News & Views: Tuesday, August 19
What you need to know for today's trading day.
Home Depot's Earnings and Outlook Warm Up Along With the Weather (WSJ)
Russian import ban fuels food price rises (BBC)
Pimco Scoops Up Quality Junk Cast Off in High-Yield Fund Exodus (Bloomberg)
BHP unveils spin-off but disappoints with no buyback (Reuters)
Inflation falls more than expected (BBC)
The most significant event overnight for most global assets overnight was the significantly worse-than-expected UK CPI. Inflation fell to +1.6% (1.8% expected) from a year ago in July from 1.9% in the month prior. The reaction has been the most acute in Gilts, with the 5yr showing the largest gain across its curve (-5.8bps) and the 10yr -5.2bps. This is dragging German Bunds and US Treasuries lower. The takeaway is that it will continue to take the pressure off the Bank of England (BoE) to hike rates at an accelerated pace. The next event to watch is tomorrow's release of the minutes from the BoE's meeting two weeks ago. Governor Mark Carney continues to talk out of both sides of his mouth - in this morning's Bloomberg EcoBrief, Bloomberg economist Jamie Murray called him a "Fox in Hedgehog's Clothing. At some points, Carney is saying that the market is too complacent - and at others more recently, after a significant rally in the UK sovereign curve, that it was in tune with the Monetary Policy Committee's (MPC) guidance.
The minutes of the Reserve Bank of Australia's (RBA) meeting were released last night and it continued to lament on the high exchange rate, but spoke more negatively about the its growth prospects saying that there is a "significant degree of uncertainty." It saw strength continuing from the real estate construction sector. but noted that corporations continue to remain reluctant to undertake significant investment projects until they experienced sustained periods of strong demand. Overall the message is much of the same, slow and steady while the different economic variables work themselves out. Last night the AUDNZD broke above vertical resistance and has another 4% higher of clear sailing.
The timing of Janet Yellen's speech was revealed for the Jackson Hole symposium run by the Kansas City Fed. She will make a keynote speech titled "Labor Markets" at 10am EST on Friday morning.
PIMCO announced in a media briefing last night - run by Mark Kiesel - that it had been buying up higher-rated high yield bonds (presumably BB) from mutual funds and ETF's that were barfing them up earlier this month. He said that it had created quite a few cheap valuations to take advantage of. Remember that two weeks ago we had a record, single week, outflow from HY mutual funds. PIMCO felt that the basis risk was also very attractive, which indicates they were a buyer of both CDX and HY cash bonds.
Wal-Mart (WMT) talked down the possibility of a bid for Family Dollar (FDO) in a news article last night, saying that after looking through the company's documents it did not think it would accretive for their infrastructure. Some analysts have suggested that the purchase would be beneficial for WMT because it is trying to transition into smaller stores to help boost margins.
- UK CPI YoY (July) down to 1.6% vs 1.8% expected, prior 1.9%
-- MoM down -0.3% vs -0.2% exp, prior 0.2%
- New Zealand RBNZ 2yr inflation expectations (3Q) down to 2.23%, prior 2.36%
- Japan department store sales (July) YoY down -2.5%, prior -4.6%
US Economics (Time Zone: EST)
08:30 Consumer Price Index YoY (Jul) - 2.0%, expected 2.0%, prior 2.1%
08:30 CPI Ex Food & Energy YoY - 1.9%, exp 1.9%, prior 1.9%
08:30 Housing Starts (Jul) - 1093K, exp 965K, prior 893K
08:30 Building Permits - 1052K, exp 1000K, prior 973K
11:00 Fed to purchase $250m-$350m notes in 11-19 year range
11:30 Treasury to sell 4-week bills, $25b 52-week bills
Home Depot (HD)
Dick's Sportings Goods (DKS)
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