Market Roundup
• US advance April goods trade balance -58b vs -57b in March.
• US monthly home price +0.7% m/m, +6.1% y/y.
• U.S. Markit flash services index down from April (51.2 v 52.8); new orders 51.7 vs 52.2 in April.
• Goldman raises U.S. Q2 GDP to 3% from 2.7% after April advance trade data.
• Fed's Kashkari: negative interest rates 'perverse', could scare people work against policy objectives.
• Fed’s Kaplan: sees two U.S. rate hikes this year, Brexit will weigh on Fed decision.
• EXCLUSIVE-EU launches contingency talks for Brexit vote.
• ECB’s Knot: ECB stimulus reaching its limits.
• ECB’s Praet: CB needs to maintain sub-zero rates.
• Crude oil inventories slump, most since Apr, imports fall; gas stocks soared ahead of summer driving season.
Looking Ahead - Economic Data (GMT)
• 23:30 Japan Reuters Tankan DI May 10.00-previous
• 23:50 Japan Foreign Bond Investment w/e 1121.8b-previous
• 23:50 Japan Foreign Invest JP Stock w/e 71.7b-previous
• 01:30 Australia Capital Expenditure* Q1 forecast -3%, 0.80%-previous
• 01:30 Australia Building Capex* Q1 forecast -3%, 1.20%-previous
• 01:30 Australia Plant/Machinery Capex Q1 forecast -2%, 0.10%- previous
Looking Ahead - Events, Other Releases (GMT)
• 09:15 Singapore- US Federal Reserve St. Louis President James Bullard gives Singapore City Lecture on the U.S. economy and monetary policy before the Official Monetary and Financial Institution Forum
Currency Summaries
EUR/USD is likely to find support at 1.1100 levels and currently trading at 1.1157 levels. The pair has made session high at 1.1168 and hit lows at 1.1127 levels. The euro initially touched lowest level against the dollar in over 10- weeks but quickly pared its losses after euro zone governments on Wednesday offered Greece debt relief in 2018, but left key details for later in a bid to bridge Germany's view that no immediate action was needed and the International Monetary Fund's call for decisions now. The late-night compromise spared the battered European Union the risk of another Greek crisis this year, less than 12 months after Athens was on the brink of ejection from the currency area by rejecting austerity measures and defaulting on an IMF loan. Meanwhile, investors' expectations for a Fed rate hike have risen since last week's minutes from the central bank's April meeting signaled a June increase was firmly on the table, while hawkish remarks from Fed officials this week and some stronger U.S. economic data also ratcheted up bets. The euro was flat against the dollar after dipping slightly to match Tuesday's roughly 10-week low of $1.1127.
GBP/USD is supported in the range of 1.4684 levels and currently trading at 1.4702 levels. It reached session high at 1.4729 and hit low at 1.4684 levels. Sterling edged higher against dollar on Wednesday, bolstered by expectations that Britain may not exit Eurozone after a poll ahead of Britain's European Union membership referendum gave a six-point lead to the "In" camp, and as several bookmakers widened the odds on a Brexit. The Survation telephone poll for online brokerage group IG showed 44 percent of respondents would vote to stay in the EU, compared with 38 percent who would seek to leave. Sterling strengthened to hit high at $1.4730 after the Survation poll, but retreated slightly towards $1.4709 levels. Worries about a Brexit drove the pound down 11 percent on a trade-weighted basis between mid-November and early April, when it hit a 2-1/2-year low. But it has recovered around half of that as investor’s price out chances of a rate cut that some were factoring in if Britain opted to leave.
AUD/USD is supported around 0.7100 levels and currently trading at 0.7200 levels. It hit session high at 0.7218 and made session lows at 0.7171 levels. The Australian dollar hovered near three-month lows on Wednesday on falling iron ore prices and speculation that the Reserve Bank of Australia will ease policy further. The Australian dollar held at $0.7194, steadying from $0.7145 touched on Tuesday, which was its lowest since early March. In his first public remarks since cutting the policy rate rot a record low on May 3, RBA Governor Glenn Stevens commented on Tuesday on uncertainties over the economic transition in China, Australia biggest export market. The remarks gave currency traders an excuse to sell the Aussie on speculation of more RBA easing even though bond markets remained placid. Meanwhile traders are awaiting comments from Fed Chair Janet Yellen on Friday. US rate increases are expected to boost the dollar by driving investment flows into the United States. Rising expectations for rate hikes also have come on the back of a spate of relatively robust economic data, including Tuesday’s stronger-than-expected new home sales figures for April. The Fed last raised its key interest rate in December by quarter of a percentage point to between 0.25 and 0.5 percent.
USD/CAD is supported at 1.2980 levels and is trading at 1.3037 levels. It has made session high at 1.3134 and lows at 1.3025 levels. The Canadian dollar strengthened against its U.S. counterpart on Wednesday as oil rallied and after the Bank of Canada's statement was less dovish than some investors had expected. The Bank of Canada kept interest rates on hold at 0.50 percent on Wednesday, saying the economy would shrink in the second quarter as a result of damage from recent wildfires in Alberta before rebounding later in the year. Oil rose as crude inventories fell more sharply than expected, although some gains were pared as prices approached $50 per barrel. Adding to support for risk-sensitive commodity-linked currencies such as the Canadian dollar, stocks climbed as risk eased that Britain and Greece would leave the European Union, while German business morale improved more than expected in May. Still, the loonie has fallen near 5 percent from its 10-month high of C$1.2461 on May 3, pressured by speculation that the U.S. Federal Reserve will raise interest rates as early as next month
Equities Recap
European equities jumped to a four-week high on Wednesday with banks buoyed by progress on talks towards securing a debt relief deal for Greece, and energy shares rose on the back of a rally in oil.
UK's benchmark FTSE 100 closed up by 0.7 percent, the pan-European FTSEurofirst 300 ended the day up by 1.29 percent, Germany's Dax ended up by 1.5 percent, France’s CAC finished the day up by 1.1 percent.
Wall Street rose robustly for a second straight session on Wednesday, helped by higher oil prices and investors becoming more comfortable with the prospect of an interest rate hike as early as next month.
Dow Jones closed up by 0.81 percent, S&P 500 ended up by 0.69 percent, Nasdaq finished the day up by 0.70 percent.
Treasuries Recap
U.S. Treasury prices fell on Wednesday with short- and medium-dated yields hitting 10-week highs, prompted by a solid advance in Wall Street stock prices and traders booking profits on curve-related positions.
U.S. 10-year Treasury notes were down 3/32 in price for a yield of 1.870 percent, up 1 basis point from on Tuesday.
Commodities Recap
Gold fell to a seven-week low on Wednesday after upbeat U.S. home sales data in the previous session boosted expectations that the Federal Reserve will press ahead with interest rate hikes in the near term.
Spot gold was down 0.2 percent at $1,223.93 an ounce at 3:18 p.m. EDT (1918 GMT), off an earlier low of $1,217.25, the lowest since April 6. U.S. gold futures for June delivery settled down 0.4 percent at $1,223.80 an ounce.
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Oil prices rose about 2 percent on Wednesday after the U.S. government reported a larger-than-expected drop in crude inventories, but profit-taking after the data kept prices below the $50 a barrel level that oil bulls had been hoping for.
Brent settled up $1.13, or 2.3 percent, at $49.74 a barrel. Prices climbed as high as $49.96 in post-settlement trading.
U.S. crude's West Texas Intermediate (WTI) settled 94 cents higher at $49.56, after peaking at $49.62, a seven-month high.
