Financial market research and analysis

Sideways  action seems the order of the day when it comes to equity indices and the moves in the FX space are little different this morning.

A dovish RBA governor has sent the Aussie dollar lower against the dollar overnight following his hints of additional easing over the coming months. Now trading below 0.72, some of the action is down to the dollar being better bid but his comments on inflation targeting could well see this pair run further south with the 200 DMA acting as a barrier to any upside attempts.

It would seem that various FOMC members are hell-bent on preparing the markets for a rate hike next month but with the usual caveats of data dependency – clearly there is an agreement in place that the powers that be want to avoid any surprise volatility akin to the ‘Taper Tantrum’ during Bernanke’s tenure. This renewed appetite for the dollar will naturally have side effects – especially in the emerging market space – so perhaps it’s an attempt to avoid any knee jerk volatility in the aftermath of an unexpected hike – but I fear that horse may have already bolted.
One has to wonder if the market is fully convinced that a June hike is in the offing in any case – 2 year UST yields trade at 0.9% - and probability for a hike is still at 32% - much higher than when the month began but still considered an outlier. USDJPY yield differential suggest additional upside from here but the 110 level will likely be a bridge too far. The belief in Abenomics is most certainly faltering, assuming there ever was any faith in the multi-pronged strategy. Given that being bearish is the new black, the S&P 500 may well take a leg lower and change the direction of the carry pair. Any move back down through 109 would target 107.30.

Oil prices took some of the edge of Asian equities in this morning’s early session with WTI down around  0.6% and keeping the FTSE range bound too this morning. Thin trade is exaggerating the move but the expectation that there will be a large drawdown on inventories is keeping the price supported. The consensus is that U.S. commercial crude oil stocks likely fell by around 2.5 million barrels to 538.8 million in the week ended May 20.

Cable continues to move nicely above the $1.45 mark so we look ahead to the Public Sector Net Borrowing data later this morning. This will once again indicate that Brexit or no Brexit, the UK economy has plateaued with a bias to additional weakness. A modest improvement is expected here but UK GDP on Thursday may well help push the pound lower.  CBI realised sales data is expected also to show some improvement in respect of consumer spending. The main event in respect of the pound will be Mark Carney’s testimony to the Treasury Committee – this was highly entertaining the last time. We forex people need to get our kicks somewhere, I suppose. Nothing ground-breaking is expected but the Brexit discussion is likely to be the key agenda point.

Over in Germany, we get the ZEW Economic Sentiment Indicators at 10am. PMI data would suggest that activity there is on a better footing lately. The expectations index is projected to rise for the third straight month.

New Home sales in the sole US macro data point today. A small increase is expected here to 521k from last 511k.

Equity Highlights

Kingfisher (+2.3%) trading in line with expectations. group sales at stores open over a year rose 3.6 percent in the three months to April 30, its fiscal first quarter. Total sales rose 5.1 percent to 2.72 billion pounds.

Imperial Brands (+1.94%) raised to overweight at Barclays

Coca Cola (-2.64%) sugar shortage halts production in Venezuela. Stakeholder New Argen sells stake of 5.37m shares.

Admiral Insurance (+1.38%) raised to neutral at JPM