OVERNIGHT MARKET
UPDATE:
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·
US trade data for April showed some signs of normalising. The
trade deficit fell back to US$40.9 billion versus US$50.6 billion in March as
imports fell 3.3% m/m and exports rose 1% m/m.
·
The May ADP employment report was in line with expectations at +201k
vs +165k in April, implying continued improvement in the US labour
market.
·
US May ISM non-manufacturing index disappointed, falling to 55.7
from 57.8, its lowest reading since April 2014. This is consistent with the
recent softness in US consumer spending.
·
The unemployment rate in euro area fell to 11.1% in April versus
a revised 11.2% in March. That was the lowest rate since March 2012 and
continues the slow improvement since peaking at 12.1% in Q1 2013.
·
The ECB’s updated projections for euro area GDP growth were
virtually unchanged at +1.5% this year, +1.9% in 2016 and +2.0% in 2017. Euro
area inflation is now forecast at +0.3% (previously 0.0%) this year, +1.5% in
2016, and +1.8% in 2017.
·
In the currency markets, EUR continued to rally as the ECB
increased its inflation forecasts but also warned that they may increase QE.
GBP fell as the services PMI weakened and AUD/NZD is testing resistance as NZD
continues to
weaken.
·
Positive Draghi comments on Greece and an upward tweak to ECB
inflation forecasts saw a further increase in European bond yields outside of
Greece. 10-year US Treasury yields also rose strongly overnight to 2.36%, the
highest level since November 2014.
·
Major US bourses were 0.2-0.4% higher.
·
Energy markets were weaker. Concerns over supply leading into
the OPEC meeting this Friday continued to overshadow US inventory drawdowns.
Iran continued its rhetoric about increasing exports if sanctions are
lifted.
Gold prices fell to their lowest level in three weeks as optimism about
a positive outcome to Greece’s financial problems and gains in stocks weighed
on investor interest for havens like precious metals.
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