Asia Roundup: Yen gains, sterling slumps on rising Brexit worries, Fed likely to stand pat, Asian shares trade lower - Tuesday, June 14th, 2016

Market Roundup

• Japan FinMin Aso – No comment on FX levels, FX stability extremely important, will respond as needed in accordance with G7/20 agreement – Reuters.
   
• EconMin Ishihara – Government closely watching market moves – Reuters.
   
• Japan chipmaking equipment orders -10% in Q2, 1st fall in 3 qtrs - Nikkei.
   
• Templeton’s Hasenstab – Investors underestimate Fed hike, rising inflation risk, JPY to weaken, US Treasuries not as safe as assumed – Reuters.
   
• Australia May NAB biz conditions index steady, +10, confidence off 2 pts, +3.
   
• New Zealand May food price index -0.5% m/m, -0.3% y/y.
   

Economic Data Ahead

• (0300 ET/0700 GMT) Spain May CPI,    +0.6% m/m, -1.0% y/y eyed; last  +0.7%, -1.1%.
   
• (0300 ET/0700 GMT) Spain May HICP,   +0.5% m/m, -1.1% y/y eyed; flash +0.5%, -1.1%.
   
• (0315 ET/0715 GMT) Switzerland May producer/import prices; last +0.3% m/m, -2.4% y/y.
   
• (0330 ET/0730 GMT) Sweden May CPI,    +0.3% m/m, +0.7% y/y eyed; last   unch, +0.8%.
   
• (0330 ET/0730 GMT) Sweden May CPIF,   +0.3% m/m, +1.2% y/y eyed; last   unch, +1.4%.
   
• (0400 ET/0800 GMT) Italy May CPI/HICP final, both +0.3% m/m, -0.3% y/y eyed; flash +0.3%, -0.3%
   
• (0430 ET/0830 GMT) Great Britain May CPI,    +0.3% m/m, +0.4% y/y eyed; last  +0.1%, +0.3%.
   
• (0430 ET/0830 GMT) Great Britain May – core, +0.2% m/m, +1.3% y/y eyed; last   unch, +1.2%.
   
• (0430 ET/0830 GMT) Great Britain May RPI,    +0.3% m/m, +1.4% y/y eyed; last  +0.1%, +1.3%.
   
• (0430 ET/0830 GMT) Great Britain May RPIX; last +0.1% m/m, +1.4% y/y.
   
• (0500 ET/0900 GMT) Eurozone Apr ind production, +0.8% m/m, +1.4% y/y eyed; last -0.8%, +0.2%.
   
• (0500 ET/0900 GMT) Eurozone  Q1  employment; last +0.3% q/q, +1.2% y/y.
   
• (0600 ET/1000 GMT) United States May NFIB business optimism index; last 93.6.
   
• (0830 ET/1230 GMT) United States May retail sales, ex-autos, +0.3%, +0.4% m/m eyed; last +1.3%, +0.8%.
   
• (0830 ET/1230 GMT) United States May import/export prices, +0.7%, +0.3% m/m eyed; last +0.3%, +0.5%.
   
• (1000 ET/1400 GMT) United States Apr business inventories, +0.2% m/m eyed; last +0.4%.
   

Key Events Ahead

• N/A   6th European Financial Congress in Sopot, Poland (till the 15th).
   
• (0300 ET/0700 GMT) European Parliament Brussels economic dialogue with EG Pres Dijsselbloem.
   
• (0440 ET/0840 GMT) Spain E4.5-5.5 bln 6 and 12-month treasury bill auctions.
   
• (0530 ET/0930 GMT) ECB 7-day zero% refi, E50 bln allotment eyed, E50.848 bln maturing.
   
• (0540 ET/0940 GMT) Belgium E1.7-2.1 bln 3 and 12-month treasury certificate auctions.
   
• (0600 ET/1000 GMT) Spain EconMin Guindos at Santander economic conference.
   
• (0700 ET/1100 GMT) Finland, up to E1 bln 0.5% 2026 RFGB auction.
   
• (0730 ET/1130 GMT) BoS speaks in Seville.
   
• (0900 ET/1300 GMT) EC Hill parliamentary testimony in Brussels.
   
• (1200 ET/1600 GMT) Norges Bank Gov Olsen speaks in Trondheim.
   
• N/A   FOMC two-day policy meeting begins.
   
• (1800 ET/2200 GMT) MSCI China A-share inclusion decision.
   

FX Beat

USD: The dollar index, against a basket of six rival currencies, edged up 0.1 percent to 94.49, moving back toward the overnight high of 94.750.

EUR/USD: The euro edged down to 1.1273, having recovered from a low of 1.1232 struck in the previous session. Th major is vulnerable to Brexit threats, which could weaken the eurozone economy. However, it has been aided by safe-haven flows as the euro is considered as a funding currency for bets in riskier assets. Trading was subdued in the major as markets remain cautious ahead of 2-day U.S. Federal Reserve policy meeting. Traders will also closely watch eurozone industrial production figures and employment change data, ahead of U.S. Retail Sales report for further momentum. Immediate resistance is located at 1.1306 (5-DMA), break above could take the pair to 1.1331/1.1342. On the lower side, support is seen at 1.1271, break below targets 1.1256/1.1232.

USD/JPY: The Japanese yen rose for the third straight session, supported by persistent risk-off sentiment across the financial markets. The yen gained 0.2 percent to 105.85, nearing to a 6-week high of 105.73, its strongest level set on May 3. The greenback failed to sustain above the 106 level, after rising to an early high of 106.42 as investors sentiment were hurt by growing Brexit concerns. The demand for the yen will remain strong as markets expect the Fed and BoJ to stand pat at their monetary policy meeting. Risk-aversion market sentiment is likely to remain the key driver for the major ahead of U.S. retail sales data due later in the day. Immediate support is located at 105.73 (Previous Session Low), break below targets 105.54. On the higher side, resistance is seen at 106.42 (Session High), break above will take the pair to 106.61/107.00.

GBP/USD: Sterling continues to weaken on worries Britain may leave the European Union in a referendum less than 9 days away. The major slumped to a 2-month low of 1.4115 on Monday, however, it recovered to close out at 1.4259. Sterling declined 0.5 percent to 1.4181 as betting markets have reduced the chances of the country remaining in the European Union. Immediate support is located at 1.4131 (Apr-18 Low), break below could drag the pair to 1.4090/1.4048. On the higher side, resistance is seen at 1.4266 (Session High), break above targets 1.4290/1.4321. Against the euro, the pound was trading at 0.5 percent lower at 78.54.

AUD/USD: The Australian dollar edged up on the back of upbeat business conditions data. The Aussie trading 0.2 percent higher 0.7400, making another attempt to reclaim 0.74 level. The NAB Business Conditions for the month of May came in at 10 versus prior 10 (revised higher from 9), while confidence nudged lower to 3 against previous 5. The major was also underpinned from the recent rally in base metals’ prices and rising expectations that the Fed will stand pat at it monetary policy meeting this week.  Immediate resistance is located at 0.7411 (5-DMA), break above will take the pair to 0.7437. On the downside, support is seen at 0.7359 (Previous Session Low), break below targets 0.7335/0.7315.

NZD/USD: The New Zealand declined as oil prices slumped further into losses amid risk-aversion sentiment across the markets over the growing possibility of a British exit from the European Union.. The Kiwi trades 0.3 percent lower at 0.7037, hovering towards sessions low of 0.7022. The major weakened after the economy's Food price index for the month of May dropped to -0.5 percent from 0.3 percent in April. Markets now await the U.S. retail sales data, ahead of the FOMC meeting and New Zealand's current account data combined with GDT price index for further momentum on the major. Immediate support is located at 0.7010, break below will drag the pair lower 0.7000 level. On the higher side, resistance is located at 0.7081 (Previous Session High).

Equities Recap

Asian shares slipped as investors remain cautious ahead of the U.S. Federal Reserve's 2-day meeting that begins later in the day amid rising worries this month's referendum in Britain could see it exit the European Union.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent in early trade, after Wall Street declined for the third consecutive session.

Shanghai composite index was flat at 2,835.16 points, while CSI300 traded around 3,069.44 points.

Hong Kong’s Hang Seng was trading 0.1 pct lower at 20,478 points. Taiwan stocks closed up 0.5 pct at 8,576.12 points.

Tokyo's Nikkei edged down 1.00 pct at 15,859.00, Australia's S&P/ASX 200 index lost 1.93 pct at 5,210.10 points and Seoul shares ended down 0.31 pct.

Commodities Recap

Crude oil futures eased for a fourth successive session, as investors paid no attention to the signs of market tightness to focus on concerns over global growth and overnight drop in stocks on the looming vote on Britain's exit from the European Union. Brent crude oil futures slipped below $50 a barrel, declining to $49.82 by 0424 GMT. U.S. crude was down 1 percent, at $48.35 a barrel, down for a fourth day in a row.

Gold edged down after touching a 4-week high in the previous session, as markets focus remains on a 2-day U.S. Federal Reserve meeting that begins later in the day and on Britain's June 23 vote. Spot gold had dropped 0.2 percent to $1,280.40 an ounce by 0428 GMT, having touched a peak of $1,287.0 on Monday, its highest since May 16. U.S. gold edged 0.2 percent lower to $1,285.60

Treasuries Recap

The 10-year U.S. treasuries yield stood at 1.6164 percent, while the 5 year yield was at 1.1314 percent.

Australian government bond futures were steady, with the 3-year bond contract up 1 tick at 98.440. The 10-year contract also edged up 1 tick to 97.9350, having scaled a fresh record peak of 97.9500. The 20-year contract added 0.75 tick to 97.3375. The premium between 10-year and 3-year bonds contracted to 52 basis points, the thinnest in a year.

New Zealand government bonds gained, sending yields 1 basis point lower at the short end of the curve and 2 basis points lower at the long end.

Canadian government bond prices were higher across the maturity curve, with the 2-year price up 2.5 Canadian cents to yield 0.488 percent and the benchmark 10-year advancing 19 Canadian cents to yield 1.112 percent. The 10-year yield hit its lowest level since Feb. 24 at 1.107 percent.