Market Roundup
- GBP/USD -0.11%, USD/JPY -0.55%, EUR/USD -0.02%
- DXY -0.07%, DAX +0.25%, Brent -0.35%, Gold +2.57%
- Switzerland May Retail sales -1.6% y/y vs -1.9% previous
- Switzerland Jun Mfg PMI 51.6 vs 55.8 previous, 55.4 exp
- Germany Jun Mfg PMI 54.5 vs 54.4 previous, 54.4 exp
- EZ june Mfg PMI 52.8 vs 52.6 previous, 52.6 exp
- UK Jun Mfg PMI 52.1 vs 50.1 previous, 49.9 exp
- UK Tory PM race-Leadsom overtakes Gove into 2nd spot with bookies
- Austrian presidential election must be held again-Courts
- Czech Pres. Calls for referendum on EU /NATO aftershock UK Brexit
- BoJ Tankan may be overly optimistic too, most answers in by Jun 2013
- Labor stats aside, Japan data weak – CPI largest drop since Apr 2013
- Mfg PMI showing contraction for fourth straight month
- Japanese large firms see USD/JPY averaging 111.41 – perhaps a stretch
- Japan's GPIF's portfolio lost $50B last fiscal year (source)
- BoJ Tankan June big mfg index +6, non-mfg +19, +4 and +19 eyed
- Japan Jun mfg PMI 48.1, flash 47.8, May final 47.7, 4th straight contraction
- Japan GPIF portfolio losses Y5-5.5 trln fiscal yr ended Mar
- China Jun Caixin mfg PMI 48.6, 49.1 eyed, May 49.2 16th m contraction
- China Jun official services PMI 53.7, May 53.1
Economic Data Ahead
- (1000 ET/1400 GMT) The U.S. Census Bureau is expected to report that construction spending rebounded 0.6 percent in May after declining 1.8 percent in April.
- (1000 ET/1400 GMT) The Institute for Supply Management publishes its national factory activity index for the month of June. The index is likely to have edged up to 51.4 from 51.3 in May.
- (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count.
- (1330 ET/1730 GMT) The U.S. auto sales are likely to have increased 5 percent to a 17.30 million-unit annual pace in June from a year earlier, below the 17.45 million-unit rate recorded for May.
Key Events Ahead
- (1100 ET/1500 GMT) Federal Reserve Bank of Cleveland President Loretta Mester speaks on the economic outlook and monetary policy before the European Economics Financial Centre Distinguished Speakers Seminar, in London.
- (1145 ET/1545 GMT) FedTrade operation 30-year Ginnie Mae (max $1.325 bn).
FX Beat
USD: The dollar index, against a basket of currencies edged down to 95.71, hovering towards a low of 95.62 touched earlier in the session.
EUR/USD: The euro gained after the release of slightly better-than-expected Euro-zone manufacturing PMI numbers. However, the upside was capped after a reported stated that ECB might consider loosening its rules on quantitative easing. Eurozone's Manufacturing PMI for the month of June came in at 52.1 against consensus of 50.2 and previous 50.1. Markets now await U.S. ISM manufacturing PMI for further momentum. The short term trend is slightly bullish as long as support 1.1000 holds. The major resistance is around 1.1188 and any break above 1.1188 will take the pair to next level till 1.1235 (61.8% retracement of 1.14278 and 1.109119)/1.1300. On the lower side any break below 1.100 will drag it till 1.09700 / 1.0900 (161.8% retracement of 1.14155 and 1.0971/1.0834 (61.8% retracement of 1.10852 and 1.09119).
USD/JPY: The Japanese yen gained as the dollar failed to sustain gains above the 103 level. The yen rose largely on the back of upbeat Japanese fundamentals, supported by a decline in oil prices. The greenback trades 0.6 percent lower at 102.55, retreating from a high of 103.39 touched earlier in the session. The short term trend is slightly bearish as long as resistance 103.50 holds. The minor resistance is around 103.50 and any break above confirms minor trend reversal, a jump till 105/105.80 is possible. On the lower side minor support is around 101.40 and any break below 101.40 will drag the pair till 100/98.80/98.
GBP/USD: Sterling weakened on increasing expectations that the Bank of England would ease monetary policy in near-term, to safe-guard the economy from the impact of Brexit. Investors now expect a rate cut and perhaps more quantitative easing in the coming months. Sterling declined to a low of 1.3250, not far from a 31-year low of 1.3122 struck earlier in the week. Against the euro, the pound was trading lower at 83.72 pence, it’s weakest since March 2014. On the higher side major resistance is around 1.3500 and any break above 1.3500 will take the pair till 1.365/1.380/1.4000. On the lower side any break below 1.320 will drag it till 1.3110/ 1.3020.
USD/CHF: The Swiss franc extended gained against the dollar, as markets wary on China-led global economic slowdown following the release of downbeat Chinese manufacturing PMI data. The greenback trades 0.2 percent lower at 0.9736, hovering towards a low of 0.9727 touched in the previous session. The short term trend is bearish as long as resistance 0.9840 holds. On the higher side, any break above 0.9840 will take the pair to next level till 0.99075/0.9960 level. The minor resistance is around 0.9780/0.9800. The major short term support is around 0.9700 and any break below targets 0.9670/ 0.9630/ 0.9580. Overall bullish invalidation is only below 0.9500 level.
AUD/USD: The Australian dollar gained on the back of extended risk-on rally in the global equity markets. The Aussie trades higher at 0.7470, having recovered from an early low of 0.7437. The upside in the major is capped as Chinese manufacturing PMI report disappointed markets and weighed on the investors’ sentiment. On the higher side, resistance is located at 0.7510 and any break above major resistance will take the pair till 0.7580/0.7635. The major support is around 0.7420 and break below will drag it till 0.7370/0.7320/0.7280.
NZD/USD: The New Zealand dollar extended gains, on ebbing Brexit worries and broadly weaker dollar. The Kiwi trades higher at 0.7171, retreating from a low of 0.7118 touched earlier in the session and poised to post second consecutive weekly gains. Immediate resistance is located at 0.7188 level, break above targets 0.7200 level. On the down side, support is seen at 0.7090 (5-DMA), break below could take the pair till 0.7057.
Equities Recap
European shares gained on the back of prospect of further cuts in interest rates, driving bond yields to their lowest in years.
MSCI's broadest index of Asia-Pacific shares outside Japan gained around half a percent.
Europe's FTSEurofirst 300 rose 0.36 pct to 1,307.91 points, Germany's DAX advanced 0.63 pct, France's CAC climbed 0.55 pct and Britain's FTSE 100 gained 0.6 pct.
Tokyo's Nikkei gained 0.68 pct at 15,682.48, Australia's S&P/ASX 200 index edged up 0.12 pct at 5,239.50 points and South Korea's Kospi 200 added 1.01 pct.
Shanghai composite index edged up 0.1 pct at 2,932.48 points and gained 2.7 pct for the week. CSI300 index ended flat at 3,154.20 points and rose 2.5 pct for the week.
Commodities Recap
Oil prices declined below $50 per barrel as renewed signs of an Asian economic slowdown weighed on the gains. Brent crude oil was trading 0.7 percent lower at $49.41 by 1013 GMT, while U.S. West Texas Intermediate crude was down 0.7 percent at $48.01 a barrel.
Gold rose and was on track for its fifth straight weekly gain, despite an increase in risk appetite post the Brexit vote. Spot gold was up 0.9 percent at $1,333.65 an ounce by 1015 GMT and was up more than1 percent for the week so far. U.S. gold rose as high as 1 percent to touch a session high of $1,334.10.
Treasuries Recap
The US Treasury rallied across the curve after Bank of England Governor Carney suggested that he was prepared to deliver fresh stimulus in the wake of the UK Brexit vote. Yields on 10-year and 30-year US Treasuries plunged to 1.382 percent and 2.194 percent, respectively, within striking distance of record lows.
The Eurozone periphery government bonds rallied as both the ECB and Bank of England are looking to adopt accommodative monetary policy platforms and employ greater stimulus measure throughout the European summer to combat the Brexit impact affirmed investor expectations for a prolonged period of easy money. The French 10-year bund yield fell 4 basis points to 0.164 percent, Irish 10-year bonds yield moved down 4 basis points to 0.474 percent, Italian equivalents inched lower 9 basis points to 1.254 percent, Netherlands 10-year bonds yield tumbled 2-1/2 basis points to 0.069 percent and the Spanish 10-year bonds yield slid more than 8 basis points to 1.148 percent.
The UK gilts rallied after Bank of England Governor Mark Carney stated that the economic outlook has worsened and adds explicitly that some monetary policy stimulus will likely be needed over the summer and a Bloomberg report hinted at more European Central Bank easing. The yield on the benchmark 10-year gilts fell nearly 8 basis points to 0.795 percent, yield on super-long 30-year bonds dipped 11 basis points to 1.615 percent.
The German 10-year bund yield traded around the -0.12 percent mark, first rising in response to Treasuries selling off on Wednesday night, and then coming down along with Gilt yields on the BoE signalling a rate cut. The yield on the benchmark 10-year bonds hovered around -0.127 percent, yield on super-long 30-year bonds rose 1 basis point to 0.383 percent and the yield on short-term 2-year note remained steady at -0.646 percent.
The New Zealand 10-year bond yield slid more than thirty four basis points in one week as investors increased bets that the Reserve Bank of New Zealand will lower its cash rate in the coming months from an already record-low 2.25 percent. The yield on benchmark 10-year bond fell 34.5 basis points to 2.350 percent, as compared to 2.695 percent mark on last Friday (today closed down ½ basis points), yield on 7-year note also dipped 32 basis point to 2.065 percent in the same period and the yield on short-term 2-year note also slid 24 basis points to 2.015 percent (today ended lower 1 basis points).
The Japanese bonds gained as consumer prices in Japan remained weak during the month of May, increasing the chances of an easing by the Bank of Japan (BoJ) in its next monetary policy meeting. The yield on the benchmark 10-year bonds fell more than 1 basis points to -0.237 percent, short-term 2-year JGB yield dipped 1-1/2 basis points to -0.314 percent, super-long 40-year bonds tumbled more than 2 basis points to 0.143 percent and the yield on 30-year JGB slid 2-1/2 basis points to 0.117 percent.
The Australian government bonds rallied after the governor of the Bank of England Mark Carney warns that while the central bank is likely to act to help the economy, it will not on its own be able to protect Britain from economic pain. The yield on the benchmark 10-year Treasury note fell nearly 3 basis points to 1.979 percent and the yield on short-term 2-year note dipped 1 basis point to 1.587 percent.
