Refreshed from a long weekend, traders gave US equities a solid bid overnight, following strong gains out of Asia and Europe. Our session was obviously given a boost from news yesterday that the Chinese government was set to accelerate some stimulus measures (foreign investment approvals and extending tax reforms to other areas throughout China like Beijing) and this seems to have seen sentiment lift across the globe.
It’s not so much that these stimulus measures will do much for the Chinese economy overall and it seems to me that they’re just shifting the timing of some. They’re accelerating investment approvals for instance, not necessarily increasing them. Recall that growth in China is slower for a reason. Because policymakers wanted it to be slower to deal with overcapacity and excess lending in some areas. Recall recent concerns about the boom in China and the inevitable bust. Have things changed so quickly? I think the reaction to the news just highlights the desperation in the market for ‘stimulus’ and the relief that there wasn’t more bad news out of Greece.
So it was that the Dax closed 1.2 per cent higher, the CaC 1.4 per cent and FTSE was up 0.7 per cent. On Wall Street we saw the S&P500, Dow and Nasdaq up between 1 and 1.1 per cent. So it was a good effort all up especially when some of the other headlines weren’t so good. On the data front for instance, US consumer confidence fell sharply in May to 64.9 from 68.7 and an average of 91. This is the third consecutive fall, highlighting the fragile state of confidence everywhere. Yet consumers are still spending and in the US at an increasingly more aggressive pace.
Where they’re not spending at an aggressive pace is in Spain and the news there was not good at all. Poor confidence, it seems, has hit spending hard and in the year to April, retail sales were off almost 10 per cent – a record fall. Spanish stocks needless to say were belted, falling 2.3, hit also by news of yet another downgrade. It came from Egan Jones this time, which cut Spain’s sovereign rating to BB- from B, although bonds seem to have eventually brushed it off, settling at 6.44 per cent or little changed from yesterday – not before hitting a peak of 6.5 per cent though.
Elsewhere in the fixed income space, US Treasuries bounced around but it looks as though yields pushed higher in the end. The 10-year yield for instance having hit a low of just over 1.7 per cent, then pushed high to end the session at a little over 1.74 per cent or about 2bps from the US open. The 5-year followed a similar pattern and ended about 2bps higher, near 0.77 per cent. The 2-year was a little lower, just under 0.28 per cent.
Finally in the forex and commodity space, there wasn’t much movement. The Australian dollar hasn’t done too much and sits at $US0.9848, same with the euro which was at $US1.2504 (down about 30 pips). Sterling and yen then sit at $US1.5645 and 79.5 US cents. Gold is little changed at $US1555 and on the crude front, WTI sits at $US90.8, again little changed although at the high it was sitting at $US92.21.
Other data out showed German inflation fell 0.3 per cent in May to be 2.1 per cent higher annually. Then US house prices rose 0.1 per cent in March to be 2.6 per cent lower annually (according to S&P Case Shiller).
Looking at the calendar today, Australian data includes construction work done and retail sales (1130 AEST). Tonight look out for the eurozone business climate index and then in the US it's just pending home sales and some Fed speak (Fisher, Dudley, Rosengren).