US Equities Rebound As Initial Jobless Claims Rise, Sovereign Yields Continue Lower, Australian Unemployment Dissapointing, ASX SPI200 Futures Up 35 Points

US equity markers rebound on Thursday snapping a four day losing streak despite an slightly larger than expected increase in initial jobless claims to 277,000 against expectations of 270,000. Continuing claims also increased to 2.157m from 2.112m while CPI (YoY May) increased 1.0% down from a prior 1.1%. The S&P500 reversed initial losses of up to 1% to close 0.31% higher, the Nasdaq100 was also +0.33% higher while the US Dollar index fell -0.17%. The British Pound was little changed while the FTSE100 closed -0.27% lower as the Bank of England left interest rates unchanged at 0.5%, bookmaker odds for a Brexit also eased during the day while both sides of the Brexit referendum suspended their campaigns for the day following the saddening new of the murder of a UK Lawmarker. European equities were also broadly lower with the DAX30 & Euro Stoxx 50 down -0.59% & -0.39% respectively as Euro-zone CPI remained unchanged from a year earlier at -0.1%.

The Nikkei 225 index dropped -3.05% while the Yen strengthened +1.61% following the Bank of Japan’s decision to leave monetary policy unchanged. The BOJ cited the economy as continuing a moderate recovery against a background of “steady improvement in the employment an income situation”. It also notes that “private consumption has been resilient” as industrial production remained relatively flat, partially as a result of reduced demand both globally and domestically as well as the impact from the Kumamoto earthquake. “Financial conditions remain accommodative” however the Yen shown of the first chart below, has strengthened 13% this year providing significant headwinds for Japanese exporters which have received significant windfalls in the past few years as result of the Yen weakening. Overall the Japanese economy is likely to expanded moderately while the year-on-year are expected to remain around 0% in the near-term before rising steadily over the longer term.

Globally sovereign bond yields continue to push lower as investors move into safe haven assets, the chart below highlights the difference between Australian & US yields (+2.003% & 1.5788%) compared with German & Japanese (-0.025% & -0.191%) while the Swiss 30 year government bond is currently yielding -0.0246%. The idea of negative yielding bonds is something that is becoming quite common place globally as investors pay for the privilege to lend governments money, the recent demand for bonds can certainly be attributed to Brexit concerns and should the vote be to Remain we could see a sell off or sharp spike in yields. 

Locally the ASX200 closed relatively flat, down -0.02% after reversing initial gains. Meanwhile ASX SPI200 futures are up 35 points in overnight trading suggesting a stronger open this morning. Unemployment data released on Thursday showed the unemployment rate remained steady at 5.7% while the participation rate dropped 0.1% to 64.8%. 17,900 new jobs were created in May however it is important to note that these were comprised solely of part-time work reflecting a continuing trend of rising part-time employment while full-time work decreases highlighting there is continued slack in the labour market.

Data releases:

·         US Housing Starts & Building Permits (MoM May) 10:30pm AEST

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

·         ECB President Mario Draghi speaks in Munich, Germany 1:00am AEST

·         US Baker Hughes Rig Count (June 17th) 3:00am AEST


Source: Rivkin, Amibroker, E-Signal

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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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