European Equities Rally On German GDP, US Stocks Drop As USD Rallies On Retail Sales Data, ASX SPI200 Futures Down 15 Points

European equity markets were higher following European data on Friday, German GDP beat expectations year on year of 1.5% with a reading of 1.6% while CPI (YoY Apr) remained at -0.1%, and Euro-Zone GDP grew at 1.5% vs 1.6% estimated year on year. The DAX30 led equities higher up 0.92%, followed by the Euro Stoxx 600 up 0.47% and the FTSE100 up 0.56%. US equities however were weaker after US retail sales data gained the most in a year, 1.3% vs 0.8% expected, prompting speculation about a June rate hike. While interest rate probabilities calculated from Fed Funds futures remained unchanged at a 4% chance, equities were broadly lower with both the S&P500 & Nasdaq100 down 0.85% & 0.37% respectively while the US Dollar gained 0.41% against a basket of peers. Elsewhere data from the University of Michigan showed consumer confidence in the US remains high with a reading of 95.8 from 89 prior.

A stronger US Dollar impacted commodity prices, which were lower across the board led by oil which declined from a six month high with WTI & Brent Crude down 1.05% & 0.52%, meanwhile Natural Gas closed 2.83% weaker, followed by Copper (-1.33%) and Iron Ore (-0.93). Despite the stronger US Dollar precious metals Spot Gold & Silver rose, up 0.77% & 0.79% which suggests increasing demand for the investor safe havens as real interest rates in the US, nominal interest rate less inflation, remain low.

In a statement on Saturday the Chinese central bank set to reassure it would continue to maintain a monetary policy that would be supportive of the economy following data on Friday that showed new loan for April decreased from 1,370 billion Yuan to 555 billion Yuan while aggregate financing also decreased from 2,336 billion Yuan to 751 billion Yuan which the central bank has been attributed to a government program to swap high cost local government debt for cheaper municipal bonds. Further data showed industrial product (YoY Apr) came in at 6% vs 6.5% expected, Retail Sales (YoY Apr) 10.1% vs 10.4% expected and Fixed Assets Excluding Rural (YoY Apr) 10.5% vs 11% expected highlighting the challenges faced by policy makers as they try to rebalance the economy which has previously been driven by debt.

Locally the ASX200 fell on Friday, with the benchmark index down 0.57% while the Australia Dollar declined 0.78% as the Commonwealth Bank forecast interest rates to be cut to 1.25% from 1.75% by the end of 2016, the chart below highlight the currencies 7.5% decline from the April high of 0.7835. Meanwhile the market is set to open weaker with ASX SPI200 futures down 15 points this morning. 

Source: Rivkin, Bloomberg, Updata

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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