Beige Book bolsters June rate hike likelihood - 1.6.2017

US banks warn trading down in second quarter

US markets extended losses on Wednesday on mixed data. The dollar declined further: the live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, closed down 0.42% at 96.978. The S&P 500 lost less than 0.1% settling at 2411.80 paring earlier losses, led by financial stocks down 0.8%. Four out of 11 main sectors ended in negative territory. The Dow Jones industrial average slipped 0.1% to 21008.65, weighed by losses in Goldman Sachs and JP Morgan shares, both down more than 2% . Nasdaq retreated less than 0.1% to 6198.52. All three indexes ended May in positive territory.

Financial stocks fell after both JP Morgan and Bank of America warned trading is on decline in the second quarter. Treasury yields declined Wednesday despite the Federal Reserve’s Beige Book appeared supportive of a June rate hike: it said the economy is still growing at a “modest or moderate” pace. Housing data were negative: pending home sales in April fell 1.3% instead of an expected 0.5% rise. Downward revision to minus 0.9% for March from minus 0.8% was an added negative. At the same time Chicago PMI, a gauge of economic health, rose to 59.4 in May, the highest level in two and half years. President Donald Trump said he would announce on Thursday his decision whether to keep the United States in Paris accord to fight climate change. Today at 14:30 CET initial jobless claims and unemployment claims will be released, the tentative outlook is neutral. At 16:00 CET April Leading Indicators will published, the outlook is neutral. At 14:15 CET May Employment Change by ADP will come put, the outlook is neutral. At 16:00 CET the Institute for Supply Management May Manufacturing PMI will be published, the outlook is negative for dollar. At 16:30 CET natural gas storage change will be released by Energy Information Administration. And at 19:15 CET Fed's Mester will speak on economy and monetary policy.

Uncertainty about UK general election in June persists

European stock indices ended mostly lower on Wednesday as political uncertainty in UK and mixed data failed to bolster market sentiment. Both the euro and British Pound gained against the dollar. The Stoxx Europe 600 index slid 0.1%. Germany’s DAX 30 outperformed rising 0.1% to 12615.06. France’s CAC 40 fell 0.4% but UK’s FTSE 100 index fell 0.1% to 7519.95.

Concerns about UK election undermine market sentiment as UK general election uncertainty persists with market participants trying to predict whether the Conservative party will keep its majority in parliament. Latest polls showed Conservatives were still in the lead. Analysts expect a hung parliament will make Brexit negotiations with European Union more difficult. Euro-zone inflation data were weaker than expected: the 1.4% reading for May was below the expected 1.5% level after the 1.9% inflation in April. German unemployment fell to 5.7% from 5.8% in April, in line with expectations. Today at 09:50 -10:00 CET final Manufacturing PMIs for France, Germany and euro-zone for May, as well as Italy’s Q1 GDP will be released. The tentative outlook is neutral for euro. And at 10:30 CET May Construction PMI will be released in UK, the outlook is negative for the British Pound.

China factory activity contracts for first time in nearly a year

Asian stock indices are mixed today after Caixin private survey data showed China's manufacturing activity contracted in May for the first time in 11 months. Nikkei ended 1.1% higher at 19860.03 as the dollar resumed the growth against the yen and reports indicated Japanese capital spending rose in the first quarter. Chinese stocks are down after the Caixin Manufacturing PMI fell to 49.6 in May from 50.3 in April. A reading below 50 indicates contraction. The official data on Wednesday showed steady growth with PMI at 51.2. Shanghai Composite Index is 0.5% lower while Hong Kong’s Hang Seng Index is up 0.5%. Australia’s All Ordinaries Index is 0.2% higher as the Australian dollar continued the slide against the US dollar.

GB 100

Oil slips on expected US Inventories drop

Oil futures prices are rising today on expected decline of US oil inventories. Data from the American Petroleum Institute industry group showed crude inventories were down by 8.7 million barrels at 513.2 million last week, a bigger draw than analysts’ expectation of a 2.5 million barrels decrease. Prospective gains may be limited however in light of recent data pointing to continued increase in global oil output. Output from OPEC rose in May, the first monthly increase this year, according to a Reuters survey. Prices ended lower yesterday: July Brent crude fell 3% to $50.31 a barrel on Wednesday on London’s ICE Futures exchange. The US Energy Information Administration will report US crude oil inventories at 17:00 CET today.