Despite a fairly busy macro calendar today, investor focus remains trained on Greece. Crisis fatigue has gone from acute to chronic at this point, and even the contagion factor is beginning to rear its head, as peripheral bond yields head higher in concert with that of Greece.
This is clearly doing little to help risk attitude, and European equity indices are reflecting this in a broad-based sell off, with only the defensive stocks attracting any real interest.
The FTSE is now trading at levels last seen in March, and should we see a close below the 6670 level, may well see additional losses form here in the absence of some capitulation from either Greece or its creditors.
BATS (LONDON:BATS) (1.38%) The cigarette firm is leading the gainers this morning, owing to an upgrade from Credit Suisse (SIX:CSGN), who have cited a 3800p price target. Shares in the company have been out of favour over the past few months, and more recently came under pressure following the ruling by Quebec’s Superior court against Imperial Tobacco. There are clearly concerns amongst investors about the future of the tobacco industry, but with a 4% dividend yield, many will stay the course for now.
Rio Tinto (LONDON:RIO) (-1.5%) Rio shares are reacting to continued doubt cast over the strength of the Chinese steel sector, and with steel prices at their lowest level since April, iron ore prices continue to remain under pressure. With credit ratings on a negative outlook for the firm, Rio is expected to maintain its cost cutting efforts and a more upbeat longer term view on ore prices.
Whitbread (LONDON:WTB); (-1.29%) A solid trading update with total Q1 like-for-like sales up 4.3% and meeting estimates. The company looks to be in a good place, planning £700m of capital investment this year. Whitbread shares have been under pressure since hitting an all-time high in April, but with Alison Brittan starting as CEO earlier than expected and expansion plans afoot for both Premier Inn and Costa, investors may have to look past the weakness in its restaurant sector for now
Sterling has also lost some ground against the dollar, despite headline inflation figures meeting expectations. The core prices failed to match up, seeing a rise of 0.9% against the 1% gain anticipated.
The spectre of the FOMC meeting is also a driver in the pair. While little is expected in terms of policy chance at this juncture, speculation that a more hawkish Yellen will make an appearance is also supporting the greenback.
The Dow futures offer little cheer. We expect to see the index open down 50 points to 17731 today.
Selling pressures in Canadian dollar mount pre-Fed
The heavy 2.1% drop in manufacturing sales in April revived concerns that the economic recovery may not accelerate as the Bank of Canada hoped in the second quarter. The improvement in the US and the cheap Canadian dollar couldn’t bring the factory sales higher than 49.8 billion dollar. The BoC’s optimistic tone certainly needs revision in July policy meeting. The BoC will certainly not rotate aggressively to policy easing; however, Poloz is expected to soften the tone, given that the monetary environment in the G10 remains very much loose. Implied volatility extracted from sovereign bond markets gives no more than 10% probability for a rate cut in July.
Due on Friday, the core inflation is expected to have eased from 2.3% to 2.1% on year to May. Further softening below 2% should bring the possibility of an additional 25 basis point cut back on the table before the end of the year. After rebounding from 1.22 mark on June 10th, USD/CAD consolidates gains before the FOMC verdict. Net speculative future positions summed up to 13,745 short contracts on week to June 9th (source: CFTC). If, as expected, the FOMC strengthens its hawkish tone, the divergence between the BoC and the Fed outlooks should further weigh on the loonie versus the US dollar and bring 1.25 back on radar.
Versus the euro, the loonie’s debasing slows as levels above 200-day moving average (1.40) give good opportunity for top sellers on pending risk of a Greek default.
FOMC verdict
The two day FOMC meeting starts today. The Fed is expected to maintain the status quo; the accompanying statement will be in traders’ focus. Following encouraging macroeconomic data, the expectations for a hawkish Fed has pushed the US 10-years to nine month highs. According to US sovereigns, the probability of the first Fed rate hike is 60% by December, while a September hike is no more ruled out.