Official Chinese manufacturing data from the weekend continued to show that activity had troughed early in the first quarter. In addition, many analysts began to predict that the Chinese PBoC would begin direct asset purchases of sovereign or corporate debt as a large-scale easing measure, should it be necessary. As a result, most Asian equities were solidly higher in overnight trading. The Japanese small-cap Mothers Index
(INDEXTYO:MOS) rose 4.06% and capped its 10th straight day of gains. It is up 27.48% over that time period. Chinese markets were closed for the Dragon Boat Festival, but the US-based iShares FTSE/Xinhua China 25 Index ETF
(NYSEARCA:FXI) was up 0.57%. Germany's preliminary May consumer price index fell to 0.9% year-on-year from 1.3% in the month prior, below the 1.1% expected. This caused substantial rallies in Italian equities and bonds, and kept negative pressure on the euro as market participants began to price in the near certainty of ECB action on Thursday morning.
ISM released its May manufacturing report this morning. It originally reported that the index fell to 53.2 from 54.9 last month (versus expectations of 55.4). However, after a number of analysts questioned ISM on the data, it later released two revisions, the first at 56 and the second at 55.6. It cited a software error that caused it to use seasonal adjustments for some of the index's components from April rather than the current month. The revised components showed substantial growth in production and new orders but a decline in employment.
US Treasury yields finished higher across the board today. The 10-year yield rose six basis points to 2.535%, capping its third straight day of losses. The benchmark yield has increased by 13 basis points from its low yield last Thursday.
US equities started the day lower and continued lower after the first manufacturing report. However, when the data was revised later in the morning, stocks recovered most of their losses. Tech stocks remained under pressure as Apple
(NASDAQ:AAPL) held its developer conference in the early afternoon, which pushed the stock price down by 2% due to the lack of actionable catalysts. As expected, the company announced new health care and home automation software capabilities, but did not introduce new hardware products. The S&P 500
(INDEXSP:.INX) finished the day up only slightly after trading in an extremely tight range. Conversely, small-cap stocks were very active.
Tomorrow's Financial Outlook
April factory orders will be released tomorrow morning. These orders will have a direct effect on second-quarter GDP estimates. The other report of note is May auto sales, which will be released sometime in the late afternoon. The individual companies will release their results all morning including estimates for what total vehicle sales will be. Economists expect total sales to increase to an annualized rate of 16.10 million units.
A significant catalyst for risk assets overnight is the Chinese non-manufacturing PMI report for May. The official and private gauges of manufacturing activity in May have both shown significant increases from the prior month. Another catalyst is the advance May eurozone consumer price index, the results of which will have a significant effect on the EURUSD, and on Italian equities and bonds. Lastly, the Reserve Bank of Australia will make its rate decision. Most recent economic data had firms stepping up their capex plans for the next two years, which has had the Australian dollar rallying against its major counterparts in anticipation of a continued hawkish tone from the central bank.
The only notable earnings reports scheduled tomorrow will come from FuelCell Energy
(NASDAQ:FCEL) and Dollar General
No positions in stocks mentioned.
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