Vancouver-based Ivanhoe Mines saw shares rise 9.2% today following positive results from an election in Mongolia.
The Canadian company has been trying to develop a large copper project in Mongolia, but efforts have blocked by the Mongolian government’s reluctance to grant permits. Today, a pro-development ruling party gained a parliamentary majority, which could speed up Ivanhoe and partner Rio Tinto’s permit applications.
Equities finished mixed on the day with Dow futures down 0.1%, S&P futures up 0.2%, and Nasdaq futures declining 0.9%. S&Ps had erased early morning losses to gain as much as 12 points at their high, but a late sell-off pared the advance to only 3 points. Today’s trading is likely to have been only a pause as S&Ps head down toward the March 17 low of 1258.
Financials were especially hard hit with Merrill and Citi losing 3% and Lehman plunging 11.3% to close at its lowest level since May-00.
Tomorrow, at 8:55am EDT, Redbook Retail Sales for the week ended June 27 will be released, followed by May Construction Spending at 10am, expected to be down 0.6%. Also at 10:00am, June ISM comes out, with a reading of 48.5 expected. June auto sales will be released throughout the day.
In remarks published today, BoC Governor Mark Carney suggested that more flexibility in monetary policy should be considered in light of the shocks current markets have experienced.
Speaking at the annual conference of the Bank for International Settlements in Switzerland, Carney appeared to muse over policy direction:
* Policy frameworks should be flexible enough to allow the natural adjustment processes in the economy to determine the speed of adjustment to shocks
* Fixed exchange rates or subsidized energy prices make adjustment to economic shocks more costly; such rigidities impose costs on other countries because flexible prices must adjust in an unnecessarily large or rapid way
* In the face of major market shocks, monetary policy depends on both its ability to be flexible and credible
* In principle, monetary policy is built around the notion that it is best for policy to let inflation return to target at different speeds, depending on the type and characteristics of the shocks hitting the economy. In practice that doesn’t happen — the inflation target can’t take the type of shock hitting the markets into account but is forced to respond the same way for every scenario. That adds credibility and stability, but is there another way?
Carney mused that in the increasingly globalized economy, central banks might be better able to adjust to market shocks if they didn’t have to follow rigid inflation targets (as does the BoC), provided that policy is clear and transparent enough to maintain credibility. He suggested that central banks might be better served if they temporarily tolerated inflation outside their target ranges or allowed a more flexible time horizon for bringing inflation to heel.
The BoC has an inflation target set within a range of 1-3% and adjusts interest rates to bring the rate to 2% within a period of 18 to 24 months. Carney pointed out that his remarks had no immediate bearing on the BoC, which is committed to its current target until the end of 2011.
Treasuries closed flat to higher in quiet trade, losing hold of gains made earlier in the session when NAPM-Milwaukee disappointed. Bonds also benefited from equity weakness as shares in LEH dropped to 8yr lows, but equity futures trended higher into the close, sapping fixed income gains.
The 30yr was flat with a yield of 4.528% and the 10yr ended up 2 ticks to yield 3.979%. At the shorter end, the 2yr was up 1 tick, yielding 2.624%. There was massive selling in the 4wk bill, with its yield 16bps higher at 1.53%.
USD issued a mixed performance today with the USD Index gaining 0.1%, led higher by a 0.7% increase in USD/CAD to 1.0181. USD/JPY, down 0.1% to 106.06, is lower for a 5th consecutive day — but is set to close well off its intraday low, which may indicate a near-term reversal. USD/CHF, up 0.12% to 1.0195, is set to finish higher for the first time in 3 days.
Fed fund futures saw little interest on the day and still factor in a 75% chance the Fed will hold the line on rate in August.
Cable is set to finish the day marginally lower at 1.9937, however is well off its intraday low at just under 1.99. Cable may be in for a near-term run at its 200-day moving average (1.9989).
EUR/USD, down 0.27% to 1.5750, remained in negative territory for most of the day despite hawkish comments from a rash of EU officials and a higher-than-expected June Eurozone y-o-y CPI estimate (4%). EUR/GBP fell 0.15% to 0.7905, GBP/JPY fell 0.2% to 211.37 and EUR/JPY fell 0.3% to 167.08.
Ahead of its June auto sales announcement tomorrow, Chrysler said overall sales will be down “significantly.”
Energy futures closed a notch higher today, with Crude just barely holding onto positive territory and Natural Gas leading the field but still unable to break free of recent ranges.
Crude ended the day up 0.1% at $140.34, having earlier peaked at an all-time record of $143.67 on news of an attempted al Qaida attack on a Yemen oil refinery, as well as further attacks on a Shell facility in Nigeria. Later in the day Saudi Arabia’s oil minister blamed speculation, not supply, for recent price spikes, while a senior Saudi engineer raised doubts about supply levels in the long term.
Unleaded crept up 0.01% to 350.15, Heating Oil rose 0.6% to 393.00 and Natural Gas added 1.4% to 13.387. Natural Gas has been stuck in a holding pattern for the last 2 weeks, unable to trade above the 13.455 mark reached on June 19.
Going into tomorrow’s national holiday, CAD’s performance has been dismal despite the upbeat GDP report this morning (up 0.4% compared to the expected 0.3%). The loonie resisted upward pressure from a weaker USD and rising Oil earlier as well, stubbornly trading lower all day on fears of energy-driven inflation taking a bite out of consumer demand.
USD/CAD is currently up 72 pips to 1.0180, down slightly from today’s high at 1.0212. EUR/CAD is up 67 pips at 1.6032.
Bonds sold off some on the GDP data but trading was slow ahead of tomorrow’s Canada Day holiday. Bond markets closed earlier than usual at 2:00pm and will not re-open until Wednesday morning. The Canadian 10yr yield was up 4bps at 3.737%.
Meanwhile, the S&P/TSX ended the day up 100 points at 14,456. It will be closed tomorrow and reopen on Wednesday at 9:00am.
The June ISM Manufacturing Index is expected to fall to 48.6 from 49.6 in May. The May New Orders Index improved to 49.7 from 46.5, the Shipments Index grew to 51.2 from 49.1 and the Employees Index was nearly unchanged at 45.5 in May.
The Prices Paid Index grew to 87 in May from 84.5 in April, the Inventories Index was nearly unchanged at 48, and the Backlogs Index fell to 46 from 51.5 in April.
Muted declines in the ISM Manufacturing Index are expected as the US manufacturing sector remained under stress from credit markets and deteriorating market sentiment figures. The June ISM Manufacturing Index is expected to report a reading below 50 — indicative of contraction — for a 5th consecutive month. Nonetheless the muted ISM Manufacturing data over the past 5 months has been stronger than what is typically associated with recession.
Regional manufacturing data has been mixed with June Chicago PMI coming in better than expected and the Philly FED and Empire State indices each lower than forecast.
Empire FED Index: -8.7 vs. -3.2 prior
Prices Paid: 66.3 vs. 69.6 prior
Prices Received: 26.7 vs. 15.2 prior
New Orders: -5.5 vs. -0.5 prior
Philly Fed Index: -17.1 vs. -15.6 prior
Prices Paid: 69.3 vs. 53.8 prior (Prices Paid at highest since 1980)
Employment: -6.9 vs. -1 prior
New Orders: -12.4 vs. -3.7 prior
Chicago PMI: 49.6 vs. 49.1 prior
New Orders: 52 vs. 56.1 prior
Prices Paid: 85.5 vs. 87.5 prior
Employment: 46.7 vs. 41.2 prior
Metals were mixed with Gold down 0.3% to 928.70, Silver losing 1.2% to 17.495, Platinum up 0.6% to 2075 and Copper up 0.1% to 388.25. Metals were positive in early trade, but slipped as the dollar gained strength.
Gold had a day of consolidation after gaining 5.5% over the past 2 sessions. Like today, the May 22 high of 940 will likely serve as resistance tomorrow.
After closing at its highest level since May 6 on Friday, Copper didn’t give any of those gains back, but didn’t make much progress in its quest to hit the 400 level, either.