Market Roundup
• US PPI Final demand YY 2.4% v 2.3 forecast, 2.5% -previous.
• US NFIB Business Optimism 104.5, 104.50 - previous.
• US Redbook YY 2.1%, 2.5% forecast.
• Bank of Canada's Poloz: Rate cuts have largely done their work.
• ECB's Smets: Growth should yield more inflation, but yet to see it.
• Germany's Schaeuble: Draghi succession debate harmful.
• ECB'S Lautenschlaeger: Many banks are a bit too relaxed about hard Brexit.
• Macron: Door of the EU remains open as long as Brexit talks are not over.
• Former UK PM Major "wary" about planned deal with N.Irish party.
• Oil prices edge up as Saudis limit exports to Asia, US
Looking Ahead - Economic Data (GMT)
• 22:45 New Zealand Current account - Annual -7.28 bln forecast, -7.11 bln - previous
• 02:00 China Industrial Output YY* 6.3% forecast, 6.5% - previous
• 02:00 China Retail sales YY* 10.6% forecast, 10.7% - previous
• 00:30 Australia Consumer sentiment MM -1.1% - previous
Looking Ahead - Events, Other Releases (GMT)
• 18:30 US Fed announces its decision on interest rates followed by news conference
Currency Summaries
EUR/USD is likely to find support at 1.1165 levels and currently trading at 1.1207 levels. The pair has made session high at 1.1217 and hit lows at 1.1191 levels. Euro struggled for direction against the dollar on Tuesday as investors remained cautious ahead of the U.S. Federal Reserve interest rate decision this week. Traders widely expect the U.S. central bank to increase rates by a notch, a move that could smother demand for high-yielding emerging market assets. But a batch of mixed economic data has cast a shadow on prospects of further hikes, driving the focus to the Fed's post-meeting policy statement. The Fed is scheduled to announce its decision on interest rates at 2 p.m ET (1800 GMT) on Wednesday at the conclusion of its two-day policy meeting. The Fed is widely expected to raise its benchmark interest rate for the second time this year. On the data front, sterlingU.S. producer prices were unchanged in May as energy costs recorded their biggest decline in more than a year, suggesting a moderation in inflation after a rise at the start of the year. The Labor Department said on Tuesday that last month's unchanged reading in its producer price index for final demand followed a 0.5 percent jump in April.
GBP/USD is supported in the range of 1.2637 levels and currently trading at 1.2751 levels. It reached session high at 1.2756 and dropped to session low at 1.2707 levels. Sterling strengthened against the dollar on Tuesday as Sterling was supported by higher inflation numbers which underlined the dangers of the Bank of England tolerating a weakening currency in aid of stimulating the economy. The jump in inflation to its highest in nearly four years in May tightens the squeeze on consumers now facing the added worry of political uncertainty after inconclusive parliamentary elections and the launch of Brexit talks. But it also adds to pressure on the Bank of England, even if it does not raise interest rates over the next three years, to hold off with any more injections of cash into the economy for fear further weakness of the pound and higher inflation. Inflation unexpectedly jumped to 2.9 percent - its highest level in nearly four years in May, muddying further an outlook that shows the UK economy slowing but prices rising much faster than the Bank of England's 2 percent target. In the late US session, sterling was up half a percent on the day against both the dollar and the euro. At $1.2730 and 88.07 pence per euro it is still down around 2 percent since the release of exit polls on Thursday.
USD/CAD is supported at 1.3200 levels and is trading at 1.3232 levels. It has made session high at 1.3248 and lows at 1.3208 levels. The Canadian dollar strengthened to hit two months high against its U.S. counterpart on Tuesday as comments by Bank of Canada Governor Stephen Poloz supported the view that the central bank could raise interest rates sooner than previously thought. Poloz said that the central bank's 2015 interest rate cuts "have largely done their work," signaling that the BOC could raise interest rates sooner than previously thought. Bank of Canada Senior Deputy Governor Carolyn Wilkins said late on Monday that first-quarter growth in the North American country had been "pretty impressive," and that signs economic growth was broadening would lead the central bank to consider whether current low rates would still be required. While many economists had expected the bank to start raising rates in 2018, markets are now pricing in a 72 percent chance of a hike by the end of 2017 following Wilkins's speech. The Canadian dollar was trading at C$1.3228 to the greenback, or 75.60 U.S. cents, up 0.7 percent. The currency's weakest level was C$1.3325, while it touched its strongest since April 13 at C$1.3226.
AUD/USD is supported around 0.7496 levels and currently trading at 0.7539 levels. It hit session high at 0.7541 and made session lows at 0.7521 levels. The Australian dollar flirted with multi-week highs against its U.S. counterpart on Tuesday, even as investors fully expect the Federal Reserve to lift interest rates in a day's time. The Australian dollar rose to $0.7560, from $7542 on Monday. Support was found near $0.7496.The Aussie has bounced 1.7 percent so far this month, partly due to U.S. dollar softness and a resilient economy. Data last week showed Australia's economy grew 0.3 percent in the first quarter to record nearly 26 years without a recession. While the U.S. Fed is considered almost certain to hike rates on Wednesday, the move has long been priced in. Instead, markets have taken account of recent softness in inflation and lengthened the odds on a further move this year.
Equities Recap
A recovery in tech stocks and fresh optimism over troubled Italians banks lifted European shares from seven-week lows on Tuesday. Capita CPI.L led the gains after offering a reassuring outlook.
UK's benchmark FTSE 100 closed down by 0.16 percent, the pan-European FTSEurofirst 300 ended the day up by 0.46 percent, Germany's Dax ended up by 0.57 percent, France’s CAC finished the day up by 0.42 percent.
Wall Street gained on Tuesday, with the Dow hitting an all-time high, as bank shares rose ahead of an expected Federal Reserve interest rate hike and technology stocks bounced back.
Dow Jones closed up by 0.43 percent, S&P 500 ended d up 0.45 percent, Nasdaq finished the day up by 0.72 percent.
Treasuries Recap
Short-dated U.S. Treasury yields briefly hit multi-week highs on Tuesday after new data showed rising U.S. services prices, but the market was barely changed after a strong 30-year debt auction ahead of Wednesday's Federal Reserve decision on interest rates.
U.S. 30-year yields were last at 2.863 percent, compared to 2.868 percent late Monday. Long-dated yields earlier hit 2.886 percent, their highest since June 1.
Benchmark 10-year Treasury yields were last at 2.209 percent, compared to 2.213 percent late Monday.
Commodities Recap
Gold turned slightly higher on Tuesday, as the market awaited signals of future monetary tightening by the U.S. Federal Reserve and a Senate panel's questioning of Attorney General Jeff Sessions about his dealings with Russian officials.
Spot gold was up 0.16 percent at $1,267.10 an ounce by 2:46 p.m. EDT (1846 GMT), after hitting a session low of $1,259.16, its weakest since June 2.
U.S. gold futures for August delivery settled down $0.3, or 0.02 percent, at $1,268.60.
Oil prices edged higher on Tuesday after OPEC detailed supply cuts around the world, but the cartel also said overall production rose in May, and crude stayed well below $50 a barrel despite the modest recovery.
Benchmark Brent crude was 28 cents higher at $48.57 a barrel as of 1:53 p.m. EDT (1753 GMT), while U.S. light crude was up 21 cents to $46.29 a barrel.
