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Europe Roundup: Euro off 2-1/2-month low on upbeat Eurozone economic sentiment data, dollar continues to rise on Fed rate hike expectations, European shares hit 1-month highs - Monday, May 30th, 2016

Market Roundup

  • UK and U.S holidays today
     
  • USD/JPY +0.65%, EUR/USD +0.24%, GBP/USD -0.05%
     
  • DXY -0.15%, DAX +0.26%, Brent -0.65%, Iron +0.87%
     
  • Switzerland May KoF Ind. 102.9 vs 102.6 revised previous, 102.8 exp
     
  • Germany Apr Import prices -6.6% y/y vs -5.9% previous -6.2% exp
     
  • EZ May Business Climate vs 0.13 previous, 0.16 exp
     
  • EZ May Econ Sent. Vs 103.9 previous, 104.4 exp
     
  • EZ May Final Cons. Conf. Vs -9.3 previous, -7.0 exp
     
  • Specs turn net long USD for first time in six weeks
     
  • Japan's Abe to delay sales tax hike until 2019: government source
     
  • FinMin Aso – Calls for Lower House elections if tax hike delayed – Kyodo
     
  • LDP VP Komura – Sales tax hike to be delayed 1 ½ years, no snap elections
     
  • ChiefCabSec Suga – PM Abe to decide on sales tax at appropriate time
     
  • Abe cabinet approval climbs to 56% post-G7, Obama Hiroshima visit – Nikkei
     
  • Japan April retail sales -0.8% y/y, -1.2% eyed, still very weak

Economic Data Preview

  • (0830 ET/1230 GMT) The Statistics Canada releases its Raw Material Price Index for the month of April. The index stood at 4.5 percent for March.
     
  • (0830 ET/1230 GMT) The Statistics Canada will release Industrial Product Price data for the month of April. The indicator declined 0.6 percent in the prior month.
     
  • (0830 ET/1230 GMT) The Statistics Canada reports its current account figures for the first quarter. The economy posted a trade deficit of 15.38 billion in the previous quarter.
     
  • (1845 ET/2245 GMT) The Statistics New Zealand releases building permits s.a data for the month of April. The index posted a decline of 9.8 percent in March.
     
  • (1930 ET/2330 GMT) Jobs/applicants ratio released by the Japan Institute of Labor is expected to remain unchanged at 1.3 percent for the month of April.
     
  • (1930 ET/2330 GMT) Japan's overall household spending is expected to decline -1.4 percent in April after slumping -5.3 percent in the month of March.

Key Events Ahead

No Significant Events Ahead

FX Beat

USD: The dollar index, against a basket of currencies stood at 95.69, having touched a 2-month high of 95.76 earlier in the session.

EUR/USD: The euro rose 0.2 percent to 1.1139 on upbeat eurozone economic sentiment figures. Economic sentiment for the month of May was at 104.7 surpassing market expectations 104.4 and previous 104.0 revised. Service sentiments also rose 11.3 against forecasts of 11.0, while industrial and consumer confidence stayed unchanged at -3.6 and -7, respectively.  The immediate resistance is around 1.1157 (21 day MA) and any break above will take the pair till 1.1180/1.12168/1.12450. On the lower side support is around 1.110 and break below will drag the pair down till 1.1050/1.1000.

USD/JPY: The Japanese yen slumped on prospects for delay in Japan's sales tax hike and increasing speculation that the Fed could hike interest rates in near term. The greenback rose to an high of 111.44 and was trading 0.8 percent higher at 111.16. The resistance is around 111.50 and break above will take the pair till 112/112.80. On the lower side major support is around 110.40 and any break below will drag the pair till 110/109.65/109. The major should close below 108 for further weakness.

GBP/USD: Sterling was trading flat at 1.4611, having touched an early high of 1.4630. The major traded between a thin range of 1.4587 -1.4630 as U.K's financial markets were closed in observance Spring Bank Holiday. Cable‘s upside momentum from 1.44450 has been capped at 1.47395 (May 26 High).The pair has been struggling to break May month’s high 1.47696 and also 200 day MA. Any further bullishness only above 1.4770 level. Any indicative break above will take the pair till 1.48500/1.4900 in short term. The minor resistance is around 1.46650 and break above will target next level at 1.4700/1.4740 level. Any violation below 1.4600 will drag the pair down till 1.4550/1.4480 level. Against the euro, the pound trades at 76.20 pence.

USD/CHF: The Swiss franc trades 0.1 percent higher at 0.9927, pulling away from a low of 0.9955 struck earlier in the session. The green back weakened after Swizterland's KoF leading indicator rose 102.9 in the month of May versus market expectations 102.8 and revised 102.6 in April. On the lower side major support is around 0.9870 (10 day MA) and any break below will drag the pair till 0.9835 (200 day MA)0.9780/0.9760 (21 day MA). The immediate resistance is at 0.9960 and break above targets 0.9980/1.000.

AUD/USD: The Australian dollar struggles to make recovery as recent comments from Fed chair Yellen continues to weigh on the Aussies upward momentum. The major trades flat at 0.7183, recovering from a low of 0.7148 struck earlier in the session. The pair is struggling to close above 0.7255 (200 day MA) and any bullishness can be seen only above this level. On the higher side major resistance is around 0.7255 and break above targets 0.7300/0.7336. The major support is around 0.7150 and break below will drag the pair till 0.710/0.7000.

NZD/USD: The New Zealand dollar edged up 0.1 percent to 6.700, pulling away from a low 0.6675 struck earlier in the session. The kiwi made a minor recover, however struggles to extend gains above 0.7200 mark. Immediate resistance is seen at 0.6702, break above targets 0.6740. On the down side, support is seen at 0.6675 (Session Low).

Equities Recap

European shares touched 1-month highs, while the dollar index rose to a 2-month peak after Fed Chair Yellen suggested that an interest rate hike in the United States was imminent.

Trading volumes remained thin as the London and New York markets are closed for a public holiday.

The eurozone's blue-chip Euro STOXX 50 index was 0.1 percent higher, Germany's DAX soared 0.3 percent, hitting a 1-month high and France's CAC edged up.

Tokyo's Nikkei gained 1.39 pct at 17,068.02, Australia's S&P/ASX 200 index edged down 0.02 pct at 5,405.10 points and MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.6 percent.

Shanghai Composite index ended flat at 2,822.45 points, while CSI300 index rose 0.1 pct at 3,066.71 points. Hong Kong’s Hang Seng index added 0.3 pct at 20,629.39 points.

Commodities Recap

Oil prices slipped to around $49 a barrel as Iraq increased its crude exports target ahead of an OPEC meeting while Canadian production was set to restart after huge wildfires. Brent crude futures were at $49.12 a barrel at 1058 GMT, while U.S. West Texas Intermediate crude futures were trading at $49.24 per barrel.

Gold declined below $1,200 mark for the first time since mid-February, as comments from Federal Reserve chief Janet Yellen on the expectations of higher U.S. interest rates strengthened the dollar to 2-month highs. Gold fell as much as 1.1 percent to $1,199.71 an ounce, its lowest since Feb. 17, and was down 0.3 percent at $1,208.52 an ounce by 1056 GMT.

Treasuries Recap

The financial markets are closed in observance of Memorial Day in the U.S. and the Spring Bank Holiday in the U.K.

The European bonds plunged after Federal Reserve Chair Yellen said on Friday that tighter monetary policy in the U.S. is warranted if economic data continue to improve. The benchmark German 10-year bonds yield, which moves inversely to its price rose 3 basis points to 0.171 percent, French 10-year bunds yield climbed 3 basis points to 0.501 percent, Italian equivalents inched up 1 basis point to 1.375 percent, Netherlands 10-year bonds yield jumped 3 basis points to 0.380 percent, Portuguese 10-year bonds yield up 3 basis points to 3.089 percent, Spanish 10-year bonds yield ticked higher 1 basis point to 1.497 percent and Irish 10-year bonds yield rose 3-1/2 basis points to 0.808 percent by 0900 GMT.

The German bunds slumped as investors cooled on safe-haven instruments after Federal Reserve Chief Janet Yellen suggested that an interest rate hike could be around the corner. Also, investors shifted from safe-haven buying on the expectations of firmer May consumer inflation result. The yield on the benchmark 10-year bonds, which moves inversely to its price rose more than 2 basis points to 0.167 percent by 0835 GMT.

The Japanese government bonds traded nearly flat on Monday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. On the other hand, it is likely to slump on hawkish Yellen remarks. The yield on the benchmark 10-year bonds, which moves inversely to its price, hovered at -0.0110 marks and the yield on short-term 2-year bonds rose ½ basis points to -0.229 percent by 0600 GMT.

The Australian bonds slumped after Federal Reserve Chief Janet Yellen suggested that an interest rate hike could be around the corner. The yield on the benchmark 10-year Treasury note which moves inversely to its price rose 2bps to 2.283 percent by 0455 GMT.

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