Macro Themes starting to emerge in Euro selling and bond rate rises

June 11, 2014

Australia’s PM Tony Abbott went to the NYSE to ring the opening bell but traders didn’t like what they saw and started selling across the board.

But before we get to stock market performance lets talk about two emerging themes that were in evidence and as we do this I ask you to think about my two trading themes I’ve been talking about recently. Turtle/trend following style trading and Minsky.

Firstly the data in the US was great, really really good. The NFIB small business survey hit 96.6 in April which is the highest level in 7 years – yep pre-GFC! Also out was the JOLTS (Job Opening and Labour Turnover Survey) which showed that there were 4.455 million job openings in April well clear of the 4.050 the pundits expected.

Both data were solid and while Euro was already under pressure before the data they certainly reinforced the dichotomy between the two regions. Indeed rating agency S&P last night issued a report saying that the EU had simply moved from the acute phase to the chronic. It’s a view I share and why I am short Euro.

My target is 1.3450/70 as articulated recently – then we’ll see.

The other major macro theme away from the FX market, but not entirely unrelated, was the sell-off in bond rates in the US with the 10 year treasury up another 4 points to 2.64%. That’s its highest level in a month and an earlier auction of three year notes which went off at a ridiculously low 0.93% is worth highlighting because that’s the highest level since 2011! 10 year Bunds in Germany rose 3 points to 1.41% while in the UK they rose 2 to 2.72%. In the periphery, and in a sign complacency might be ending, Italian bonds rose 9 points to 2.79% and Spanish 10′s were up 4 to 2.62%.

So there’s the combination that could see a breakout coming soon – indeed you’d argue the Euro is breaking out already – and a Minsky moment in markets. Which is why I am short the S&P 500 as articulated yesterday.

Anyway back to overnight trade the Dow, S&P and Nasdaq all down at the open. But they recovered over the course of the day with the Dow finishing at 16,946 up a meagre 0.02%. the Nasdaq rose 0.04% to 4,338 while the S&P slipped ever so slightly into the red down 0.01% to 1,951.

In Europe the UK indices market trade looked more like the US with the FTSE down a smidge at 6,874. The DAX and CAC however were more volatile but managed to settle higher at 0.20% and 0.13% respectively. In Milan and Madrid stocks were 0.14% higher and 0.09% lower respectively.

Which means that locally the June SPI 200 contract is up just 1 point at 5478 bid while the bond boards are under a little pressure with the 3′s down 2 at 97.135 (2.865) but the 10′s suffered from the global sell off down 4.5 points to 96.165 (3.835%).

On currency markets as noted Euro fell out of bed and sits at 1.3543 this morning. It’s weakness hurt Sterling as well with GBPUSD down to 1.6751 while USDJPY slipped back a little to 102.35. For the Aussie the buyers are certainly there and seem to agree with Morgan Stanley that the Aussie will trade higher and it sits at 0.9371 this morning.

On commodities iron ore fell out of bed again with the September contract back toward recent lows down $1.50 tonne at $93.00. Nymex June Crude is at $104.28, copper gained a cent to $3.06 and gold picked up another $6 an oz to $1,261 while silver is at $19.05. On the ags wheat and corn fell heavily down 1.22% and 1.84% respectively. Soybeans rose 0.34%.

On the data front today Chinese new loans are out but locally we’ll be focused on the Westpac consumer sentiment numbers to see if we get the hoped for bounce. Tonight is fairly quiet with UK unemployment and US mortgage applications due out.

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