Market Roundup
- RBNZ leaves OCR unch at 2.25%, policy to remain accommodative
- NZD/USD +1.3% after RBNZ rate hold
- EUR/USD -0.3%, USD/JPY -0.5%, GBP/USD -0.3%, AUD/USD -0.5%
- DXY +0.28%, DAX -1.2%, Brent -0.7%, Gold -0.3%
- Switzerland May u/adj jobless rate 3.3% vs 3.5% previous
- Germany Apr Trade surplus E24 bln vs revised 23.7 bln, E23 bln exp
- UK Apr Trade Def. Non-EU GBP 2.6 bln vs revised GBP2.863 bln previous, 3.1 bln exp
- UK Apr Trade deficit total GBP 10.52bln vs revised GBP10.64 bln previous, 11.2bln exp
- BoJ DepGov Nakaso – Downside risk from o/seas econs but optimistic on grwth
- ECB Coeure – Greece needs new round of debt relief – Bbg, France 24 TV
- RBNZ further ease possible, one more cut built into projections
- RBNZ many uncertainties, NZD higher than appropriate
- RBNZ’s McDermott – Eyeing Fed, Brexit, China, NZ hot housing mkt closely
Economic Data Preview
- (0830 ET/1230 GMT) New applications for U.S. unemployment benefits likely increased 3,000 to a seasonally adjusted 270,000 for the week ended June 4, while continuing claims for the week ending May 27 is expected to have edged up to 2.171 M from 2.170 M.
- (0830 ET/1230 GMT) Canada's industrial capacity utilization is expected to have slightly increased by 81.3 percent in first quarter, compared to a rise of 81.1 percent in the fourth quarter.
- (0830 ET/1230 GMT) The Statistics Canada is likely to report that new home price index gained 0.2 percent in April, same as the previous month’s reading.
- (0900/1300) Mexico's inflation in the 12 months through May is seen growing to 2.58 percent, up from a 2.54 percent rate in April, while the 12-month core inflation rate was seen rising to 2.93 percent from 2.83 percent in April.
- (1000 ET/1400 GMT) The U.S. Commerce Department is expected to show a gain of 0.1 percent in the wholesale inventories for the month of April, same pace as it rose in March.
- (1030 ET/1430 GMT) The Energy Information Administration reports its Natural Gas Storage for the week ending June 3.
- (1030 ET/1430 GMT) The Bank of Canada will release its review of key risks to the financial system.
Key Events Ahead
- (1115 ET/1515 GMT) Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins will hold a press conference following the release of the financial system review.
- (1145 ET/1545 GMT) FedTrade Operation 30-year Ginnie Mae max $1.400 bln.
FX Beat
USD: The dollar index, against a basket of currencies trades at 93.89, recovering from a low of 93.43 struck earlier in the session.
EUR/USD: The euro rose to a 1-month peak of 1.1415 after the European Central Bank began buying corporate debt for its bond purchase program in order to strengthen the eurozone economy. However, the major failed to sustain gains above the 1.1400 level and retreated from the 1-month peak, partly hurt by declining German Bund yields and growing uncertainty over Britain's June 23 referendum on whether to leave the European Union. The pair trades 0.4 percent lower at 1.1343, after declining as low as 1.1329. On the higher side, resistance is around 1.14265 and any violation above will take the pair to next immediate resistance 1.1450/1.148 (261.8% retracement of 1.13927 and 1.13384)/1.1500 in the short term. The support is located at 1.1320 and break below targets 1.1300/1.1270 (90 4 H EMA).
USD/JPY: The Japanese yen hit a 5-week high against the dollar, amid fading expectations that the Federal Reserve will increase interest rates anytime soon. The yen trades 0.4 percent higher at 106.48, hovering towards sessions low of f 106.25.The short term trend is bullish as long as support 105.50 holds. The major resistance is around 108 and any break above confirms minor trend reversal, a jump till 109/109.55. On the lower side minor support is around 106.25 any break below 106.25 will drag the pair till 105.80/105.50.
GBP/USD: Sterling slumped for the second consecutive session as investors stampede towards safe havens such as the yen and rising concerns that Britain will vote to leave the European Union at a referendum in just two weeks' time. Poll showing increased chance of vote to stay in EU and upbeat trade balance data failed to provide support to the pound. Britain's trade deficit narrowed more than expected in April, with a record monthly growth in goods exports. The deficit in goods alone narrowed to 10.526 billion pounds from 10.646 billion pounds, compared with economists' forecasts of 11.2 billion pounds. Economic data has less impact than normal in the run-up to the vote, with much uncertainty over the June 23 referendum. Sterling declined 0.2 percent to 1.4464, having touched a low of 1.4446. Against the euro, the pound also edged down 0.2 percent to 78.38 pence. The short term trend is weak as long as resistance 1.4750 (200 DMA) holds. Any break above 1.4750 will take the pair till 1.4780/1.4825. The minor resistance is around 1.4670/1.4720. On the lower side any break below 1.4440 will drag it till 1.4350/1.4330.
USD/CHF: The Swiss franc edged down, after rising for four consecutive sessions. The greenback rose 0.2 percent to 0.9617, pulling away from a low of 0.9578 struck earlier in the session. Any break below 0.9580 will drag the pair down till 0.9540/0.9500 in the short –term. On the higher side any break above 0.9650 will take it till 0.9695/0.9745. Overall bearish invalidation is only above 0.9960.
AUD/USD: The Australian dollar slumped after rising to a 5-week high. The Aussie rose to 0.7504, however, it failed to sustain momentum and declined to 0.7420, it was last trading 0.5 percent lower at 0.7431. The major halted its three-day winning streak as it was weighed down by risk-off sentiment among the investors and extended weakness in copper prices. On the higher side, resistance is at 0.7515 and any break above major resistance will take the pair till 0.7570/0.7600. The major support is around 0.7370 and break below will drag it till 0.73200/0.7260.
NZD/USD: The New Zealand dollar rallied about 1.7 percent to a 1-year high of 0.7147 after the Reserve Bank of New Zealand held interest rates steady while retaining an easing bias. The kiwi eased slightly and was last trading 1.2 percent higher at 0.7101. Markets now await U.S. unemployment claims data for further momentum on the major. Immediate resistance is located at 0.7147 (Session High), break above targets 0.7157/0.7179. On the lower side, support is seen at 0.6992 (5-DMA), break below could drag the pair to 0.6944.
Equities Recap
European shares declined for a second straight day, weighed down by wavering risk appetite and underpinning demand for safe-haven German Bunds whose yields hit record lows.
Europe's FTSEurofirst 300 lost 0.9 pct at 1,340.18 points, Germany's DAX slumped 1.2 pct, France's CAC declined 0.8 pct and Britain's FTSE dropped 0.9 pct.
MSCI world equity index declined 0.4 percent to 1,691.84, having scaled to a 6-month high on Wednesday. While MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2 percent after rising by as much as 0.3 percent earlier to a 6-week high.
Tokyo's Nikkei slumped 0.97 pct at 16,668.41, Australia's S&P/ASX 200 index ended flat at 5,369.10 points and South Korea’s Kospi lost 0.36 pct.
Chinese markets remain close for two days in observance of the Dragon Boat Festival.
Commodities Recap
Oil prices edged lower as traders took profits after three sessions of gains, however, prices remained close to 2016 highs supported by a decline in U.S. crude inventories and supply disruptions. International Brent crude oil futures traded at $51.96 a barrel at 1028 GMT, after setting a 2016 high of $52.83 a barrel earlier in the session. U.S. crude fell by 5 cents a barrel to $51.20 after also hitting a new 2016 high at $51.67.
Gold eased from 3-week highs as some buyers cash in gains after the previous day's sharp rally, however, it remained supported by diminishing expectations for a Federal Reserve interest rate hike. Spot gold was trading 0.3 percent lower at $1,258.00 an ounce by 1030 GMT, having reached its highest since May 18 in early trade at $1,266.20 an ounce. U.S. gold futures for June delivery were down $1.50 an ounce at $1,260.80.
Treasuries Recap
US Treasuries climbed as investors were cautious ahead of jobless claims and wholesale inventories data on Thursday, followed by a 30-year Bond auction later in the session. In the near-term we expect Treasuries will likely continue to hold around 1.6 percent mark, looking ahead to the FOMC statement next Wednesday before establishing a clearer direction. As mentioned previously, the degree to which markets have priced-out much of anything from the Fed will likely have a day of reckoning as the outlook policymakers use to make their decisions will be the ultimate trump card. In the early Asian session today, the 10-year US Treasury yield dipped below the 1.70 percent, down 3 basis points for the first time since February. Meanwhile, the yield on the benchmark 10-year Treasury note fell near to 3 basis points to 1.680 percent mark and the yield on short-term 2-year Treasury note dipped 1 basis point to 0.775 percent by 11:25 GMT.
The 10-year UK gilt yield slipped to 1.22 percent about half a basis point below its previous all-time intraday low in February, following the Eurozone benchmark German bunds.
Eurozone government bonds strengthened on Thursday, helped by the European Central Bank’s aggressive bond buying and negative rates, as well as a cautious tone from the US Federal Reserve. Also, rising political risks in Europe shifted investors towards safe-haven assets. Also, investors preferred to buy safe-haven assets after China’s weak CPI data portrayed that the world’s second largest economy continues to battle weak demand. On the contrary, crude oil prices scaled beyond the $51 mark in the Asian session, which limited the fall in bund yields. The benchmark German 10-year bonds yield fell more than 1 basis point to 0.047 percent, French 10-year bunds yield dipped 2 basis point to 0.402 percent, Irish 10-year bonds yield moved down 3 basis points to 0.750 percent, Italian equivalents inched lower 3 basis points to 1.290 percent, Netherlands 10-year bonds yield down 2 basis point at 0.260 percent, Portuguese 10-year bonds yield tumbled 2-1/2 basis points to 3.065 percent, Spanish 10-year bonds yield slid 3-1/2 basis points to 1.405 percent and British 10-year bonds yield ticked down 1 basis point to 1.243 percent by 09:45 GMT.
German 10-year bund yields continue to hover at record low after testing its 2015 low of 0.05 percent on Tuesday, are likely to test zero soon as the 10-year US Treasury yield finally breaks through 1.70 percent mark and fell to 1.67 percent for the first time since February in Asian session today, along with lower equity markets. Concerns around the Brexit vote on 23rd June referendum and uncertainty over Fed outcome shifted investors towards safe-haven buying. Also, investors preferred to buy safe-haven assets after China’s weak CPI data portrayed that the world’s second largest economy continues to battle weak demand. On the contrary, crude oil prices scaled beyond the $51 mark in the Asian session, which limited the fall in bund yields. The yield on the benchmark 10-year bonds fell near to 2 basis points to 0.040 percent by 08:50 GMT.
Japanese government bonds gained as investors poured into safe-haven assets after Bank of Japan Deputy Governor Nakaso signalled that the central bank is ready to expand monetary stimulus if needed to hit its inflation target. Also, investors were cautious as Japanese equities slide after yen advanced ahead of BOJ and Fed policy meetings, scheduled next week. The yield on the benchmark 10-year bonds fell 1 basis point to -0.117 percent by 07:30 GMT.
The Australian long-term bonds rallied on Thursday, following US trend as rate hike expectations by the Federal Reserve this summer diminished. The US 10-year treasury yield fell below 1.70 percent mark to 1.6815 percent, as compared to yesterday’s close of 1.707 percent. Also, investors preferred to buy safe-haven assets after China’s weak CPI data portrayed that the world’s second largest economy continues to battle weak demand. The yield on the benchmark 10-year Treasury note fell 6 basis points to 2.109 percent and super-long 15-year bonds yield dipped 6-1/2 basis point to 2.338 percent by 05:50 GMT.
New Zealand government bonds closed modestly firmer after the Reserve Bank of New Zealand (RBNZ) left cash rate unchanged at 2.25 percent for a second straight meeting. On the contrary, crude oil prices scaled beyond the $51 mark in the Asian session, which limited the fall in bond yields. The yield on the benchmark 10-year bonds fell 1/2 basis point to 2.645 percent and the yield on short-term 2-year bond also dipped ½ basis point to 2.180 percent.
