Daily Market Color

Stocks Rebound, Dollar Falls as Global Central Banks Hint at Tightening

US stocks rallied back during today’s session, led by gains in bank and tech shares.  Stocks of major banks rose ahead of the Fed’s release of its latest findings from the large bank stress tests this afternoon, where it is expected that many US banks will reveal plans to increase dividends and buybacks, following positive results from the test.  Findings from the first round of testing were released last Thursday, with all 34 banks passing the Fed’s requirements for a third straight year, confirming their ability to handle the effects of a future recession.  The three major stock indices finished 0.65%- 1.4% higher for the session, with financial shares up 1.6%.  US Treasurys staged a modest selloff throughout the day, and the yield on the 10-year note is currently up 1bp to over 2.21%.  The dollar fell 0.4% against major currencies to its lowest level since October, as hawkish commentary from foreign central banks boosted currencies higher.  In a speech to fellow central bankers at a forum in Portugal this morning, Bank of England Governor Mark Carney signaled he may be changing his tune with regard to future reduction/removal of monetary stimulus.  Coming just a week after he told the public that interest rates in the UK should remain at current levels, Carney stated “some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.”  The statement prompted a 1% rise in the pound to $1.295/GBP.  Similarly hawkish comments were given by Bank of Canada Governor Stephen Poloz earlier today, who affirmed that past rate cuts had done their job in supporting the Canadian economy and a tightening may need to be considered.  The Canadian dollar jumped 1.25% following the news.

Economic data releases on the day were limited, highlighted by pending home sales data which displayed a third straight monthly decline of contracts to purchase previously owned homes in the US.  As per the report from the National Association of Realtors, the index of Pending Home Sales fell 0.8% during the month of May, with the number of contracts falling in every region except the Midwest, which was unchanged.  A shortage of inventories and rising home prices continue to be the key factors impacting this data series.  A separate report today from the Energy Information Administration (EIA) displayed crude oil stockpiles in the US increasing by 100,000 barrels last week.  The figure came in above expectations of a 2.5-million-barrel drawdown, but less than yesterday’s reading by the American Petroleum Institute of an 851,000 build, providing support for energy prices.  Both WTI and Brent crude futures rose more than 1.25% during the session to $44.85/barrel and $47.40/barrel, respectively.



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