S&P500 and Nasdaq ended moderately down in yesterday's trading

Market movers today

Focus on central bank speeches with ECB’s Coeure and Fed’s Fisher but most important will be Fed chair Yellen’s testimony.

Bank of Canada will announce its rate decision. It is widely expected that BoC will keep its key policy rate at 1.0% but it will be interesting to hear its comments on the fairly sharp rise in inflation. Most of the rise in Canadian inflation reflects supply side factors. There might also be focus on comments regarding the recent strengthening of the Canadian dollar.

Germany is printing EUR4bn in Bunds (May-24) - at a new all-time-low yield of around 1.20%. The previous low was 1.28% on 17 April 2014. Euro area core yields have been pushed down by a combination of 1) very low inflation, 2) the design of the TLTRO and implied forward guidance that signals ‘low for very long’, 3) recent weakening in European data as reflected in the surprise index that has dropped to around 1Y low and 4) limited headwind from US rates where the pricing of the Fed still remains relatively soft.

Most interesting macroeconomic numbers will be US industrial production for June, MBA Mortgage Applications and the NAHB Housing Market Index.

Selected market news

S&P500 and Nasdaq ended moderately down in yesterday’s trading, while Dow Jones inched up a bit. This morning the Asian stock markets are generally trading a bit lower. This reflects that the markets got more or less exactly what we had expected from Fed chair Yellen at her testimony in the US Senate yesterday: Tapering continues but easing monetary policy is still necessary as long as there is slack in the US labour market. It should, however, also be noted that, somewhat unusually, the Fed commented on stock market valuation in the US saying that the valuation of ‘social media and biotechnology’ stocks appeared stretched. It is very unusual for central banks to comment on valuationspecific stock market sectors.

This morning we got a number of Chinese data releases, most importantly Chinese GDP growth in Q2. More or less in line with the consensus expectation Chinese GDP grew 7.5% y/y – up from 7.4% y/y in Q1. Retail sales, industrial production and fixed asset investment were also released this morning. Overall they came in slightly better than expected and generally indicate a continued pick-up in Chinese economy growth.

Despite more optimism about the Chinese economy, global commodity prices have been under some pressure recently. The oil price has dropped rather sharply over the past 24 hours bringing it close to the year-low from early April. The market has really bought into the good news from Libya that the country is getting ready to open two major oil ports in the east and to start exporting oil again. Positioning for a higher oil price following the Iraqi insurgence has probably exacerbated the recent market reaction, though. Nevertheless, focus in the oil market has now returned to the downside risks due to the ongoing supply boom.