Risk-Off Trades Dominate Early Trading

The MorningSnapshot
May 31, 2013

Our offices will be closed Monday through Wednesday of next week as we hit the road. Have a great weekend!

Yesterday’s Wrap-Up
U.S. stocks advanced yesterday on the expectation that the Fed will maintain its current bond-purchase program longer than some had speculated over the previous week. The S&P 500 advanced +0.37, fading into the close, with financials and healthcare leading the way higher and consumer staples and REITs lagging. VIX cash declined -0.3 points to 14.53, closing near the lows of the day. Initial jobless claims totaled 354K versus the estimate of 340K with the prior period revised to 344K from 340K; holiday closures prevented five states from completing a full count. The second of three 1Q U.S. GDP estimates showed 2.4% annualized growth versus the median estimate of 2.5% as slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since 2010. Consumer spending, which represents about 70% of the economy, increased a revised 3.4% annualized rate in Q1, higher than the 3.3% estimate. April pending home sales rose 0.3% MoM versus estimates calling for an increase of 1.5%. Crude oil, gold, and copper all moved higher, while the dollar index declined moderately. Treasuries advanced as higher yields lured more investors to the government’s auction of $29B in seven-year notes, with the securities drawing a high yield of 1.496%, the most since March 2012 when the yield was 1.59% at an auction; the bid-to-cover ratio was 2.7, in line with the 2.67 average at the past 10 auctions. Yields on tens fell -1bp to 2.11%, while thirties rose +1bp to 3.28%.

Morning Commentary
Treasuries are gaining as the euro slides after euro-area unemployment rose to a record 12.2% in April and German retail sales missed estimates. The Euro Stoxx 50 is down -0.64% while most sovereign debt yields are trading down moderately and the euro is lower by -0.3% versus the greenback. Domestically, Treasury yields are lower, with tens down -4bps to 2.07%, while S&P 500 futures are trading down -0.5%. Copper is down -0.9%, gold is -0.4% lower, and crude oil is off by -0.7% after OPEC left its production cap at 30M barrels per day.

Today’s Economic Data Lineup (EST)
8:30am: Personal Income, April, est. 0.1% (prior 0.2%)
8:30am: Personal Spending, April, est. 0.0% (prior 0.2%)
8:30am: PCE Deflator M/m, April, est. -0.2% (prior -0.1%)
8:30am: PCE Deflator Y/y, April, est. 0.8% (prior 1.0%)
8:30am: PCE Core M/m, April, est. 0.1% (prior 0.0%)
8:30am: PCE Core Y/y, April, est. 1% (prior 1.1%)
8:45am: Fed’s Pianalto speaks on financial stability in Washington
9:00am: NAPM-Milwaukee, May, est. 49 (prior 48.43)
9:45am: Chicago Purchasing Manager, May, est. 50 (prior 49)
9:55am: U. of Michigan Confidence, May final, est. 83.7 (prior 83.7)
10:00am: Commerce Dept. issues benchmark revisions on retail sales data, wholesale inventories and sales data
11:00am: Fed’s Liang speaks on financial stability in Washington
11:00am: Fed to purchase $4.25b-$5.25b notes in 2017-2018 sector


  • OPEC decided today to maintain its current oil production cap of 30M barrels a day as anticipated, after many ministers from the group said they were content with current oil prices and that the market was balanced. OPEC has had a collective oil production ceiling of 30 million barrels a day since December 2011, but actual output has consistently exceeded this level

North America

  • Tesla Motors says it’s tripling the number of fast-charge stations, enabling owners of its luxury electric cars to drive coast-to-coast this year utilizing devices able to repower them in 20-30 minutes.


  • Euro-area unemployment increased to a record in April, with the jobless rate rising to 12.2% from 12.1% in March, in line with the median estimate, and further increasing pressure on the ECB to spur economic growth.
  • Retail sales in Germany fell -0.4% from March when they declined a revised -0.1%; the median forecast of economists called for a +0.2% increase.
  • The Italian jobless rate reached a 36-year high in April, rising to 12% after the March reading was revised up to 11.9% from an initial 11.5%; the median estimate called for a rate of 11.6% in April.
  • The British Chambers of Commerce says the U.K. economy will grow through 2015 fast than previously estimated, forecasting GDP will rise +0.9% this year, +1.9% in 2014, and +2.4% in 2015, compared with previous forecasts of 0.6 percent, 1.7 percent and 2.2 percent respectively.


  • Japanese industrial production rose 1.7% in April from March, exceeding even the highest forecast in a Bloomberg News survey. The pace quickened from 0.9% in the prior month, beating the median forecast calling for a 0.6% increase. “Abenomics is improving corporate and consumer sentiment, helping to fuel people’s inflation expectations little by little,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “Japan is getting closer to emerging from deflation.”
  • Japanese CPI excluding fresh food fell -0.4% YoY, in line with the median estimate of 29 economists in a Bloomberg News survey. “The decline is largely affected by technical reasons from last year — still, it doesn’t change the fact that it will be extremely difficult for Kuroda to fulfill his pledge to hit the target,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo and a former central bank official.
  • India’s economy expanded +4.8% YoY in the quarter ended March, up from a revised 4.7% in the previous quarter and matching the median estimate from 33 economists. This is the second quarter of GDP growth below 5%, adding pressure for policy makers to do something to spur growth.

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