Ever since last September, when we explained that as a result of China’s crackdown on capital controls, the one clear winner (in addition to Vancouver real estate) would be bitcoin, the digital currency has more than doubled in dollar terms, rising from $230 and surging as high as $500 a few months later. Overnight bitcoin, which had traded in a stable range with little of its characteristic volatility in recent months, made its latest breakout, surging nearly 5% from a $440-level, to a fresh 2016 high of $480, and has since retracted the move modestly, trading at $475 at last check.
This pushed bitcoin’s price to the highest since its sharp breakout in early November, when it breifly topped $500.
The rally started late last night, with bitcoin trading at around $450 when a 30-minute jump saw bitcoin price trading at $461. Before long, bitcoin price was hovering near the $470 mark.
According to Cryptcoinnews, the increase in price can be attributed to the growing demand from the Chinese market, as predicted here almost a year ago when the price was 50% lower, as a result of the recent Yuan devaluation. CCN elaborated on the BTC/CNY exchange charts in yesterday’s analysis piece, speculating that the price will eventually strike out for $500.
The last rally in bitcoin occurred last month to this very day, with trading hitting a high of $470 in the days following the release of the Segregated Witness (SegWit) code by developers.
A notable observation about the recent breakout in bitcoin is that the digital currency, which for a period had tracked moves in gold, now appears to have officially decoupled from the precious metal.
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- Oil prices ease from seven-month high to below $49 (Reuters)
- Wall Street Waits for Yellen Before Taking Off for a Long Weekend (BBG)
- Donald Trump Celebrates Clinching GOP Delegate Race (WSJ)
- Trump vows to undo Obama’s climate agenda in appeal to oil sector (Reuters)
- Japan Fails in Bid to Have G-7 Warn of Global Crisis Risk (BBG)
- Valeant Rejected Joint Takeover Approach From Takeda, TPG (WSJ)
- Activist William Ackman, Valeant Investor, Tries Life as an Inside Man (WSJ)
- Islamic State drives Syria rebels from near Turkish border (Reuters)
- Singapore court revokes bail decision for ex-BSI wealth manager (Reuters)
- CEO Bonuses: How Pro Forma Results Boost Them (WSJ)
- French fuel blockade lifted, Hollande says won’t let protesters choke economy (Reuters)
- Hollande Vows to Press New French Labor Law as Unions Resist (BBG)
- U.S. futures regulator adds hedging exemptions to position limit proposal (Reuters)
- California’s Recovery Loses Luster as Tax Increases Set to Lapse (BBG)
- Russian demining experts return from Syria-Ifax cites defense ministry (Reuters)
- Miami’s Condo Frenzy Ends With Inventory Piling Up in New Towers (BBG)
- Automakers recall 12 million U.S. vehicles over Takata air bags (Reuters)
Overnight Media Digest
– Donald Trump on Thursday secured the delegates he needs to become the Republican Party’s presidential nominee, and immediately showed what an unpredictable general-election candidate he will be. (http://on.wsj.com/1Z50kdQ)
– A federal jury found that Google’s use of Oracle Corp’s Java software in its mobile products didn’t violate copyright law, a verdict cheered by many in Silicon Valley who believe it will protect how they write and use software. (http://on.wsj.com/1Z50vG0)
– Sears Holdings Corp is losing its finance chief, as the company remains mired in red ink and explores strategic alternatives for some of its most-prized brands. (http://on.wsj.com/1Z51nKE)
– LendingClub Corp is in talks with Citigroup Inc about the New York bank buying or providing financing for future loans made by the online platform, people familiar with the discussions said. (http://on.wsj.com/1Z51N3E)
* Donald Trump, the presumptive Republican presidential nominee, promised on Thursday to roll back some of America’s most ambitious environmental policies, actions that he said would revive the ailing U.S. oil and coal industries and bolster national security.
* A U.S. jury handed Google a major victory on Thursday in a long-running copyright battle with Oracle Corp over Android software used to run most of the world’s smartphones.
* A top Apple executive had raised the prospect of the company buying Time Warner, according to three people briefed on the matter.
– In new court documents filed Wednesday, directors of National Amusements added Sumner Redstone’s two great-grandchildren as so-called nominal defendants to their suit challenging his mental capacity. They also added Phyllis Redstone, 91, as a nominal defendant. She was the first wife of Redstone, the ailing media mogul. (http://nyti.ms/1secPcB)
– Snapchat, the disappearing message service with big media ambitions, has finished raising $1.8 billion, according to a Wednesday filing with the Securities and Exchange Commission. (http://nyti.ms/1OQEMvE)
– Security researchers have tied the recent spate of digital breaches on Asian banks to North Korea, in what they say appears to be the first known case of a nation using digital attacks for financial gain. (http://nyti.ms/1WYX8mD)
– McDonald Corp’s French headquarters have been raided by financial investigators, the latest salvo a campaign by President François Hollande’s government to make multinational corporations pay more in taxes. (http://nyti.ms/1NReGh7)
– Philips, the Dutch electronics giant, said on Thursday that the initial public offering of its lighting unit valued the business at 3 billion euros, or about $3.3 billion, based on market capitalization. (http://nyti.ms/1OQEZyQ)
THE GLOBE AND MAIL
** Canadian companies suffered their least-profitable quarter in more than five years in the first quarter, as the damage from the oil crash reached new depths. Statistics Canada’s quarterly survey of private-sector, for-profit corporations said countrywide operating profits totalled C$73.1-billion ($56.09 billion)- their lowest since Q4 2010. (http://bit.ly/1WQj4zK)
** Toronto homeowners may get a shock later this month when they open their property assessment notices to find the value of their home has jumped nearly 50 percent. The latest assessment data released by the Municipal Property Assessment Corp show property values in Toronto have appreciated 30 percent on average over the past four years. (http://bit.ly/1TZX53k)
** Donald Trump’s hold on an eponymous Toronto hotel is slipping away, as one-time partner Alex Shnaider and his bank attempt to sell Trump International Hotel & Tower Toronto or put the troubled property into creditor protection and sever their management contract with Trump’s company. (http://bit.ly/1RwbHp6)
** Canadian PM Justin Trudeau got an “unequivocal” commitment from other G7 countries on Friday to not pay terrorist groups to release kidnapped hostages and got some backing for Canada’s position that the world’s leading economies most do more to empower women. (http://bit.ly/1TEkRCe)
** The Trans Mountain pipeline expansion project will not face multi-year delay, Kinder Morgan Canada president Ian Anderson said on Thursday. Anderson said his company would begin construction work on Trans Mountain next summer, assuming it receives final federal approval in December. (http://bit.ly/1seLCXc)
** Three of Canada’s big banks disclosed higher impaired loans and loan loss provisions related to weakness in the oilpatch on Thursday, but the financial damage was not as extensive as many had feared, with one bank suggesting a “high water mark” may have been reached. (http://bit.ly/1sBTEcp)
The government’s proposal to save Tata Steel UK could set a dangerous precedent, ultimately costing millions of pension savers up to 200 billion pounds in lost retirement incomes, experts warned yesterday. (http://bit.ly/1WYjZi9)
Accrol Papers said yesterday that it planned to list on the AIM in a deal expected to value the business at about 100 million pounds. The flotation is expected to take place on June 10 in defiance of City nervousness ahead of the European referendum just two weeks later. (http://bit.ly/1WYknNI)
Government plans to overhaul the pension scheme behind Tata Steel have been supported by the trustees despite warnings that the move would set a dangerous precedent. (http://bit.ly/1WYjKnf)
MPs investigating controversial business practices at Sports Direct have told its founder, Mike Ashley, they will not visit the company’s headquarters before next month’s select committee hearing and made it clear they still expect him to show up at Westminster. (http://bit.ly/1WYk2dR)
Rolls-Royce is understood to have lost out on a contract, to supply a version of EJ200 jet it produces through its membership of the Eurojet consortium, to power a new generation of combat jets for the South Korean military. (http://bit.ly/1WYkIju)
Debenhams has appointed an Amazon executive to replace its outgoing chief executive as the department store focuses on the growth of its online sales. (http://bit.ly/1WYlbCc)
The barrel price of Brent Crude oil, which is seen as the global benchmark of oil industry performance, has reached $50 for the first time in 2016 as supply problems due to wildfires in Canada continue to have an impact. (http://bit.ly/1WYlInL)
Ministers have drawn up secret plans to sell the Government’s entire shareholding in its 4 billion pounds Green Investment Bank (GIB) in an attempt to secure a bigger-than-expected windfall from the privatisation. (http://bit.ly/1WYlkp7)
McDonald’ French headquarters were searched on 18 May as part of an ongoing tax probe, according to police sources. (http://ind.pn/1WYjFzS)
Starbucks CEO said the company’s China’s business could one day outgrow that of the United States as it opens its first coffee roaster outside of the country. (http://ind.pn/1WYjQvl)
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With verious Fed presidents having whipping up the market into a hawkish frenzy in the past two weeks, leading to a dramatic repricing in summer rate hike odds with expectations for a July rate hike now over 50%, many can be “disappointed” by Yellen’s speech today, at least according to Jeff Gundlach who said Yellen appears to be more cautious on raising interest rates and he expects her comments to be dovish again on Friday, when she is scheduled to speak at an event in Harvard-Radcliffe.
Specifically, during a DoubleLine event in Bevely Hills, he said said the Fed is “a bit stuck” given that it will not have ammunition available for the next recession unless it raises rates, despite continued lackluster economic growth. He noted that some developed countries, including Australia and Sweden, tried to raise interest rates in 2010, but ended up having to reverse course. “The Fed seems hell bent on raising interest rates until something breaks, which is what happened in these countries,” he said.
On the other hand, Gundlach also said inflation is coming, though it’s a long way away. Perhaps he was envisioning the analysis we presented yesterday where according to BofA just the base effect in gasoline prices will be enough to send headline CPI as high as 3.5% by year-end.
With U.S. inflation at 2 percent and unemployment at 5 percent, the Fed is “in kind of a conundrum,” he said, estimating that there is up to about a 75 percent chance that rates will be raised this year, based on the yield curve for U.S. Treasuries.
Gundlach also commented on other markets, including oil, saying that he is “quite sure” oil prices will go down again according to Reuters. He also said that if the Standard & Poor’s falls below 2,000 points, it will be headed toward 1,600.
Gundlach also warned that he thinks “commercial real estate has bubbly characteristics.”
He said sectors that look cheap include emerging market debt, mortgage-backed securities and junk bonds, although he said junk bonds look “dicey.”
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In a world where fundamentals don’t matter, everyone’s attention will be on Janet Yellen who speaks at 1:15pm today in Harvard, hoping to glean some more hints about the Fed’s intentionas and next steps, including a possible rate hike in June or July. And with a long holiday in both the US and UK (US bond market closes at 2pm today), it is no surprise overnight trading volumes have been dreadful, helping keep global equities poised for the highest close in three weeks; this won’t change unless Yellen says something that would disrupt the calm that’s settled over financial markets.
Traders are now predicting a higher than 50% chance of an increase in July, so a misstep by Yellen risks upsetting a lull that has sent currency volatility to the lowest since January.
Looking at global markets, stocks were poised for the steepest weekly advance in more than a month on speculation financial risks around the world have eased. The dollar rose versus most peers, pushing oil lower with WTI falling below $49 after rising above $50 for the first time since NOvember yesterday. The British pound was the biggest gainer among major currencies this week on growing confidence the U.K. will remain in the European Union. As emerging markets rebounded, Russia and Qatar returned to international debt markets for the first time in at least three years.
Opinions about what Yellen would say varied from one extreme to the other.
“It will be a difficult task for Yellen,” said Ulrich Leutchmann, head of currency strategy at Commerzbank AG in Frankfurt. “The discussion today will center around her past achievements and not on actual monetary policy, but if she doesn’t give any hawkish signal, many in the market will interpret this as dovishness given recent hawkish comments” by other Fed officials.
Elsewhere, Ralf Zimmermann, a strategist at Bankhaus Lampe, said that “today certainly all investors’ eyes will be on Yellen,” said “The Fed is obviously willing to increase rates. But it is more a risk than a chance for stocks. I was surprised with the recent strength.”
Also chimed in Mark Lister, head of private wealth research at Craigs Investment Partners, who said that “wwe are still a little cautious. Yellen is likely to continue with the rhetoric of wanting to hike and that’s their plan. Equity markets still offer value on a medium-term basis and it’s certainly the only place where you’re getting any sort of yield. We’d welcome a pullback because that would give us a chance to do some buying at more reasonable prices.”
Others, most notably Jeff Gundlach, disagreed with expectations for a hawkish Yellen. The DoubleLine CEO said he expects a dovish speech from Yellen and predicts the Fed will refrain from raising interest rates in June unless traders in the futures market assign a probability of at least 50 percent to such a move.
In short: nobody has any clue as usual what happens next, and certainly not the Fed.
As nothed above, market moves have been subdued. The MSCI AC World Index rose 0.1% in early trading, leaving it up 2.1 percent for the week. The Stoxx Europe 600 Index slipped 0.2% trimming a third weekly advance, with trading volumes 37 percent below the 30-day average before holidays in the U.K. and U.S. on Monday. Futures on the S&P 500 rose 0.1%, with the index up 1.8% this week, its biggest increase in more than two months.
- S&P 500 futures down less than 0.1% to 2089
- Stoxx 600 down less than 0.1% to 349
- FTSE 100 up less than 0.1% to 6268
- DAX down less than 0.1% to 10264
- S&P GSCI Index down 0.7% to 368.9
- MSCI Asia Pacific up 0.6% to 128
- Nikkei 225 up 0.4% to 16835
- Hang Seng up 0.9% to 20577
- Shanghai Composite down less than 0.1% to 2821
- S&P/ASX 200 up 0.3% to 5406
- US 10-yr yield down less than 1bp to 1.83%
- German 10Yr yield down 2bps to 0.12%
- Italian 10Yr yield down 3bps to 1.34%
- Spanish 10Yr yield down 2bps to 1.49%
- Dollar Index up 0.14% to 95.3
- WTI Crude futures down 1.3% to $48.86
- Brent Futures down 1.6% to $48.78
- Gold spot up less than 0.1% to $1,221
- Silver spot down 0.2% to $16.29
Top Global News
- KKR Buckles Up for Wild Ride Chasing Air-Bag Outcast Takata: Scope of recall creates ‘really high’ hurdle to sale: Aoki. Private equity bets in auto industry have had mixed success
- Valeant Rejected Takeda-TPG Takeover Bid in Spring, WSJ Says: No acquisition talks under way for the drugmaker. Takeda-TPG approach made before new Valeant CEO Papa arrived
- Axa Says U.K. Divestments to Generate Loss of EU400m: Co. will sell Sunlife to Phoenix Group
- Abe Fails in Bid to Have G-7 Leaders Warn of Global Crisis Risk: Statement says G-7 has strengthened resilience to avoid crises. Brexit would be risk to global growth, communique says
- Gundlach Says Yellen Remarks to Be Dovish as Treasury Bid Soars: Fed will hold off in June if odds below 50%, Gundlach says. Yellen to speak at Harvard University at 1:15pm local time
Looking at regional markets, we start in Asia where equities ignored yesterday’s flat US close to trade mostly higher, although China lagged following slower growth in industrial profits. Nikkei 225 (+0.4%) was underpinned by the latest set of reports (now the 3rd or 4th) PM Abe could delay the sales tax hike as soon as next week while a continued decline in CPI data further added to calls for BoJ action. ASX 200 (+0.5%) was also upbeat led by defensive stocks and climbed above the 5400 level. Elsewhere, Chinese markets bucked the trend with the Shanghai Comp (-0.1%) and Hang Seng (+0.9%) with the Shanghai composite in negative territory following a slowdown in industrial profits growth which tumbled from 11.1% to 4.2%. 10yr JGBs traded higher despite the increased risk-appetite in Japan, underpinned by the BoJ’s presence in the market for a total JPY 460b1n of government debt including inflation-linked bonds. Because there is nothing quite like free, central-bank free “markets.”
Top Asian News
- Goldman Sees 0.2% China Bond Default Rate as Zombies Kept Alive: Global note default rate is 0.8% and U.S. 0.9%: Moody’s says
- Terex Ends Chinese Suitor Talks, Proceeds With Konecranes Deal: Zoomlion had made an unsolicited offer at $30/share in Jan.
- Abe to Decide on Japan Sales Tax Increase Before Summer Election: Abe says parallels between global economy and time of Lehman crisis
- Japan CPI Falls 0.3%, Raising Pressure on BOJ for More Stimulus: Core inflation rate declines for 2nd month in April
- Yuan Bears Once Compared to Soros in His Prime Now Look Subdued: Options, offshore trading show bears are reluctant to pile in
Like in Asia, European trading has been very light this morning as participants look towards the UK bank holiday and US Memorial Day, leading to very thin volumes. European equities initially traded in modest negative territory but have since pared this loses (Euro Stoxx 0.2%) with the IBEX (0.1%) yet again underperforming amid the extension of losses in Banco Popular shares, while the likes of Credit Agricole (-7%) and Natixis (-7.3%) weigh on French equities as they go ex-div. Elsewhere, the SMI notably outperforms led by Roche (+3.6%) in the wake of reports of a successful trial with their blood cancer drug.
Top European News
- Axa Sells SunLife, Appoints Harlin CFO of Chief Buberl’s Team: Axa SA sold its SunLife unit in the U.K. to Phoenix Group Holdings and announced the top-management team
- Philips Lighting Shares Soar After $839m Dutch IPO: Shares sold at EU20 each, near midpoint of marketed range. Spinoff underscores shift by Philips to health-care market
- Barclays Said to Raise Severance Offer Again for Tokyo Employees: Bank asked about 100 equity staff to leave in January: people familiar. Original offer was below market standards, union says
- Anglo Appoints Cleaver as De Beers CEO as Mellier Steps Down: Diamond producer resumes tradition of promoting from within. Bruce Cleaver has held strategy roles at Anglo, De Beers
- Oil Price Surge Can Trigger Writebacks, Dong Energy CEO Says: Writebacks in energy sector are rare: Bloomberg Intelligence. Chairman says oil unit now worth keeping after sale dropped
- Currency Traders Look Beyond the Pound to Combat Brexit Turmoil: Unigestion buys franc, krona options to hedge risk of EU exit. Aberdeen Asset Management sees euro as best sterling proxy
In FX, the BBG Dollar Spot Index climbed 0.2% after losing 0.2% in each of the last two trading sessions. The MSCI Emerging Markets Currency Index rose 0.3 percent this week, snapping a run of three weekly losses. Turkey’s lira and Russia’s ruble led gains, climbing more than 1 percent in the period. The currencies of oil-exporting nations pared their weekly advance on Friday as oil retreated. The Canadian dollar, Norwegian krone and the ruble weakened at least 0.3 percent. The pound strengthened 1 percent this week. A poll by former Conservative lawmaker Michael Ashcroft showed almost 65 percent of voters believe the U.K. will remain in the European Union after a June 23 referendum.
In commodities, oil trimmed its third weekly advance as Canadian energy producers moved to resume operations after wildfires eased. West Texas Intermediate dropped 1% to $49 a barrel, paring the weekly gain to 2.5 percent. Brent slid 1.6 percent to $48.84. Prices climbed above $50 a barrel on Thursday for the first time in more than six months as a decline in U.S. crude stockpiles and production accelerated. The Organization of Petroleum Exporting Countries may stick to its strategy of prioritizing market share over prices when it meets next week.
Iron ore futures in Dalian rebounded from the lowest level since February as authorities in China said there’s room to boost growth. Group of Seven leaders pledged to fix excess industrial capacity and a global glut of the metal caused by government subsidies and support. Industrial metals also advanced, with copper heading for its first weekly gain this month. The metal rose 0.7 percent, bringing the gain the week to 2.5 percent. Nickel climbed 0.7 percent and zinc advanced 1.1 percent. Gold was little changed at $1,221.77 an ounce. The precious metal is heading for the biggest monthly loss since November as investors anticipate higher borrowing costs in the U.S.
n the US event calendar, the focus will be on that aforementioned second revision to Q1 GDP and Core PCE, while there will also be some attention paid to the final May reading for the University of Michigan consumer sentiment data. The data comes before what may or may not be an important speech by Fed Chair Yellen this evening.
Bulletin Headline Summary from RanSquawk and Bloomberg
- This morning has been a rather light affair as participants look towards the UK bank holiday and US Memorial Day, with European equities initally trading in modest negative territory
- FX markets have largely been in favour of the USD, and that of minor losses in commodities and stocks
- Looking ahead, today will see data highlights in the form of the secondary US GDP reading and University of Michigan sentiment
- Treasuries little changed in overnight trading as global equities rally and oil sells off; G-7 meeting ends “amid discord over the best policy mix of fiscal spending, monetary stimulus or structural reforms.”
- U.S. fixed income markets early close today (2pm ET) and closed Monday for the Memorial Day holiday
- FX, interest rate futures trading floors early close (1pm ET) and closed Monday
- It’s one of the biggest dilemmas facing currency managers: how to protect against the fallout from the U.K. leaving the European Union without losing money should it vote to remain
- Italian business and consumer confidence unexpectedly declined this month, signaling growing pessimism among executives and households over the strength of the recovery in the euro region’s third-biggest economy
- Jeffrey Gundlach said he expects Janet Yellen will “be dovish” today and the Fed will refrain from raising interest rates in June unless traders in the futures market assign odds of at least 50% to the move
- Japan’s consumer prices dropped for a second month as central bank Governor Haruhiko Kuroda struggles to spur inflation with record asset purchases and negative interest rates
- Japanese PM Shinzo Abe is getting closer to a potential announcement on delaying an increase in the sales tax after his warning at a Group of Seven leaders meeting that the global economy faces significant risk of another crisis
- Miami’s crop of new condo towers, built with big deposits from Latin American buyers and lots of marketing glitz, are opening with many owners heading for the exits. A third of the units in some newly built high-rises are back on the market
- Sovereign 10Y yields mixed; European, Asian equities higher; U.S. equity-index futures rise; WTI crude oil, precious metals lower
US Event Calendar
- 8:30am: GDP Annualized q/q, 1Q S, est. 0.9% (prior 0.5%)
- Personal Consumption, 1Q S, est. 2.1% (prior 1.9%)
- GDP Price Index, 1Q S, est. 0.7% (prior 0.7%)
- Core PCE q/q, 1Q S, est. 2.1% (prior 2.1%)
- 10:00am: U. of Mich. Sentiment, May F, est. 95.4 (prior 95.8)
- Current Conditions, May F (prior 108.6)
- Expectations, May F (prior 87.5)
- 1 Yr Inflation, May F (prior 2.5%)
- 5-10 Yr Inflation, May F (prior 2.6%)
- 1:15pm: Fed’s Yellen speaks in Cambridge, Mass.
DB’s Jim Reid concludes the overnight wrap
Today would normally be very quiet given it’s the Friday before Memorial Day in the US and Bank Holiday Monday in the UK. Indeed the US bond market closes early today. However we do have Yellen speaking at Harvard University at 6.15pm BST (shortly after lunch in NY) so it’ll be slightly busier than it could have been. It’s not clear whether she’ll mention current policy but it will delay a few in the US from leaving early. That speech will aHer appearance a week on Monday June 6th when she is due to
address the World Affairs Council in Philadelphia has been billed as a
bigger event so that’s the more likely venue for her to validate her
FOMC colleagues’ recent hawkish bias or to put a more dovish spin on
future policy.lso come with the added benefit of the May employment report which is the highlight of what’s set to be a busy calendar next week.
Before that though and also in focus today will be the second revision to Q1 GDP in the US due out this afternoon. Current expectations are for an upward revision from the first estimate of +0.5% qoq to +0.9%, while the Core PCE reading is expected to be unchanged at +2.1% qoq. We’ll also get a first sight at corporate profits which given recent weakness is an important sub complement. So something else to keep markets busy into the long weekend.
It was the data yesterday which was the main talking point for investors in what was a relatively lacklustre day of price action with the rally in risk assets coming to a stuttering halt. Indeed the S&P 500 (-0.02%) closed little changed by the end of play after failing to move with much conviction either way during the session. Markets in Europe had largely closed in positive territory (Stoxx 600 +0.10%, DAX +0.66%) although the rally for banks which had been driving moves this week abated somewhat. Spanish banks in particular were under the most pressure with Banco Popular slumping 26% and to the lowest in 26 years following the announcement of a rights issue plan to cover losses. Spanish equities (-0.50%) were the notable underperformers as a result and it was a reminder that the sector is still a long way from being out of the woods just yet.
With regards to that data it was bit of a mixed bag in the US, with the latest durable and capital goods orders in April getting most of the attention. Headline durable goods orders were up a bumper +3.4% mom last month, well exceeding the +0.5% consensus although that number was boosted by a huge rise in the volatile aircraft and parts orders series. Excluding transportation orders, durable goods orders rose more in line with expectations (+0.4% mom vs. +0.3% expected) although the concerning trend was in the core capex orders which declined -0.8% mom after expectations had been for a modest +0.3% rise. Our US economists noted that the three-month annualized change in core durable goods orders, which was slightly below +1% in March, plunged to -11% this month. That being said, the overall report was however enough for the Atlanta Fed to revise up their Q2 GDP forecast to 2.9% from 2.5% previously which is the highest forecast we’ve seen so far for the quarter.
Meanwhile, there was more bumper US housing market data to report with pending home sales in April rising a much better than expected +5.1% mom (vs. +0.7% expected). Elsewhere, initial jobless claims were down 10k last week to 268k and down for the second consecutive week following that huge spike up in the first week of the month. Finally the latest regional manufacturing data provided for further evidence of what’s been another difficult month for the sector. The Kansas City Fed’s manufacturing activity index was down 1pt this month to -5 after expectations had been for a modest 1pt rise. New orders extended their move lower into negative territory. Staying in the US we also heard from Fed Reserve Governor Powell (moderately hawkish usually) who said that a rate hike would be appropriate soon but that there is no reason ‘to be in a hurry’. Powell also echoed (Reuters) some of the comments from his colleagues in highlighting that the upcoming UK referendum vote is a reason for caution in tightening next month. It’s worth highlighting that we don’t hear from Powell too often so his comments are noteworthy.
Switching over to the latest in markets this morning where bourses in Asia are ending on a bit of a mixed note to finish the week. Leading the way is Japan where the Nikkei is +0.44%. That’s come after the April CPI report revealed a two-tenths of a percent drop in headline inflation to -0.3% yoy. While that was a little higher than expected (-0.4% expected) it still marks a move further into deflation for the second consecutive month. The ex-fresh food reading (-0.3% yoy vs. -0.4% expected) matched the headline and was unchanged from March. The so called core-core reading (ex food and energy) held steady at +0.7% yoy as expected. Nevertheless the data may have raised hopes that it could spark further action from the BoJ. Elsewhere we’ve also seen the ASX (+0.53%) gain overnight along with the Kospi (+0.32%), while the Hang Seng (-0.31%) and Shanghai Comp (-0.14%) are both lower. The latter perhaps on the back of the latest industrial profits data in China which showed profits of +4.2% yoy in April, down from the +11.1% yoy March reading. Elsewhere there was little interesting to report out of the conclusion of the G7 meeting in Japan this morning.
Meanwhile, there’s also been some interesting newsflow concerning Valeant overnight, with the WSJ reporting late last night that the pharma company rejected a takeover offer from Takeda and investment firm TPG in the spring. No price was quoted and the article states that there are no current talks, but it is another interesting twist in the long running saga for the company.
Moving on. Most of the interesting price action yesterday was reserved for rates markets where Treasuries in particular were well bid from the off. Indeed 10y yields ended the session just shy of 4bps lower in yield at 1.829% meaning they are lower now than where we closed last Friday. 2y yields were down even more (5bps lower) at 0.869% and much of the commentary is attributing this to another strong auction yesterday. Indeed such was the demand for investors at the 7y Treasury auction that primary dealers were left with just a 19% share of the allocation which is the second lowest on record. That actually follows a similar trend at 2y and 5y auctions earlier in the week with Bloomberg reporting that investors took down 80% of the $88bn across the three auctions. Despite the possibility of the Fed tightening as soon as this summer, the auctions are evidence that there’s still a decent hunt for yield in a world where global yields are so low.
Meanwhile, over in commodity markets it was Oil which had been generating the early headlines after WTI and Brent both broke through the $50/bbl level. Those moves faded however as the day wore on with both finishing below that at $49.48/bbl and $49.59/bbl respectively – a smidgen lower on the day although the moves were largely put down to some profit taking. It was a much better day for base metals though with Zinc (+2.32%), Copper (+0.15%) and Aluminium (+0.74%) all up, however the exception was Iron Ore which was down another couple of percent yesterday and tumbled back below $50/tn for the first time since February. It is now in fact nearly 30% off the highs for 2016 made just a month ago.
Looking at the day ahead, this morning in Europe the only data of note is the various confidence indicators which we’ll receive out of France and Italy. This afternoon in the US the focus will be on that aforementioned second revision to Q1 GDP and Core PCE, while there will also be some attention paid to the final May reading for the University of Michigan consumer sentiment data. The data comes before what may or may not be an important speech by Fed Chair Yellen this evening.
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Terrorist group Al-Nusra Front is receiving daily arms shipments across the border from Turkey, the Russian General Staff says. The Al-Qaeda offshoot used the truce between government forces and moderate rebels in Syria to regroup and renew hostilities.
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South Africa’s parliament has approved a bill that would see the government make compulsory land purchases from rich whites and redistribute it more fairly to address racial disparities, two decades after the fall of apartheid.
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Barack Obama has become the first sitting US president to visit the memorial of the American atomic bombings of Japan in Hiroshima – but offered no apology for the attacks. The trip comes amid protests over alleged crimes committed by US troops stationed in Japan.
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Kosovo, a predominantly Muslim land severed from Serbia by US and NATO military intervention, was turned into a hotbed of radical Islamism and a fertile recruiting ground for terrorists thanks to money pumped into it by Gulf kingdoms, the New York Times reported.
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The US Marine charged with the rape of a Japanese woman on the island of Okinawa has pleaded guilty to the crime. The incident sparked a diplomatic scandal between the US and Japan, and led to widespread anti-abuse protests at home.
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Gold prices are likely to rise above $1,900/oz in the next phase of the bull market and investors should “get in now,” Chief Market Analyst of the Lindsey Group, Peter Boockvar told CNBC’s “Futures Now” yesterday.
“This is just the beginning of a new bull market in the metals,” Boockvar believes.
Ultimately, Boockvar believes that the 2011 highs of around $1,900 for gold are not only reachable, but surpassable, as he reasoned that bull markets historically exceed the previous bull market peak at some point.
As Boockvar sees it, it’s just a matter of when.
“In order to be bearish on gold, you have to believe that the Fed is going to embark on 100 to 200 basis points of hikes over the next couple of years, which I think is completely unrealistic,” added Boockvar. “This is an ideal opportunity for those who have not gotten in.”
Citing the relative strength index (RSI), Boockvar said that gold is the most oversold it has been since mid-December. He also added that global interest rates have given trillions of dollars’ worth of sovereign bonds a negative yield. Coupled with rising Fed rates, this development would theoretically provide gold investors with positive carry on gold.
For additional context, Boockvar highlighted the mid-2000s, when the Fed raised the Federal funds rate from 1 percent to 5 percent. During that time, gold went from $400 to $700. The analyst also cited the start of 2016, when Bank of Japan Governor Haruhiko Kuroda adopted negative interest rates. However, the move failed to help the nation achieve stability in its currency.
Watch Boockvar’s interview on CNBC here
Recent Market Updates
– Gold and Silver “Bottom Is In” – David Morgan tells Max Keiser
– World’s Largest Asset Manager Suggests “Perfect Time” For Gold
– Gold As “Extremely Low-Risk Asset” – Rogoff Advises Creditor Nations
– Silver – “Best Precious Metals Trade”
– Bank Bail-Ins Pose Risks To Depositors, Investors & Economies
– Take Delivery of Gold and Silver Coins, Store Gold Bars – Hobbs
– George Soros Buying Gold ETF And Gold Shares In Q1
Gold and Silver News
Gold edges up, but stays near 7-wk low on Fed rate hike outlook – Reuters
Gold Snaps Six-Day Losing Streak as Rally in the Dollar Pauses – Bloomberg
Oil prices top $50, Asian shares struggle as China sags – Reuters
Pound Could Lose Its Reserve Currency Status on Brexit, S&P Warns – Bloomberg
Brexit Could Force UK to Extend Austerity by Two Years – Bloomberg
Greece’s “breakthrough” agreement is another “extend and pretend” – Telegraph
Why Strategas’ Chris Verrone Wants to Buy Gold (Video) – Bloomberg
Global Monetary System Has Devalued 47% Over The Last 10 Years – Zero Hedge
The Billionaires Are Wrong On Gold – Barisheff via Seeking Alpha
Dominick Frisby interviews James Rickards – Frisby’s Bulls & Bears
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