Daily Market Color 05/12/2015

Daily Market Color
05/12/2015

Economic Reports & Headlines
Industrial production in the UK came in better than expected for March. MoM: +50bps vs. exp. 0. YoY: +70bps vs. exp. +10bps. According to Econoday.com, only six out of the thirteen reporting subsectors posted gains with pharmaceuticals making the largest contribution to the positive headline reading.

Greece made its 750 million to the International Monetary Fund by using funds from an IMF holding account according to an article from Reuters. The account needs to be refunded in one month.

According to Zerohedge.com overnight recap, there might be an EU referendum for the UK in 2016 instead of 2017 to avoid conflict with German and French elections.

According to Spanish newspaper El Mundo, the IMF signaled to the Eurogroup that it doesn’t want to participate in rescuing Greece.

Trades
The pound continues to rally and hit new highs for 2015 despite a news report indicating that the EU referendum in the UK may arrive sooner than expected. Maybe it was the stronger than expected industrial production report that provided further momentum to the rally. Tomorrow, the Bank of England will issue its quarterly inflation report. This report merits plenty attention and we could see commentary from the bank hinting towards tightening of monetary policy in the UK.

Over in Greece, they effectively defaulted on their IMF payment according to Zerohedge.com and I would have to agree that they did. Funds from an IMF holding account was used to help pay the IMF. If this fund did not exist, then maybe Greece would have missed the payment. IMF paid itself. On June 5th Greece will have to make a 298m euro payment to the IMF. It is unlikely that Greece will be able to make that payment without access to additional bailout funding. The Eurogroup is set to meet again June 18th. An emergency meeting can be called once an accord is reached.

On the domestic front, US 10 year treasury notes have been in a free fall for the past month. I will join the sellers if we receive a non-farm payroll report in June with a 250k headline figure. The Fed is targeting 2% inflation and maximum employment before lifting rates. I suspect that US 10 year treasury notes declined because market participants are expecting rates to start rising. At first, market players were expecting a June rate hike, but now September is the new month of renewed speculation in the Fed’s first rate hike in many years. A 250k June NFP print should accelerate the selling in US treasuries.