US Equities Rally As Dollar Falls, ECB Begins Corporate Bond Purchases, China Data Continues To Stabilize, ASX SPI200 Futures Up 9 Points

US equities gained on Wednesday as the US Dollar declined for a fourth day, the benchmark S&P500 & Nasdaq100 rose +0.33% & +0.17%, the US Dollar declined -0.29 as oil gained +1.73% following a drop in US crude oil inventories. The market continues to remain well supported, with dips being quickly bought as rate hike expectations have been pushed back as December remains the first month with at least even odds of a hike implied by Fed Fund futures. This week remains relatively light for US data with initial & continuing jobless claims out later tonight, traders will turn their attention to forecasts and a statement by Janet Yellen following the upcoming June 14-15 meeting where there is almost no chance of a hike.

European equities were broadly lower with the exception of the FTSE100 which gained +0.27% as the DAX30 fell -0.69%. The big news on Wednesday was the beginning of the ECB's purchase of investment grade corporate debt as part of its €80 billion monthly bond buying program. While this was announced months ago giving traders ample opportunity to front run the purchases the focus over the next few months will be on whether the ECB will be able to purchase enough to be effective, with estimates ranging between €3 – €5 billion per month. The average borrowing costs for European corporates is now under 1% shown on the chart below and this should continue to remain support for the corporate sector and drive investors towards riskier assets.

Chinese trade balance data on Wednesday for May showed an expansion from April increasing from $45.56 billion to $49.98 billion however missing estimates of gains to $55.70 billion. We continue to see some signs of stabilization in China, while encouraging the data has not been amazing either. Overall China should able to manage its transition from investment to consumer driven but it is likely to continue to be a bumpy road as policy makers increase and reduce stimulus to smooth out the ride. The CSI300 & Hang Seng both declined -0.41% & -0.14% in response. Elsewhere Japanese GDP growth expanded at 0.5% in the first quarter or 1.9% on an annualized basis while capital expenditure dropped 0.7% (QoQ Q1). UK industrial production (YoY Apr) increased 1.6% beating estimates of a -0.2% drop as did manufacturing production (YoY Apr) up +0.8% against estimates of a -1.9% decline. The Pound initially gained following the news however this was quickly reversed and closed -0.2% lower for the day.

Earlier this morning the RBNZ kept its benchmark interest rate unchanged at 2.25% however keeping the door open for further cuts to ensure "future average inflation settles near the middle of the target range", inflation is currently at 0.4% with a target range of 1-3%. The ASX200 closed flat on Wednesday, down -0.02% as a rally erased early losses as housing data showed home loans expanded at 1.7% in April missing estimates of 2.8% while investment lending dropped -5.0% from 0.8% in March.  Meanwhile ASX SPI200 futures are up 9 points in overnight trading suggesting a modestly stronger open this morning.

Data releases:

·         Chinese CPI & PPI (YoY May) 11:30am AEST

·         US Initial & Continuing Jobless Claims (June 14th & May 28th) 10:30pm AEST

Source: Rivkin, Bloomberg

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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.