Market Roundup
- Japan PM Abe’s stimulus plan experiencing headline inflation of its own - Nikkei.
- Japan to miss FY ’18 deficit-cutting target on tax hike delay – NHK.
- MoF flow data week-ended July 16 – Japanese buy net Y453.7 bln foreign Stocks, Y1.7181 trln bonds, sell Y72.6 bln bills; foreign investors buy net Y444.6 bln Japanese stocks, sell Y115.7 bln bonds, buy Y676.5 bln bills.
- Japan July flash mfg PMI 49.0, June final 48.1, still sub-50, export demand contraction largest since ’12, export orders sub-index 44.0.
- Orders drop further at Japan’s electronic parts makers – Nikkei.
- Reuters survey – Japan mfg may cut profit targets on post-Brexit JPY surge, 63% of Japan firms want government to intervene in FX to tame JPY.
- Discord between China’s top two leaders spills into the open – WSJ.
- China Prem Li – Economic fundamentals sound, world should step up macro-econ policy coordination, will basically maintain stable exchange rate – Reuters.
- China CIC fund posts negative 2.96% return on overseas investment – Caixin.
- China PBOC Sheng – Tax cuts more effective than rate cuts – Nat’l Biz Daily.
- Foreign CB US debt holdings +$6.027 bln to $3.228 trln July 20 week, Treasury holdings -$887 mln to $2.905 trln, agencies +$5.592 bln to $266.396 bln.
- Lipper – US-based EM debt funds attract most money on record, stock funds post $2.8 bln outflows latest week.
Economic Data Ahead
- (0300 ET/0700 GMT) France Jul PMI mfg – flash, 48.0 eyed; last 48.3.
- (0300 ET/0700 GMT) France Jul PMI services – flash, 49.5 eyed; last 49.9.
- (0300 ET/0700 GMT) France Jul PMI composite – flash, 49.2 eyed; last 49.6.
- (0330 ET/0730 GMT) Germany Jul PMI mfg - flash, 53.5 eyed; last 54.5.
- (0330 ET/0730 GMT) Germany Jul PMI services - flash, 53.2 eyed; last 53.7.
- (0330 ET/0730 GMT) Germany Jul PMI composite – flash, 53.7 eyed; last 54.4.
- (0400 ET/0800 GMT) Eurozone Jul PMI mfg - flash, 52.0 eyed; last 52.8.
- (0400 ET/0800 GMT) Eurozone Jul PMI services - flash, 52.3 eyed; last 52.8.
- (0400 ET/0800 GMT) Eurozone Jul PMI composite – flash, 52.5 eyed; last 53.1.
- (0400 ET/0800 GMT) Italy May industrial orders/sales; last +1.0% m/m/-11.3% y/y, +2.1%/+0.1%.
- (0430 ET/0830 GMT) Great Britain Jul PMI mfg – flash, 50.0 eyed; last 52.1.
- (0430 ET/0830 GMT) Great Britain Jul PMI services – flash, 49.2 eyed; last 52.3.
- (0500 ET/0900 GMT) Italy May retail sales; last +0.1% m/m, -0.5% y/y.
- (0600 ET/1000 GMT) Italy Jun trade balance – non-EU – flash; last E3.26 bln surplus.
- (0945 ET/1345 GMT) United States Jul Markit PMI mfg – flash, 51.6 eyed; last 51.3.
Key Events Ahead
- N/A G20 FinMin/central bankers Chegdu meeting, other attendees (to July 23).
- N/A China Prem Li, World Bank Kim, IMF Lagarde et al Beijing roundtable.
- (0400 ET/0800 GMT) ECB survey of professional forecasters.
- (0600 ET/1000 GMT) UK DMO GBP0.5/2.5/3.0 bln 1/3/6-month treasury bill auctions.
FX Beat
DXY: The dollar index, against a basket of currencies edged down to 96.90, hovering towards a low of 96.73 touched in the previous session.
EUR/USD: The euro nudged up, having recovered from a low 1.0979 on Thursday after European Central Bank stood pat, refraining from any immediate further easing of monetary policy, as expected. The major rose to a high of 1.1059 after Draghi stated that growth and inflation were both moving along the path projected in June and more evidence was needed before any decision. The major trades flat at 1.1027, attempting to extend gains above 1.1000 handle. With the ECB meeting effects fading away, markets now eye Eurozone's preliminary Markit manufacturing and service PMI, ahead of U.S. preliminary Markit manufacturing PMI. Immediate resistance is located at 1.1051 (10-DMA), break above targets 1.1070/1.1100. On the lower side, support is seen at 1.0979 (Previous Session Low), break below could take it till 1.0950
USD/JPY: The Japanese yen retreated from a 6-week low after comments from Bank of Japan Governor Haruhiko Kuroda ruled out the need for helicopter money economic stimulus. However, the gains in the yen were capped as markets expect the BoJ will adopt easing steps at its policy meeting on Friday next week. The greenback hovers below the 106 handle at 105.95, attempting to regain the 106 level. The major will continue to track broad market sentiments and developments surrounding BoJ easing talk amid lack of macro-fundamental data. Immediate support is seen at 105.27 (10-DMA), break below could take it lower 105 handle. On the higher side, resistance is located at 106.53, break above targets 107.00/107.49.
GBP/USD: Sterling consolidates above the 1.3200 handle, after declining on disappointing British retail sales data on Thursday, which strengthened expectations of Bank of England policy easing as early as next month. However, the major found support after Bank of England policymaker Kristin Forbes stated that the central bank should not rush to cut interest rates and wait until more solid data are available. Traders now await preliminary Markit PMI surveys for further insight on the immediate economic reaction to the Brexit vote. Sterling trades 0.1 percent higher at 1.3250, attempting to sustain gains above 1.3200 level. Immediate support is seen at 1.3132 (Jul-15 Low), break below could take it near 1.3000. On the higher side, resistance is located at 1.3314, break above targets 1.3400. Against the euro, the pound trades flat at 83.33 pence.
AUD/USD: The Australian dollar continues to remain under pressure as markets price in a potential Reserve Bank of Australia rate cut on Aug. 2. The Aussie was on course for its biggest weekly fall in 2-1/2 months, weighed downed by speculation that upcoming inflation data could trigger a RBA rate cut and after upbeat U.S. economic data boosted the case of imminent Fed rate hike. The Aussie trades 0.1 percent lower at 0.7482, having touched an early low of 0.7462 and set to shed 1.4 percent for the week, its largest weekly loss since May. Traders now price in a 60 percent probability of a 25 basis point rate cut to 1.50 percent at the next policy review. Immediate support is seen at 0.7450, break below targets 0.7400. On the higher side, resistance is located at 0.7538 (Jul-7 High), break above could take it till 0.7550/0.7575.
NZD/USD: The New Zealand dollar edged up, attempting a minor recovery to sustain gains above the 0.7000 handle. The major halted its 7-day losing streak as the U.S. dollar index reversed lower, however, it is under heavy pressure on expectations that Reserve Bank of New Zealand will ease at its Aug. 11 meeting, The Kiwi trades 0.2 percent higher at 0.7010, pulling away from a 6-week low of 0.6951 touched in the previous session. But it is down 1.8 percent this week, its second consecutive weekly loss. Immediate resistance is located at 0.7039 (5-DMA), break above could take it over 0.7050. On the down side, support is seen at 0.6950, break below targets 0.6900 handle.
Equities Recap
Asian shares slumped after Wall Street's overnight record run was halted by weak corporate results, spurring risk-aversion in the market.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.4 percent, however, it remained close to its 9-month high seen on Thursday.
Tokyo's Nikkei nudged down 1.09 pct at 16,627.25, Australia's S&P/ASX 200 index declined 0.50 pct at 5,485.00 points and Seoul shares ended down 0.02 pct.
Shanghai composite index trades 0.6 percent lower at 3,019.96 points, while CSI300 index slumped 0.5 percent at 3,233.77 points.
Hong Kong’s Hang Seng was trading 0.3 percent lower at 21,924.74 points. Taiwan shares dropped 0.5 pct at 9,013.14 points.
Commodities Recap
Crude oil edged up following a big slump in the previous session, however, the upside was capped as investors reassessed U.S. data underlining the glut in petroleum. Brent crude oil was up 0.1 percent at $46.12 a barrel at 0637 GMT, having closed 2.1 percent lower on Thursday and set for a decline of nearly 3 percent for the week. U.S. West Texas Intermediate crude was also 0.6 percent higher at $44.67 a barrel. The contract dropped 2.2 percent in the previous day.
Gold declined, after rising over one percent in the previous session, as equities dropped on weak corporate results, and the safe-haven metal remained on track for a second straight weekly decline. Spot gold edged down 0.3 percent at $1,326.88 an ounce at 0638 GMT, after rising 1.2 percent on Thursday, and was down about 0.4 percent for the week. U.S. gold was up 0.1 percent at $1,332.80 an ounce.
Treasuries Recap
The 10-year U.S treasury yield stood at 1.5474 percent down by 0.018 bps, while 5-year was 0.01 bps lower at 1.10923 percent.
The Australian government bonds rallied as investors speculate that the Reserve Bank of Australia will lower its official cash rate from prevailing record low in August’s monetary policy meeting. The yield on the benchmark 10-year Treasury note fell 4-1/2 basis points to 1.885 percent and the yield on short-term 2-year note also dipped 3 basis points to 1.511 percent.
New Zealand government bonds gained, sending yields 2 basis points lower at the short end and 2.5 basis points lower at the long end.
Canadian government bond prices were higher across the maturity curve, with the 2-year price rising 6.5 Canadian cents to yield 0.572 percent and the benchmark 10-year added 18 Canadian cents to yield 1.105 percent. The 10-year yield had earlier touched its highest since June 24 at 1.174 percent. The curve steepened as the spread between the 2-year and 10-year yields widened to 53.3 basis points, indicating underperformance for longer-dated maturities.
