Global Equities Drop As June Rate Hike Speculation Grows, Stronger Dollar Hurts Commodities & Precious Metals, ASX SPI200 Futures Down 6 Points

On Thursday, global equity markets continued their recent declines, with benchmarks from Asia, Europe & America broadly lower as speculation for a June rate hike in the US grows. Both New York Fed President William Dudley stated June was a “live meeting” while Richmond Fed President Jeffrey Lacker said the case for hiking would be “very strong”, William Dudley is a voting member in 2016 while Jeffrey Lacker is not.

The DAX30 declined -1.48% followed by the FTSE100 -1.82%, S&P500 -0.4% and Nasdaq100 -0.5% while the US Dollar continued recent gains, up a further 0.24% as data showed initial jobless claims of 278,000 vs 275,000, while a slight miss in expectations most economist view claims less than 300,000 consistent with full employment. We still have three more weeks until the June meeting, so we will need to wait and see if any significant volatility returns to markets and if so, will it have any impact of the decision - keeping in mind April meeting minutes suggest the Fed views global risks as subdued.

The British Pound initially gained following better than expected retail sales figures (YoY Apr) 4.2% vs 2.0%, only to finish unchanged halting a three day advance as optimism grows with the “remain” vote leading in Brexit polls. As shown on the image below the Pound is no longer the worst performing currency year to date out of the G10, those honours now go to the New Zealand & Australian dollar.

Commodity prices were also broadly lower on Thursday, however WTI & Brent remained fairly resilient, despite data that showed US oil inventories increased by 1.31 million barrels for May 13th, as media reports continued about reduced supply from Nigeria & Libya continued to support price. WTI & Brent crude oil were both -0.06% & -0.25% lower respectively, Iron ore prices fell 5.83% as did Copper -0.89%, while Natural Gas gained 1.90%. Precious metals Gold & Silver declined -0.3% & -2.47% as speculation around a June rate hike reduced the appeal of the save havens, which are more attractive in a world of lower and increasingly negative interest rates (Europe & Japan).

The Australia Dollar finished relatively flat, down 0.02% as the unemployment rate for April remained unchanged at 5.7% against expectations of an increase to 5.8%. While the unemployment rate has dropped from 6.1% in August 2015, wage growth remains subdued with data earlier this week showing the wage price index (WPI) increased at 2.1% for the March 2016 quarter, the lowest rate since September 1998. This seems to be an increasing theme globally, higher employment but low wage growth which some are attributing to factors such as job insecurity. The ASX200 dropped for the second day in a row on Thursday, down 0.6% and we can expected some further weakness this morning with ASX SPI200 futures down a further 6 points in overnight trading.

Data releases:

·         Canadian CPI (MoM & YoY Apr) 10:30pm AEST

·         US Existing Home Sales (MoM Apr) 12:00am AEST

·         US Baker Hughes Rig Count (May 20th) 3:00am AEST


Source: Rivkin, E-Signal, Amibroker

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

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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