Equities had a quiet night -- too quiet considering everything that was going on. But markets weren’t devoid of action, with plenty of buying action happening on the rates side, while commodities for their part were belted in the main.
Two reasons for the action: US GDP and of course the Federal Reserve. GDP came in much weaker than expected, rising just 0.1 per cent for the quarter, and that’s an annualised pace. Effectively there was no growth for the March quarter. This is the first estimate though and numbers get revised. So what drove the result? Well, poor weather mainly, and this saw investment slump 6 per cent, while exports dropped 7.6 per cent. Consumer spending wasn’t too bad, rising 3 per cent in the quarter.
A little while after that result the FOMC decided to taper another $US10 billion of its bond-buying program. The US only prints $US45bn per month now. They noted, however, that rates would remain low for a long time after QE is expected to end later this year. Otherwise, they look for the US economy to pick up from the second quarter, although there were a few dovish elements on the statement. Namely, that they look for the unemployment rate to fall only gradually, and that they are concerned by low inflation, where they are monitoring “developments carefully”. Neither of those points are a change from last month, mind you.
Rates rallied overnight, the bidding action coming after the US GDP numbers and getting a renewed boost after the FOMC decision. Price action was one-way and at the close, the 10-year yield had fallen about 5 bps to 2.647 per cent. The 5-year yield dropped about 6 bps to 1.675 per cent, while the 2-year fell nearly 4 bps to 0.406 per cent. Aussie futures were up 2 ticks on the 3s to 97.080, while the 10s rose 3.5 ticks to 96.095.
Equities had a modest session, investors unwilling to put on an aggressive bid in the face of weaker US GDP figures, but not quite in the selling mood given expectations things will improve. Not to mention the promise of low rates for a long time yet. At the bell, the S&P500 was up 0.3 per cent (1883), the Dow put on 45 points to be at 16,580 -- a new record! -- while the Nasdaq was at 4114 (up 0.3 per cent). In Europe, the Dax was 0.2 per cent higher, the CaC 0.2 per cent lower, while the FTSE100 was also 0.2 per cent higher.
Commodities were smashed, as mentioned -- silver and copper especially, down 2.4 per cent and 2.9 per cent respectively. Gold fell, but it was only down around $8 to $1291. Crude then fell after the US Energy Information Administration reported crude supplies at record highs. Inventories rose 1.7 million barrels over the latest week to 399.4m. WTI consequently fell 1.6 per cent, while Brent was flat at $108.1.
Forex markets saw the US dollar weaken after the GDP result. The euro spiked 63 pips to 1.3866; the British pound was up about 60 pips as well (1.6873), although the yen is little changed at 102.2. As for the Australian dollar, it sits at 0.9285, little changed from 1630 AEST yesterday.
Elsewhere, there were a few interesting data pieces. In the US the ADP employment report showed that 220,000 jobs were created in April, which probably won’t change forecasts for payrolls on Friday given expectations are already centred on strong growth (210,000). Manufacturing surveys were otherwise mixed, though lower tier. The Chicago Purchasing Managers index then surged in April rising to 63 from 55, suggesting manufacturing accelerated, although the Milwaukie NAPM fell to 47.2 from 56.
Over in Europe we saw German retail sales fall in March, down about 0.7 per cent after a 0.7 per cent increase the month prior. The German unemployment rate was then steady at 6.7 per cent. On the ‘periphery’ Spanish GDP rose 0.4 per cent in the March quarter (0.6 per cent higher annually), while the Italian unemployment rate was steady at 12.7 per cent. Finally, eurozone inflation rose 0.6 per cent in April to be 0.6 per cent higher annually.
Markets domestically should have an OK session if the SPI is anything to go by. It suggests our stocks will be up around 0.4 per cent. Key data then includes RP Data-Rismark’s house price series at 1000 AEST, followed by trade prices at 1130 AEST and the Reserve Bank’s commodity price index at 1630 AEST. Global data for the region includes the Chinese manufacturing PMI at 1100 AEST. Then for the US we see a speech from Fed Chair Janet Yellen, personal income and expenditure data, the usual weekly jobless claims numbers and the ISM index.
Have a great day…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.