What sell-off? In a feat that has not been accomplished in more than a week, the S&P 500 on Wednesday notched a fresh record closing high.
The S&P 500 gained 0.25 per cent to 2,404, the Dow Jones Industrial Average added 0.36 per cent to 21,012.4, and the Nasdaq Composite gained 0.44 per cent to 6,163.
Last week, equities markets took a blow from rising concern over the political fortunes of US President Donald Trump.
The former businessman’s election last year helped stoke sharp gains for equities on expectations that his policies will support corporate America. That enthusiasm has ebbed and flowed as Mr Trump has struggled to dig-out of numerous scandals.
Still, after Wednesday’s gains, the most recent bout of selling has been entirely reversed and then some. The S&P 500 index is up 7.4 per cent for the year.
Investors on Wednesday parsed through minutes from the Federal Reserve’s May meeting, which set the table for next month’s meeting, which could see it raise rates for the second time this year. Investors interpreted the news as dovish on margin, however, with the US dollar slipping 0.26 per cent against a basket of six peers.
The yield on the benchmark 10-year Treasury note fell 0.0298 per cent to 2.2502 per cent.
The JMMC considered several scenarios presented by the JTC regarding the extension of the Declaration of Cooperation and decided to recommend that the production adjustments of the participating countries be extended for nine months commencing 1 July 2017. In this regard, the JMMC should continue monitoring conformity levels as well as market conditions and immediate prospects, and recommend further adjustment actions, if deemed necessary.
As such, OPEC and non-member producers are likely to “clinch” a deal on Wednesday extending output cuts by nine months in hopes of clearing the huge global stock overhang and prop up the price of crude.
Moody’s has cut Hong Kong’s local and foreign currency ratings by a notch to A1 on Wednesday just hours after it downgraded its rating on China amid concerns over the country’s rising debt and slow pace of economic reforms.
In a statement, the US ratings agency cites Hong Kong’s exposure to the mainland for the move. It said:
The downgrade in Hong Kong’s rating reflects Moody’s view that credit trends in China will continue to have a significant impact on Hong Kong’s credit profile due to close and tightening economic, financial and political linkages with the mainland.
In the nearly 20 years since Hong Kong reverted back to Chinese rule, the economic and financial ties between the two have tightened considerably. As Moody’s noted:
Directly, China accounts for more than half Hong Kong’s exports of goods, three quarters of tourist arrivals and 40 per cent of exports of services in general. Indirectly, Hong Kong is a very open economy with exports, the vast proportion of which are re-exports, accounting for nearly 190 per cent of GDP. Combined with China’s rising share in world GDP and global trade, Hong Kong’s very high openness to global trade intensifies the effective economic links between Hong Kong and China.
Financial linkages between Hong Kong and China are broad in nature and large in the size of the assets involved. The Hong Kong banking sector’s exposure to mainland China increased further in the second half of last year. Total mainland-related lending rose to HKD3.6 trillion at the end of 2016, up 3.5 per cent compared with last June, while other non-bank exposures also increased by 11.4 per cent to HKD1.2 trillion.
The US dollar’s downside momentum faded today. While one should not read much into it, it could be an early sign that the market has discounted the recent news stream, which includes the fear that the political turmoil in the Washington will adversely impact the President’s economic program, and the continued above trend growth in the eurozone.
The Fed funds futures continue to discount a strong change of a June Fed hike. Bloomberg puts the odds at 95% of a hike, while the CME’s model says it is about 83% discounted. Our calculation puts it at 81%. A June hike would put the Fed funds target range at 1.00%-1.25%.
Although the two-year note is trading a few basis points through the top of the presumed new range, the odds that the Fed funds target range will be 1.25%-1.50% by the end of the year is also rising slowly. Bloomberg sees a 45% chance, up from about 28% a month ago. The CME sees the odds at 39% compared with about 30% a month ago.
European growth remains above trend and the flash May PMIs today suggest another strong quarter. However, price pressures remain elusive. Prices in the PMI fell for the first time in 15 months. To suggest the ECB could hike rates if it weren’t for the low inflation , is like asking, “Besides that Mrs Lincoln, how was the play?”