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Daily Agenda: Markets Brace for June Fed Rate Hike
Yield curve flattens on investor expectations; Japanese growth beats forecasts; LendingClub woes continue; widening fallout from Japanese car-testing scandal.
The U.S. dollar advanced against other major currencies in early trading this morning as markets adjusted to an increased likelihood of a rate-hike announcement by the Federal Reserve during the June meeting of the Federal Open Market Committee. With hawkish Fed leaders discussing multiple benchmark increases in 2016 and underlying fundamentals that remain resilient despite problems abroad, the flattening Treasury yield curve has begun to suggest that portfolio managers are bracing for a change, with yields rising significantly over the past week on the short end. Given this shift in sentiment, the release of the notes from the last FOMC meeting today at 2 P.M. will be carefully parsed by investors seeking to stay ahead of the pack.
Japan avoids recession. Preliminary gross-domestic-product data for Japan released today by the cabinet office surprised to the upside at an annualized 1.7 percent growth rate versus expectation for 0.2 percent. This growth follows a contraction in the final three months of 2015 that was revised down to -1.7 percent in the same report. Despite the promising signals, sustained deflationary pressure and anemic business-investment levels suggest that the unprecedented easing measures put into play by the Bank of Japan have yet to achieve the desired affect on the real economy.
Burberry stock price slides on warnings. For the second time in four weeks, executives at Burberry Group guided profit expectations lower while laying out a plan to revive the venerable brands fortunes by concentrating on fewer products with higher margins. The fashion house, which traces its origins to 1856, has experienced declining revenues as demand in Asia has cooled. Shares of the company declined by more than 2 percent in trading in London.
LendingClub warns of more pain. On Tuesday, shares of LendingClub Corp. sold off sharply following a regulatory filing which revealed a subpoena from the Department of Justice and an investigation by the Securities and Exchange Commission into internal-control measures. The filing also indicated that the company would likely seek to raise capital through a secondary offering. Once the model for the online lending industry, LendingClub has lost more than half of its market capitalization following the announcement that CEO Renaud Laplanche was stepping down following an internal audit.
More fallout from testing scandals for Japans auto industry. On Wednesday Mitsubishi Motors Corp. announced that the automakers president, Tetsuro Aikawa, will leave as the investigation into fraudulent fuel-efficiency testing continues. Separately, Suzuki Motor Corp. announced that the fuel-efficiency testing methods used for more than 2 million cars were deficient, after completing an internal investigation requested by the Transport Ministry of all automotive manufacturers in Japan.
Senate bill opens path to 9/11 suits. On Tuesday, the U.S. Senate passed a bill that clears the way for Americans to bring civil action against countries that played a role in the 9/11 terrorist attacks. President Obama opposes the legislation, suggesting that a veto is likely. Media outlets have reported that the Saudi Arabian government has threatened economic retribution if the legislation is enacted.
Eurozone inflation remains muted. Consumer price inflation data for April released by Eurostat for the common-currency zone on Wednesday registered in line with consensus forecasts as deflationary pressures persist. The headline index contracted by 0.2 percent year-over-year while core prices rose by 0.7 percent versus the same month in 2015. The biggest fall in prices were recorded in Eastern peripheral economies, including a -2.6 year-over-year reading for Romania.
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