With European markets returning to trading from Monday’s holiday and everyone back at work in North America, the UK stole the spotlight from the US. The announcement by UK PM May to hold a vote this week to trigger a snap UK election for June 8th sent shockwaves through world markets. The news sparked a massive 2%+ rally in GBP pairs and sent the FTSE
(which has been trading contrary to the pound since the Brexit vote last June) hurtling downward. European indices also fell on the news which increases political uncertainty with round one of French presidential voting no only five days away. EUR managed to rally against a sinking USD and steady JPY but fell relative to soaring Sterling.
US indices gave back most of Monday’s gains with the Dow falling 0.5%. Declines were led by the Health Care, Financials and Energy sectors. The top performing groups were Consumer Staples, Real Estate, Telecom and Utilities, a clear sign of traders going defensive. US economic data was neutral to disappointing, particularly the miss in housing starts and the surprise decline in manufacturing production. Industrial production met expectations but this apparently was due to higher energy production to meet higher heating demand during the big storms of March.
Action in US stocks moving deeper into earnings season indicates that traders appear to be more in punishing those who fail to meet inflated expectations and taking profits against positive news, than in adding to positions. WW Grainger fell 11% while Goldman Sachs fell 5% after earnings fell short of expectations. Netflix and Harley Davidson both fell 3% despite beating the street. Cardinal Health plunged 11% after announcing $6B in drug acquisitions indicating that street has lost interest in M&A deals as well. After the close, IBM and Yahoo beat the street but neither has had much impact on trading so far.
Crude oil continued to roll over, pulling energy stocks and oil currencies like CAD downward as well. A 0.8 mmbbl drawdown is US API oil inventories has not been enough to stop the bleeding. Tomorrow DOE inventories are due with the street expecting a 1.7 mmbbl decline in oil stockpiles.
Today’s Asia Pacific trading may see traders continue to react to the UK surprise and the unravelling of the Trump election trade. The only major economic news is New Zealand service PMI but politics may remain front and centre with US VP Mike Pence visiting Asia amid more sable rattling related to North Korea.
IBM $2.38 vs street $2.35
Yahoo! $0.18 vs street $0.14
Significant announcements released overnight include:
US API crude oil inventories (0.8 mmbbls)
US industrial production 0.5% as expected
US manufacturing production (0.4%) vs street 0.0% and previous 0.5%
US housing starts 1,215K vs street 1,250K
US building permits 1,260K vs street 1,250K
Canada existing home sales 1.1% vs previous 5.2%
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)
8:30 am AEDT NZ Service PMI previous 58.8
TBA UK House of Commons to vote on calling an election for June 8
10:00 am BST Eurozone trade balance street €18.0B
10:00 am BST Eurozone consumer prices street 1.5%
10:30 am EDT US DOE crude oil inventories street (1.4 mmbbls)
10:30 am EDT US DOE gasoline inventories street (2.0 mmbbls)
10:30 am EDT US DOE distillate inventories street (1.0 mmbbls)
12:30 pm EDT FOMC Rosengren speaking
2:00 pm EDT FOMC Beige Book