*OPEC fails to reach agreement at meeting:
OPEC decided to stick to its existing policy after members failed to reach an agreement on a new output ceiling. Iranian opposition seen as one of the main obstacles, with the country reportedly rejecting any cap on production. However, many of the ministers in attendance said the meeting was productive. Saudi's oil minister said the market is in good shape, and believes prices will continue to recover. UAE's minister added that the supply glut is shrinking and expects the oil price to move higher in the second half of 2016. Recall earlier reports suggested Saudi Arabia and its Gulf allies would propose a new collective ceiling in an attempt to repair the cartel's waning importance and end a market share battle.
*ECB’s Draghi in wait-and-see mode:
ECB policy decision unchanged. Refi rate at 0.0% and deposit rate at -0.4%, as expected. Announced corporate bond purchase will start on 8-Jun and first TLTRO will be conducted on 22-Jun. President Draghi at presser in wait-and-see mode, with dovish bias. Warned of Q2 slowdown but revised higher 2016 inflation and growth estimates. 2017 and 2018 forecasts unchanged. Sees lower for longer rates and QE to run to March 2017 and beyond, if needed. Defended negative rates policy and said monetary policy conditions have improved lending and credit expansion. Added stimulus measures working smoothly and not seeing any difficulty in meeting QE commitment or liquidity problems. Made no decision on Greek waiver today and said ECB prepared for any outcome of Brexit vote. Reiterated need for structural reforms.
*Initial claims down, May ADP payrolls up:
Somewhat better employment data today. Initial jobless claims came in at 267K, down 1K from last week’s level and below consensus for 269K. Streak of sub-300K claims now at 65 weeks, longest since 1973. Four-week average decreased to 276.75K from 278.5K. No special factors were cited. Continuing claims increased 12K to 2172K, higher than consensus for 2150K. Elsewhere, ADP private payrolls were up 173K in May, better than April’s figure slightly lower than consensus for 175K. However, April revised up 10K to 166K. Small businesses drove the bulk of the gain, though growth from this group was lower in absolute terms than last month. Construction industry reported to have gained 13K jobs while manufacturing shed 3K. Major data comes with tomorrow’s May nonfarm payroll report. Consensus for 160K growth, level with April’s figure.
*BoJ's Sato says negative rates has monetary tightening effect:
In first speech since NIRP implemented, BoJ policy board member Takehiro Sato says dissention on decision to implement negative rates stems from view that it essentially contradicts the goal to expand the monetary base and the combination lacks sustainability. Moreover, Sato thinks negative rates has effect of monetary tightening, and may affect financial system stability. On consumer prices, Sato reaffirms position at lower end of the forecast range among board members, and does not foresee inflation reaching 2% over projection period. Recent surveys indicate strong expectations of further easing in coming months. Dovish board members keeping options open with repeated messages of possible easing via three dimensions of quantity, quality, and rates.
*Brexit fears loom large on Fed’s next policy meeting:
Fed reportedly feeling uncomfortable over Brexit, with Fed Governor Tarullo (voter) noting today that the vote is a factor he would consider at the Fed's June meeting. FT discussed this dynamic, suggesting the 23-Jun vote could be swing factor at the Fed’s 15-Jun policy meeting that could push it towards holding fire on rates, despite an increasing range of improving US economic data. Argued that while a political outcome in a foreign country impacting Fed policy is highly unusual, a Brexit could destabilize global markets. Pointed to recent Fed speak regarding Brexit concerns by Atlanta Fed’s Lockhart, St Louis Fed’s Bullard and New York Fed’s Dudley and Fed’s Powell. Added that hiking rates ahead of Brexit vote risks inflaming volatile market conditions and sends message that Fed urgently needs to lift rates despite the risks abroad.
*Corporate bond yields moving to negative territory:
The FT reported that with the ECB due to start buying corporate bonds this month, there are more than $36B of corporate bonds with a short-term maturity currently trading with negative yields. Paper sold by JNJ-US, GE-US, MCFR and PM-US now trade below zero in secondary market. Said that while no corporate has yet sold with a negative yield, recent offerings by SAN-FR and ULVR-GB were issued with zero coupons. Article cites BofA Merrill Lynch's head of European credit strategy, Barnaby Martin, who points out that with the ECB willing to buy bonds that yield more than its deposit rate of -0.4%, yields are likely to fall further. Article added that the spread between corporate debt and government bonds has also narrowed, with Barclays data showing record lows of 0.38% on Wednesday for average European corporate debt maturing in three years.
*Healthcare in the lead:
Healthcare led the market today with biotech and pharma both stronger. Retailers outperformed in consumer discretionary. Multiline names were higher, though select specialty retailers also up after better May comps (LBUS, BKE-US). SIG-US was notably weaker in accessories after circulation of a report alleging company switched out diamonds for lower-quality stones. Consumer staples level with the tape, but COST-US a weight on its disappointing comps. Machinery was better in industrials, with JOY-US in focus following earnings beat; better bookings and backlog highlighted. Banks were slight underperformers in financials. Semis lagged in tech, but software received some attention after ORCL-US hit by whistleblower’s allegations of improper accounting practices in cloud services business; the company has denied any wrongdoing. Energy trailed the market, though oil came off its early lows on better US inventory data.
*Mixed reaction from ratings firms on Japan sales tax delay:
Ratings agencies out with response to Japan PM Abe’s decision to delay sales tax hike. S&P's senior director of sovereign ratings Kim Eng Tan told CNBC that delay does not spell the end of government fiscal consolidation effort. Added game plan for now is to generate growth and raise taxes when conditions are right. Fitch however critical of decision, with Bloomberg citing head of sovereign Andrew Colquhoun, who said delay will undermine credibility of political commitment to consolidate finances, but will await further details on revised fiscal plans before drawing conclusions. Moody's said delay is credit negative and other analysts highlight concerns over Abenomics policy failure and reduced pressure on BoJ to act.
OPEC decided to stick to its existing policy after members failed to reach an agreement on a new output ceiling. Iranian opposition seen as one of the main obstacles, with the country reportedly rejecting any cap on production. However, many of the ministers in attendance said the meeting was productive. Saudi's oil minister said the market is in good shape, and believes prices will continue to recover. UAE's minister added that the supply glut is shrinking and expects the oil price to move higher in the second half of 2016. Recall earlier reports suggested Saudi Arabia and its Gulf allies would propose a new collective ceiling in an attempt to repair the cartel's waning importance and end a market share battle.
*ECB’s Draghi in wait-and-see mode:
ECB policy decision unchanged. Refi rate at 0.0% and deposit rate at -0.4%, as expected. Announced corporate bond purchase will start on 8-Jun and first TLTRO will be conducted on 22-Jun. President Draghi at presser in wait-and-see mode, with dovish bias. Warned of Q2 slowdown but revised higher 2016 inflation and growth estimates. 2017 and 2018 forecasts unchanged. Sees lower for longer rates and QE to run to March 2017 and beyond, if needed. Defended negative rates policy and said monetary policy conditions have improved lending and credit expansion. Added stimulus measures working smoothly and not seeing any difficulty in meeting QE commitment or liquidity problems. Made no decision on Greek waiver today and said ECB prepared for any outcome of Brexit vote. Reiterated need for structural reforms.
*Initial claims down, May ADP payrolls up:
Somewhat better employment data today. Initial jobless claims came in at 267K, down 1K from last week’s level and below consensus for 269K. Streak of sub-300K claims now at 65 weeks, longest since 1973. Four-week average decreased to 276.75K from 278.5K. No special factors were cited. Continuing claims increased 12K to 2172K, higher than consensus for 2150K. Elsewhere, ADP private payrolls were up 173K in May, better than April’s figure slightly lower than consensus for 175K. However, April revised up 10K to 166K. Small businesses drove the bulk of the gain, though growth from this group was lower in absolute terms than last month. Construction industry reported to have gained 13K jobs while manufacturing shed 3K. Major data comes with tomorrow’s May nonfarm payroll report. Consensus for 160K growth, level with April’s figure.
*BoJ's Sato says negative rates has monetary tightening effect:
In first speech since NIRP implemented, BoJ policy board member Takehiro Sato says dissention on decision to implement negative rates stems from view that it essentially contradicts the goal to expand the monetary base and the combination lacks sustainability. Moreover, Sato thinks negative rates has effect of monetary tightening, and may affect financial system stability. On consumer prices, Sato reaffirms position at lower end of the forecast range among board members, and does not foresee inflation reaching 2% over projection period. Recent surveys indicate strong expectations of further easing in coming months. Dovish board members keeping options open with repeated messages of possible easing via three dimensions of quantity, quality, and rates.
*Brexit fears loom large on Fed’s next policy meeting:
Fed reportedly feeling uncomfortable over Brexit, with Fed Governor Tarullo (voter) noting today that the vote is a factor he would consider at the Fed's June meeting. FT discussed this dynamic, suggesting the 23-Jun vote could be swing factor at the Fed’s 15-Jun policy meeting that could push it towards holding fire on rates, despite an increasing range of improving US economic data. Argued that while a political outcome in a foreign country impacting Fed policy is highly unusual, a Brexit could destabilize global markets. Pointed to recent Fed speak regarding Brexit concerns by Atlanta Fed’s Lockhart, St Louis Fed’s Bullard and New York Fed’s Dudley and Fed’s Powell. Added that hiking rates ahead of Brexit vote risks inflaming volatile market conditions and sends message that Fed urgently needs to lift rates despite the risks abroad.
*Corporate bond yields moving to negative territory:
The FT reported that with the ECB due to start buying corporate bonds this month, there are more than $36B of corporate bonds with a short-term maturity currently trading with negative yields. Paper sold by JNJ-US, GE-US, MCFR and PM-US now trade below zero in secondary market. Said that while no corporate has yet sold with a negative yield, recent offerings by SAN-FR and ULVR-GB were issued with zero coupons. Article cites BofA Merrill Lynch's head of European credit strategy, Barnaby Martin, who points out that with the ECB willing to buy bonds that yield more than its deposit rate of -0.4%, yields are likely to fall further. Article added that the spread between corporate debt and government bonds has also narrowed, with Barclays data showing record lows of 0.38% on Wednesday for average European corporate debt maturing in three years.
*Healthcare in the lead:
Healthcare led the market today with biotech and pharma both stronger. Retailers outperformed in consumer discretionary. Multiline names were higher, though select specialty retailers also up after better May comps (LBUS, BKE-US). SIG-US was notably weaker in accessories after circulation of a report alleging company switched out diamonds for lower-quality stones. Consumer staples level with the tape, but COST-US a weight on its disappointing comps. Machinery was better in industrials, with JOY-US in focus following earnings beat; better bookings and backlog highlighted. Banks were slight underperformers in financials. Semis lagged in tech, but software received some attention after ORCL-US hit by whistleblower’s allegations of improper accounting practices in cloud services business; the company has denied any wrongdoing. Energy trailed the market, though oil came off its early lows on better US inventory data.
*Mixed reaction from ratings firms on Japan sales tax delay:
Ratings agencies out with response to Japan PM Abe’s decision to delay sales tax hike. S&P's senior director of sovereign ratings Kim Eng Tan told CNBC that delay does not spell the end of government fiscal consolidation effort. Added game plan for now is to generate growth and raise taxes when conditions are right. Fitch however critical of decision, with Bloomberg citing head of sovereign Andrew Colquhoun, who said delay will undermine credibility of political commitment to consolidate finances, but will await further details on revised fiscal plans before drawing conclusions. Moody's said delay is credit negative and other analysts highlight concerns over Abenomics policy failure and reduced pressure on BoJ to act.
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