Europe Roundup: Sterling declines on "Brexit" polls, gold on track for biggest weekly drop in 8-weeks, European shares gain - Friday, May 20th, 2016

Market Roundup

• Cable drops to 1.4551 from 1.4663 Thurs high
   
• EUR/USD +0.12%, GBP/USD -0.35%, USD/JPY +0.31%
   
• DXY +0.01%, DAX +0.77%, Brent +0.16%, Iron +1.35%
   
• Germany Apr Prod. Prices -3.1% y/y vs -3.1% previous, -3.0% exp
   
• EZ Mar C/A surplus NSA E32.3 bln vs 11.2 bln previous


• EZ Mar C/A Surplus SA E27.3 bln vs 19.2 bln previous
   
• EZ Mar Net Inv. Flow E2108 bln vs E110.6 bln previous
   
• UK May CBI Trends Orders -8 vs -11
   
• Japan Fin Min Aso: No opposition from G7 about FX explanation
   
• Aso: Excessive, disorderly fx moves bad for economy
   
• Aso-Committed to avoid competitive ccy devaluation
   
• Aso-Some European countries saying Brexit good in long run
   
• Brexit-YouGov Tweet “EU Referendum bombshell data coming soon”
   
• UK Betfair odds indicate 79% implied probability of a remain vote
   
• Japan LDP lawmakers to propose PM proceed with sales tax hike
   
• Canada PM Trudeau wants Britain to stay in EU
   
• ECB Coeure – No plan to cut depo rat
   
• Coeure- Credit easing to have more impact than  NIRP – MNI
   
• RBA Edwards – Plans to balance Australia federal budget @’21 implausible

Economic Data Ahead
 

• (0830 ET/1230 GMT) The Statistics Canada is likely to report that annual inflation rate rose to 1.7 percent in April from 1.3 percent in March, bringing it closer to the Bank of Canada’s 2 percent target. Core inflation, is expected to be more robust at 2.0 percent.
   
• (0830 ET/1230 GMT) Canada retail sales for March are expected to have declined by 0.6 percent after rising 0.2 percent in February.
   
• (1000 ET/1400 GMT) The National Association of Realtors will release U.S. existing home sales figures for the month of April. The indicator is likely to have increased 1.3 percent to an annual rate of 5.40 million units in April. Re-sales surged 5.1 percent to an annual rate of 5.33 million units in March.
   
• (0900 ET/1300 GMT) Mexican gross domestic product probably grew 0.7 percent in the first three months of 2016, according to a Reuters poll. That would put it above a 0.5 percent rate seen in the fourth quarter of last year. On quarterly basis, the country's statistics institute estimated in April that the economy grew 0.8 percent.


• (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count.
   

Key Events Ahead

• N/A Finance ministers and central bank chiefs from the Group of Seven industrial powers meet in the northeastern Japanese city of Sendai. Delegations hold news conferences as they wrap up the two-day meeting.
   
• (0900/1300) Federal Reserve Board Governor Daniel Tarullo speaks on "Insurance Company Supervision and Regulation" before the National Association of Insurance Commissioners International Insurance Forum 2016, in Washington.
   
• (0945 ET/1345 GMT) FedTrade Ops 15yr Fannie Mae/Freddie Mac max $600 mln.
   
• (1145 ET/1545 GMT) FedTrade Ops 30yr Ginnie Mae max $1.325 bln.
   

FX Beat

USD: The dollar index, against a basket of currencies stood at 95.298, having been as high as 95.502 overnight, a level last seen on March 29. It was up nearly 0.8 percent this week and has risen 2.4 percent in the past three weeks.

EUR/USD: The euro edged up, after declining in the previous three sessions. The major trades 0.1 percent higher at 1.1213, having touched an early high of 1.1227 and away from a low of 1.1179 struck in the previous session. The pair was supported by eurozone's current account data. Eurozone's March current account n.s.a. was at 32.3 billion euros versus previous revised 11.2 billion euros, while current account s.a. stood at 27.3 billion euros. The major resistance is around 1.1235 (55 day H EMA) and break above confirms minor bullishness, a jump till 1.12850/1.13250 is possible. On the lower side major support is around 1.11900 and any break below targets 1.11500/1.1100.

USD/JPY: The Japanese yen declined against teh dollar, trading 0.4 percent lower at 110.40 yen. The greenback rose to a high of 110.44, extending gains above the 110.00 mark and pulling away from an early low of 109.84. Minor weakness can be seen only below 109.50 (4H Kijun-Sen) levels. Any break below 109.50 will drag the pair down till 109/108.80 (21 day MA).The major support is at 108. On the higher side major resistance is around 110.55 and any indicative break above targets 111.30/112.

GBP/USD: Sterling declined from a a 2-week high of 1.4662 after TNS online poll showed the "Out" campaign had 3 pct point lead ahead of Britain's EU referendum. It was also weighed down by dovish comments from a BoE policymaker. Gertjan Vlieghe stated that the central bank needed to provide more stimulus if growth failed to recover as forecast after the referendum. Sterling trades 0.2 percent down at 1.4574, pulling away from a 1.4662 touched in the previous session. On the higher side any break above 1.4670 will take the pair till 1.4700/1.4769. The minor weakness can be seen only below 1.4550 and break below targets 1.4500/1.4450. Against the euro, the pound decline 0.3 percent to 76.93. Sterling's trade-weighted index dropped to 87.4, having hit 87.9 on Thursday, its highest since Feb. 5.

USD/CHF: The Swiss franc edged down against the dollar, trading 0.1 percent lower at 0.9915. The greenback continues to rise, hovering towards a high of 0.9922, hit in the previous session. The short term trend is slightly bullish as long as support 0.9825 holds. On the higher side any break above 0.9900 will take the pair to next level till 0.9950/1.000. The short term trend is reversal only below 0.9500. Any violation below 0.9825 will drag the pair down till 0.9760/0.9680/0.9630. The minor support is around 0.9870.

AUD/USD: The Australian dollar trades flat at 0.7225, having declined on Thursday below 72 cents for the first time since early March. The Aussie touched an early high of 0.7249, however, it is on track for its fourth consecutive weekly loss. The short term trend is slightly bearish as long as resistance 0.7260 (200 day MA) holds. On the higher side major resistance is around 0.7260 and break above targets 0.7300/0.7336. The major support is around 0.7180 and break below will drag the pair till 0.710/0.7000.

NZD/USD: The New Zealand dollar gained 0.2 percent to trade at 0.6757. The kiwi rose to an early high of 0.67766, pulling away from a 8-week low of 0.6710 touched on Thursday. The major was poised to end the week on a lower note after markets speculated that U.S. interest rates could rise as early as June. Immediate resistance is located at 0.6776 (Session High), on the lower side, support is seen at 0.6728 (May-18 Low) and break below could drag the pair to 0.6710.

Equities Recap

European shares rose as risk appetite gradually returned, while the dollar was set for its third straight week of gains.

Europe's FTSEurofirst 300 was up 0.57 pct to 1,317.51 points, UK's FTSE 100 rose 0.96 pct, France's CAC soared 1.0 pct and Germany's DAX gained 0.85 pct.

Tokyo's Nikkei rose 0.54 pct at 16,736.35, Australia's S&P/ASX 200 index gained 0.67 pct at 5,359.20 points and MSCI's broadest index of Asia-Pacific shares outside Japan ended flat on the week.

Shanghai composite index added 0.7 pct at 2,825.48 points, while CSI300 index ended up 0.5 pct at 3,078.22 points. HK’s Hang Seng index rose 0.8 pct at 19,852.20 points.

Commodities Recap

Oil prices edged up as a series of supply outages in Nigeria, Canada and Libya tightened the global oversupply. Global benchmark Brent crude prices were trading at $48.91 a barrel at 1037 GMT, not far off a 6-month high of $49.82 touched on Wednesday. U.S. West Texas Intermediate crude futures traded at $48.59 a barrel, up 43 cents day on day and within touching distance of a 7-month high of $48.95.

Gold gained after two days of losses, however, it was on course for its biggest weekly decline in 8-weeks on the back of a firmer dollar. Spot gold was at $1,256 per ounce at 1041 GMT. The safe-haven metal is down 1.5 percent for the week, its biggest decline since the week ended March 25.

Treasuries Recap

The U.S. Treasuries slid after reading US FOMC April meeting minutes and hawkish comments from Federal Reserve officials strengthened bets of an interest rate hike in June. The yield on the benchmark 10-year Treasury note rose 1bp to 1.859 pct and the yield on the short-term 2-year Treasury bond also climbed 1bp to 0.897 pct by 1050 GMT. Markets now look ahead to existing home sales data to finish off the week.

The European bonds traded mixed on lack of major data or events ahead of the 2-day weekend. Moreover, future course in bond prices is likely to be ruled by the movements in overseas crude oil market. The benchmark German 10-year bonds yield remained steady at 0.173 pct, French 10-year bunds yield stood flat at 0.511 pct, Irish equivalents inched lower 1bp to 0.853 pct, Italian equivalents tumbled 4bps to 1.474 pct, Netherlands 10-year bonds yield hovered at 0.490 pct, Portuguese 10-year bonds yield ticked down 3bps to 3.073 pct, Spanish 10-year bonds yield dipped 3bps to 1.573 pct and British 10-year bonds yield rose 1bp to 1.458 pct by 0940 GMT.

German bunds headed for their first week of declines this month as gains in stocks and commodities reduced demand for the safest assets. Rising speculation that the Federal Reserve is getting ready to raise interest rates also supported the cause. The yield on the benchmark 10-year bunds rose 1bp 0.182 pct by 1125 GMT.

The Japanese government bonds gained after Bank of Japan Governor Kuroda said that the central bank would not hesitate easing monetary policy further if market moves, including a spike in the yen, threatened prospects for achieving its 2 pct inflation target. On the contrary, future course in bond prices are likely to be ruled by the movements in the crude oil market. The yield on the benchmark 10-year bonds fell 2bps to -0.091 pct, yield on 30-years bonds dipped 2bps to 0.337 pct and the yield on short-term 2-year bonds hovered at -0.225 pct by 0617 GMT.

The U.K Gilts plunged as investors cooled on safe-haven assets amid gains in riskier instruments including crude oil and equities. The yield on the benchmark 10-year bonds rose 3bps to 1.470 pct and the yield on short-term 2-year bonds jumped 2bps to 0.459 pct by 1030 GMT.

The Australian government bonds slumped as investors shifted from safe-haven assets amid gains in riskier instruments including crude oil and equities. The yield on the benchmark 10-year Treasury note rose 2bps to 2.324 pct and the yield on the short-term 2-year Treasury bond also climbed 2bps to 1.662 pct by 1100 GMT.