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Daily Briefing – Thursday, May 18, 2017


Financial markets this morning are reacting to a huge US selloff in stocks and dollars following yesterday’s memo release by fired FBI director Comey and increasing calls for the impeachment of President Trump. The VIX jumped 2 points in the space of one session as indexes fell up to 2.6% (Nasdaq) in the worst market crash in 9 months. The worst affected were banking stocks, which at present are exposed to derivatives to the tune of $222 trillion (12 times the US GDP). The situation is casting a shadow over any hopes of further interest rate hikes, with expectations for a June hike down from 90% to 65%. Beyond that, the housing recovery myth took another beating when mortgage applications fell another 4.1% – their worst performance since December; and auto sales have contracted year over year by 3.7% (not as bad as the European figure – 6.8%).


Asian markets overnight also fell the brunt of US turmoil after the Yen rose on risk aversion by 10 pips during the US session. Japan posted a 2.2% increase in Q1 GDP last night – its best performance in 11 years – thanks to an 0.4% growth in domestic demand and an 0.7% growth in residential investment. Exports were up 2.1% in the previous quarter following 3.4% the quarter before. Australia this morning posted a better-than-expected 5.7% unemployment rate with wage growth still at a record low.  Finally, the Philippines posted a less-than-expected 6.4% GDP figure yesterday – the 0.2% drop ascribed to a decrease in government spending since exports had jumped 22.3% during the quarter and agriculture by nearly 5%.


US failures spread contagion even to European stocks, which fell between 2.3% (Italy’s FTSE/MIB) and 0.25% (FTSE) – especially on banking equities. All this despite European data that came in mostly flat with consumer inflation steady at 1.9% (YoY) but construction down. Average earnings in the UK were down but so was unemployment at 4.6%, as June 8 elections appear around the corner. And in France support for Emmanuel’ Macron’s party is increasing ahead of parliamentary elections next month.


Gold is so far the biggest winner – yesterday smashing through the 1250 resistance level and currently testing 1260, as safe-haven assets soar on high volumes. Oil yesterday posted a $1 spike on the EIA’s report of a 1.73mB inventory drawdown – the 6th week in a row of falling stocks. Futures then returned to their previous levels as investors await next week’s OPEC meeting.


Even CISCO’s excellent quarterly earnings report was not enough to beat the political turmoil. In spite of $2.5bn of net income and an EPS of $0.50 on nearly $12bn of sales, shares were down 1.4% on late trading. Today’s report from Alibaba could suffer the same fate, though panic may subside by the end of the US session – especially considering that this is only 1 of 2 markets to which the company reports. Alibaba revenues are expected to jump nearly 50% with earnings per share to increase likewise to 66 cents.


Week’s Events

8:30 AM GMT UK Retail sales
11:30 AM GMT EU: ECB Monetary policy accounts followed at 5PM by a speech from ECB Pres. Draghi
12:30 PM GMT US: Jobless claims & Philadelphia Fed Manufacturing Survey

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