May 30, 2013
Stocks in the U.S. and Europe fell amid concern that the Fed may begin tapering current stimulus measures as the domestic economy picks up, with the S&P 500 and Euro Stoxx 50 down -0.7% and -1.74% respectively. All of the sectors of the S&P 500 declined, led down by telecoms strangely enough; telecoms are usually high dividend names that are considered safe- they typically outperform the overall market during risk-off trading. VIX cash opened above 15, but faded throughout the day to close up +0.38 to 14.86. Stocks moved off of the lows of the day after comments from the Fed’s Eric Rosengren, dove, stating that the Fed should press on with current record stimulus measures to speed economic growth. Although the labor market is improving, “significant accommodation remains appropriate at this time,” Rosengren said yesterday in a speech in Minneapolis. “If the incoming economic data do not reflect improvements consistent with both elements of our dual mandate, I believe the Fed should be willing to increase asset purchases,” he said. The dollar index declined -0.6% on the day and the euro advanced, while gold climbed +1% to $1,394 per ounce. Crude oil tumbled nearly -2% to $93.2 and copper futures fell -0.45%. Treasury yields fell across the curve with tens and thirties down -5bps and -6bps to 2.12% and 3.27%.
U.S. futures are rebounding this morning, signaling stocks may rally after yesterday’s biggest drop in four weeks ahead of reports on home sales and economic growth. Sovereign yields are lower across the board, led by German and U.S. debt, while in Asia Japan’s Nikkei 225 tumbled -5.2%, extending its loss from last week’s high to 13%. U.S. Treasury yields reversed lower amid weakness in euro-area equities and most commodities, with fives and tens higher by +3bps and +2bps to 1.04% and 2.14% respectively. Crude oil is down by -0.6% and copper is nearly unchanged, while gold is up +0.5% and nearing resistance at $1,400. Front-month S&P 500 futures are higher by +0.3%, while in Europe the Euro Stoxx 50 has pared earlier losses to rise +0.8%. The dollar index is slightly in the green after declining overnight and the euro is slightly higher as well, while the yen continues weakening.
Today’s Economic Data Lineup (EST)
8:30am: GDP Q/q, 1Q revision, est. 2.5% (prior 2.5%)
8:30am: Personal Consumption, 1Q revision, est. 3.2% (prior 3.2%)
8:30am: GDP Price Index revision, 1Q, est. 1.2% (prior 1.2%)
8:30am: Core PCE Q/q revision, 1Q, est. 1.2% (prior 1.2%)
8:30am: Initial Jobless Claims, May 25, est. 340k (prior 340k)
8:30am: Continuing Claims, May 18 (prior 2.912m)
8:45am: Fed’s Pianalto speaks on financial stability in Washington
9:45am: Bloomberg Consumer Comfort, May 26 (prior -29.4)
10:00am: Pending Home Sales M/m, April, est. 1.5% (prior 1.5%)
10:00am: Pending Home Sales Y/y, April (prior 5.8%)
11:00am: Fed’s Liang speaks on financial stability in Washington
11:00am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
1:00pm: U.S. to sell $29b 7Y notes
- Alcoa, the largest aluminum producer in the U.S., had the long-term rating on its $8.6B of debt lowered by one level to Ba1 by Moody’s after the metal’s price fell amid a global oversupply. They left the outlook stable and say demand for the metal is insufficient for a “significant” recovery in profitability, and that the firm will not achieve investment-grade metrics within Moody’s rating horizon.
- Brazil raised its benchmark rate by +50bps to 8, as forecast by 19 of 57 economists, as policy makers attempt to slow inflation. “The committee considers that this decision will contribute to put inflation on a decline and assure that this trend will persist next year,” policy makers said, according to their statement posted on the central bank’s website.
- Philippine GDP growth quickened unexpectedly to the fastest pace in nearly three years, increasing +7.8% in the quarter ending in March YoY compared with a revised +7.1% in the prior three months; the median estimate of 22 economists called for a gain of 6%.
- Euro-area economic confidence increased in May, with an index of executive and consumer sentiment rising to 89.4 from 88.6 in April, in line with the median estimate of 33 economists, according to the European Commission.
- Spain’s recession eased in the 1Q as domestic demand stabilized while exports fell at the fastest rate in a year, with GDP falling -0.5% from the 4Q, in line with a first estimate released on April 30. Output dropped -0.8% during the final quarter of last year, the sharpest decline since 2009 when Lehman Brothers collapsed.
- Angela Merkel meets with France’s Hollande in Paris today as the leaders look for common ground on how to boost the region’s competitiveness, reduce joblessness, and get Europe’s economy back on track.
- The Governor of New Zealand’s central bank Graeme Wheeler says he is prepared to increase currency sales to combat a “significantly over-valued” exchange rate. “In recent months we have undertaken foreign exchange transactions to try and dampen some of the spikes in the exchange rate,” Wheeler said in notes of a speech in Auckland yesterday. “We are prepared to scale up our foreign exchange activities if we see opportunities to have greater influence.”
- Italy sold €3B of 10yr bonds at 4.14% versus 3.94% at an April 29 auction; the bid-to-cover ratio was 1.38 versus 1.42.
- The BoJ’s Deputy Governor Nakaso, speaking in Tokyo, said it is critical to maintain trust in the countries fiscal situation and he does not expect a surge in yields. The central bank will purchase JGBs around eight to 10 times a month starting in June, compared with the current pace of roughly eight times per month.
“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”