Market Roundup
- Negative rates push Japanese investors into US Tsys, mortgage bonds
- Japan May service PMI 50.4 vs 49 prev
- Japan April real wages +0.6% y/y, total cash earnings +0.3%
- US Treasury’s Lew: China pause on reforms would have “very bad consequences”
- Fed Evans: Can see rationale for 2 rate hikes this year, exact timing less important
- Evans: Would not be a bad thing to delay rate hikes and raise rates faster later
- Evans: “Will greatly regret” if inflation does not return to 2% during this cycle
- Evans: Moving on ratges in June could work but so could later in the year - BBG
- Evans: Uncertainty over UK’s EU referendum makes policy decision harder
- Reuters poll: Majority of economists forecast RBA will ease by September
- Euro Zone May Markit serv final PMI 53.3 vs 53.1 prev, 53.1 exp
- Euro Zone May Markit comp final PMI 53.1 vs 52.9 prev, 52.9 exp
- Euro Zone Apr Retail sales 0%m/m vs -0.5% prev, 0.3% exp
- Euro Zone Apr Retail sales 1.4%y/y vs 2.1% prev, 1.9% exp
- Buba cuts German GDP forecasts on weaker export demand
- German May Markit services PMI 55.2 vs 55.2 prev, 55.2 exp
- German May Markit comp final PMI 54.5 vs 54.7 prev, 54.7 exp
- Brexit fears loom large for Federal Reserve’s next meeting – FT
- UK May Markit/CIPS service PMI 53.5 vs 52.3 prev, 52.5 exp
- Polish experts mull partial conversion of CHF mortgage loans –Gazeta Wyborcza
- Result of S&P review of its South Africa credit rating expected pre-weekend
Economic Data Ahead
- (0830 ET/1230 GMT) The U.S. Department of Labor is likely to report that non-farm payrolls increased by 164,000 jobs in May after rising 160,000 in April.
- (0830 ET/1230 GMT) United States' unemployment rate is expected to edge down to 4.9 percent in the month of May, from 5.0 percent in the prior month.
- (0830 ET/1230 GMT) United States' average hourly earnings is likely to rise 0.2 percent for the month of May after increasing 0.3 percent in April.
- (0830 ET/1230 GMT) The U.S. commerce department is expected to report that trade deficit have declined to $41.3 billion in April. The trade gap dropped to $40.4 billion in March, the smallest since February 2015.
- (0830 ET/1230 GMT) The statistics Canada releases Canadian trade data for the month of April. The trade deficit is expected to have narrowed to C$2.45 billion in April.
- (0830 ET/1230 GMT) The statistics Canada will release the labor productivity rate of Canadian businesses for the first quarter of the year. Productivity increased by just 0.1 percent in the previous quarter.
- (1000 ET/1400 GMT) The Institute for Supply Management releases its index of non-manufacturing activity for the month of May. The index is expected to have decreased to 55.5 from 55.7 the month before.
- (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count.
Key Events Ahead
- (1230 ET/1630 GMT) Federal Reserve Board Governor Lael Brainard speaks on the economic outlook and monetary policy before the Council on Foreign Relations, in Washington.
- (1500 ET/1900 GMT) Federal Reserve Board of Governors holds an open meeting in Washington.
FX Beat
USD: The dollar index, against a basket currencies edged up to 95.55, hovering towards session high of 95.64 and away from a low of 95.15 touched in the previous session.
EUR/USD: The euro was weigh down by downbeat eurozone retails sales data, despite better-than forecast Markit services and composite PMI. Eurozones's retail sales for the month of April declined to 1.4 percent against market consensus of 1.9 percent and previous 1.8 percent. On annualized basis, it stood at zero percent versus forecast of 0.3 percent gain. Markit’s service and composite PMI surpassed forecasts, rising to 53.1 and 53.3, respectively. The major trades lower at 1.1141, hovering towards sessions low of 1.1136. The short term trend is slightly weak as long as resistance 1.12425 (23rd May high) holds. Any break above 1.112690 will take the pair to next level at 1.13050/1.1350. On the lower side major support is around 1.1100 and break below targets 1.1050/1.1000. The minor support is around 1.1150
USD/JPY: The Japanese yen trades at 108.86 yen against the dollar. The greenback made a recovery after declining to a 2-week low of 108.49. However, it is poised for a loss of 1.6 percent for the week. Markets await U.S. non-farm payroll data for further momentum on the major. Market consensus suggests 164,000 jobs were created in May, but any surprise could hurt the case for a Federal Reserve interest rate hike in near-term. The resistance is around 109.25 (55 H EMA) and break above will take the pair till 109.65/110 (200 HMA). On the lower side any break below 108 will drag the pair till 107.40/106.80.
GBP/USD: Sterling hovered near 2-week lows on growing worries over the June 23 referendum on European Union membership. Better-than-expected services sector data failed to provide momentum to the major. Markit's services activity index rose to 53.5 in May, stronger than the median forecast of 52.5 and previous 52.3. Sterling eased against the dollar to 1.4418, while against the euro, the pound trades at 77.26 pence. Sterling's trade-weighted index was lower at 86.8, not far from a 2-week low of 86.6 struck on Wednesday. The major support is around 1.4378 (50% retracement of 1.40053 and 1.4769) and any break below will drag the pair down till 1.43320 (May 16 Low)/1.4240. On the higher side resistance is around 1.4508 (21 day MA) and break above targets 1.4550/1.4600. Overall bearish invalidation only above 1.4740 (May 26 High).
USD/CHF: The Swiss franc edged down against the dollar, trading 0.1 percent lower at 0.9909, away from a peak of 0.9858 struck in the previous session. Technically major support is around 0.9840 (200 day MA) and any break below will drag the pair down till 0.9787/0.9700/0.9660 level. On the higher side resistance is around 0.9960 and any break above targets 1.000/1.00925/1.0140. Overall bearish invalidation is only above 1.03285.
AUD/USD: The Australian dollar was steady at 0.7236, within reach of a peak of 73 cents touched on Wednesday. The Aussie rose to an early high of 0.7263, pulling away from a low of 0.7201 struck in the previous session. The major is set to end the week on a higher note after following six weeks of losses. The Reserve Bank of Australia holds its policy review on June 7 and markets expected the central bank to keep rates at an all-time low of 1.75 percent. On the higher side resistance is around 0.7300 any break above major resistance will take the pair till 0.7336/0.7380. The major support is around 0.7200 and break below will drag the pair till 0.7180/0.7150.
NZD/USD: The New Zealand dollar trades 0.6 percent higher at 0.6848, hovering towards sessions high of 0.6853. The kiwi was driven higher by oil prices rally combined with recovery in dairy prices and continuing rise in property prices. The major continues to rise and was on course for weekly gains. The Reserve Bank of New Zealand holds its monthly policy review on June 9 and is expected to slash interest rates by 25 basis points from their current record low 2.25 percent. Immediate resistance is seen at 0.6878 (April 11 High), break above targets 0.6891. On the lower side, support is located at 0.6780 (5-DMA), break below could drag the pair to 0.6764.
Equities Recap
European shares rose, but gains were capped as investors were reluctant to take big positions ahead of U.S. non-farm payroll data, which might strengthen the prospects of a near-term interest rate hike by the Federal Reserve.
The MSCI world equity index which tracks shares in 45 countries rose 0.1 percent to its highest level since the last day of May.
Europe's FTSEurofirst 300 rose 0.3 pct, with the STOXX Europe 600 up 0.4 pct. Germany's DAX and France's CAC 40 both gained 0.5 pct and Britain's FTSE 100 advanced 0.9 pct.
Tokyo's Nikkei added 0.48 pct at 16,642.23, Australia's S&P/ASX 200 index climbed 0.74 pct at 5,318.20 points and MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.4 percent, setting it up for a rise of 0.3 percent for the week.
Shanghai composite index ended up 0.5 pct at 2,938.68 points, while CSI300 index advanced 0.7 pct at 3,189.33 points. Both posted weekly gains of more than 4 percent. Hong Kong's Hang Seng index added 0.4 pct at 20,947.24 points and was 1.8 pct for the week.
Commodities Recap
Brent crude prices held around $50 barrel as the OPEC meeting viewed as supportive and on signs that the market was moving back to more balanced supply and demand. Brent crude futures were trading at $50.09 per barrel at 1032 GMT and on track for its fourth weekly gain. U.S. West Texas Intermediate crude futures were up 3 cents at $49.20.
Gold was little changed and was on track for a fifth consecutive weekly decline, as the dollar and Asian stocks held steady. Spot gold was nearly flat at $1,211.64 per ounce at 1046 GMT. It made an early low of $1,206.88 and remained on course for its fifth straight weekly loss. U.S. gold was up 0.1 percent at $1,213.90.
Treasuries Recap
US Treasuries saw a three-day gain as investors waited for the Labor Department’s monthly report, which may offer clues on the timing of an interest-rate increase by the Federal Reserve. Also, dovish comments from Chicago Federal President Evans drove investors towards safe-haven buying. The yield on the benchmark 10-year Treasury note fell 2 basis points to 1.790 percent by 11:25 GMT.
The European bonds traded modestly firmer as investors were wary of making big moves ahead of US jobs report, which could offer hints about the pace of Fed interest-rate hike. Also, slowdown in Chinese PMI boosted trader’s interest in buying safe-haven instruments. The benchmark German 10-year bonds yield, which moves inversely to its price fell 1 basis points to 0.103 percent, French 10-year bunds yield dipped 1 basis point to 0.453 percent, Irish 10-year bonds yield moved down 1-½ basis points to 0.775 percent, Italian equivalents inched lower 1-1/2 basis points to 1.366 percent, Netherlands 10-year bonds yield tumbled 1 basis points to 0.317 percent, Portuguese 10-year bonds yield hovered at 3.174 percent, Spanish 10-year bonds yield remained steady at 1.487 percent and British 10-year bonds yield fell 1/2 basis points to 1.339 percent by 10:00 GMT.
The German bunds traded modestly firmer after the Bundesbank lowered its economic growth and inflation forecast in its June report. Also, investors were cautious ahead of the latest jobs data. The yield on the benchmark 10-year bonds, which moves inversely to its price fell ½ basis point to 0.108 percent, yield on short-term 2-year bonds fell ½ basis points to -0.520 percent and supper-long 30-year bonds yield tumbled more than 1 basis point to 0.798 percent by 09:20 GMT. The Japanese government bonds traded nearly flat as traders awaited U.S. non-farm payrolls later in the day in an attempt to estimate the Fed's likely next step to raise interest rate. The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1 basis point to -0.100 percent, yield on super-long 40-year bonds also dipped ½ basis points to 0.400 percent and short-term 2-year bonds yields hovered at -0.240 percent by 07:00 GMT.
The Australian government bonds rallied as investors were cautious ahead of US payroll report. Also, traders shifted to safe-haven buying after China's May Caixin services PMI eased to three-month low. The yield on the benchmark 10-year Treasury note which moves inversely to its price fell 4 basis point to 2.237 percent and short-term 2-year bonds yield also dipped more than 1 basis point to 1.659 percent by 05:25 GMT.
The New Zealand bonds closed higher to finish off the week as investors were cautious ahead of Reserve Bank of New Zealand's (RBNZ) monetary policy meeting scheduled on June 9. Also, slowdown in Chinese PMI shifted investors towards safe-haven assets. The yields on the benchmark 10-year bonds, which move inversely to their price fell three basis points to 2.635 percent and the yield on short-term 2-year bonds dipped 2-1/2 basis points to 2.090 percent.
