’s Asia Pacific session. Inflation figures for New Zealand and Australia due today may have an influence in trading in AUD and NZD. The dollars have been steady overnight consolidating yesterday’s rally on recognition that the RBA interest rate cut was a closer decision than previously thought and could be one and done. Japanese trading could be active around today’s GDP update. Today’s rally in UK markets appears particularly significant showing a sea change in sentiment may be underway. Back in the winter, traders had viewed news favouring Leave as negative and news favouring Remain as positive. This effect had been fading as the campaign progressed with pro-Leave news having less and less of a negative impact. Today for the first time, the FTSE and GBP finished higher on news favouring the Leave camp. A TNS poll showed Leave leading Remain 41%-38%, the first time a poll from that particular agency showed Leave leading for the first time in several months. Today’s developments indicate that a big change in sentiment is underway in the UK with voters and traders viewing the Leave option as increasingly favourable. EURGBP nearing completion of a head and shoulder top also highlights this sea change in attitudes. Over the next 24 hours, we could see significant action in crude oil with API and DOW weekly inventory reports due. More oil sands production shut-ins due to ongoing forest fires and the risk of more terrorist activity in Nigeria may also influence trading. UK employment and FOMC minutes could impact trading in the UK and the US as well. Corporate News There have been no major announcements after the US close so far. Economic News Significant announcements released overnight include: US consumer prices 1.1% as expected US core CPI 2.1% as expected US real average weekly earnings 1.3% vs previous 1.1% US housing starts 1,172K vs street 1,125K US building permits 1,116K vs street 1,135K US industrial production 0.7% vs street 0.3% US manufacturing production 0.3% as expected Canada manufacturing sales (0.9%) vs street (1.9%) UK consumer prices 0.3% vs street 0.5% UK core CPI 1.2% vs street 1.4% UK retail prices 1.3% vs street 1.5% UK producer input prices (6.5%) vs street (6.7%) UK producer output prices (0.7%) vs street (0.8%) UK ONS house prices 9.0% vs previous 7.6% 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) 4:30 pm EDT ish US API crude oil inventories TBA Kentucky and Oregon primary results 8:45 am AEST NZ producer input prices previous (1.2%) 8:45 am AEST NZ production output prices previous (0.8%) 9:50 am AEST Japan GDP annualized update street 0.3% vs previous (1.1%) 9:50 am AEST Japan GDP private consumption street 0.2% vs previous (0.9%) 9:50 am AEST Japan GDP business spending street (0.8%) vs previous 1.5% 11:30 am AEST Australia wage price index street 2.2% 9:30 am BST UK jobless claims street 5K vs previous 7K 9:30 am BST UK 3M employment change street 0K vs previous 20K 9:30 am BST UK average weekly earnings street 1.7% 9:30 am BST UK unemployment rate street 5.1% 10:00 am BST Eurozone consumer prices street (0.2%) 10:00 am BST Eurozone core CPI street 0.7% 10:30 am EDT US DOE crude oil inventories street (3.2 mmbbls) 10:30 am EDT US DPS gasoline inventories street (1.0 mmbbls) 2:00 pm EDT US FOMC minutes