Market Roundup
- Sterling sharply lower again and Cable hits 1.4112 low
- William Hill halves Brexit odds from 3/1 to 6/4
- Leave on 46%, remain 39% - YouGov poll for The Times
- Leave on 49%, remain 48% - ORB poll for Telegraph (those certain to vote)
- Polls show increasing Brexit support; Murdoch's Sun backs 'Leave'
- Brexit top tail risk for global fund managers - BofAML
- GBP/USD -0.65%, USD/JPY -0.3%, EUR/USD -0.64%, AUD/USD -0.60%
- DXY +0.35%, DAX -0.75%, Brent -1.35%, Iron -4.2%, Gold -1.12%
- Switzerland May Prod. Prices -1.2% y/y vs -2.4% previous
- UK May CPI +0.3% y/y vs 0.3% exp, 0.4% previous
- UK May Core CPI +1.2% y/y vs 1.2% previous, 1.2% exp
- UK May Core O/P prices +0.5% y/y vs 0.5% previous, 0.6% exp
- EZ Q1 Employment 1.4% y/y vs 1.2% previous
- EZ Apr Ind. Production 2.0% y/y vs 0.2% previous, 1.4% exp
- Japan FinMin Aso – No comment on FX levels, FX stability extremely important
- EconMin Ishihara – Government closely watching market moves
- Templeton’s Hasenstab – Investors underestimate Fed hike, rising infl. risk
Economic Data Preview
- (0830 ET/1230 GMT) The U.S. retail sales are expected to have increased 0.3 percent in the month of May after rising by 1.3 percent in April. Retail sales excluding automobiles, gasoline, building materials and food services are likely to gain 0.3 percent after increasing by 0.9 percent in April.
- (0830 ET/1230 GMT) The U.S. Labor Department is likely to report that import prices increased 0.7 percent compared with a 0.3 percent gain in April, while growth in export prices is expected to have slowed to 0.3 percent from 0.5 percent in April.
- (1000 ET/1400 GMT) The U.S. Commerce Department releases business inventories data for the month of April. Business inventories are likely to have risen 0.2 percent compared with a 0.4 percent increase in March.
- (1630 ET/2030 GMT) API reports its weekly crude oil stock.
- N/A The statistics Canada releases data on Canadian households' debt-to-income ratio in the first quarter.
Key Events Ahead
- (1145 ET/1545 GMT) FedTrade operation 30-yr Ginnie Mae max $1.175 bln
- (1300 ET/1700 GMT) U.S. Federal Reserve's Federal Open Market Committee begins a two-day meeting on monetary policy.
FX Beat
USD: The dollar index, against a basket of currencies was trading at 94.78, having touched a high of 94.90 earlier in the session.
EUR/USD: The euro declined as low as 1.1208 from a high of 1.1298 on growing worries about a potential British exit from the European Union. The major trades 0.5 percent lower at 1.1224, pulling away from a peak of 1.1415 struck last week. The pair slumped, despite eurozone posting upbeat industrial production and employment change data. Eurozne's industrial production w.d.a. for the month of April came in at 2.0 percent y/y against market consensus 1.3 percent and previous 0.2 percent. While employment change for the first quarter stood at 1.4 percent y/y against previous 1.2 percent y/y. On the higher side resistance is at 1.1325 (4H Kijun-Sen). Any break above targets 1.13650/1.1400 level. The minor support is around 1.1280/1.1300. The support is at 1.1200 and break below targets 1.11670/1.11500/1.1100.
USD/JPY: The Japanese yen surged against the dollar, as the chances of Britain voting next week to leave the European Union increased, pushing investors towards the safe havens. The yen trades 0.3 percent higher at 105.87, having touched a 6-week high of 105.62 earlier in the session. Markets now debate whether the BoJ will take policy steps on Thursday aimed at weakening the currency. The short term trend is weak as long as resistance 108 holds. The minor resistance is around 106.60 (90 H EMA) and any break above confirms minor trend reversal, a jump till 109/109.55. On the lower side minor support is around 105.80 (200 WMA) and any close below 105.80 will drag the pair till 105/103.90.
GBP/USD: Sterling extended losses against the dollar and the euro, after opinion polls showed growing support for Britain leaving the European Union ahead of a referendum next week. According to Betfair, the implied probability of a vote to remain a member of the bloc dropped to around 57 percent , down nearly 20 percentage points from last week. Sterling declined 1 percent to as low as 1.4111, hitting fresh 8-week low. It was last trading 0.6 percent lower at 1.4165. Against the euro, the pound was at 0.1 percent down at 78.20 pence. The short term trend is weak as long as resistance 1.4350 holds. On the higher side minor resistance is around 1.4240 and any break above 1.4240 will take the pair till 1.4280/1.4325/1.4350. On the lower side any break below 1.4100 will drag it till 1.4045/1.4000.
USD/CHF: The Swiss franc edged down against dollar, after rising to a high of 0.9623 earlier in the session. The greenback rose 0.1 to 0.9652, hovering towards a high of 0.9678 touched in the previous session. The short term trend is bullish as long as support 0.9580 holds. On the lower side any break below 0.9580 will drag the pair further down till 0.9550 (78.6% retracement of 0.94439 and 0.99484)/0.94980. The resistance is around 0.9680 (7 day EMA) and any break above targets 0.9760/0.9810 (21 day MA). The major should close above 0.9780 (90 day EMA) for trend reversal.
AUD/USD: The Australian dollar failed to extend gains above the 0.7400 level as investors rushed towards safe-haven assets on risk-aversion sentiment. The Aussie trades 0.6 percent lower at 0.7342, hovering towards session’s low of 0.7330. On the higher side pair is facing resistance at 0.7380 and any break above major resistance will take the pair till 0.7415/0.7450. The major support is around 0.7320 and break below will drag it till 0.7260/0.7205.
NZD/USD: The New Zealand dollar slumped to 0.6996 from 0.7059 due to risk aversion over the growing possibility of British exit from the European Union. The kiwi was weighed down by sell-off in equity markets, bearish tone surrounding oil prices and global risk-off sentiment. The major trades 0.7 percent lower at 0.7007, pulling away from a peak 0.7147 touched last week. Immediate support is located 0.6970 (10-DMA), break below targets 0.6944. On the higher side, resistance is seen at 0.7059 (Session High), break above will take the pair to 0.7081/0.7122.
Equities Recap
European shares slumped for a fifth consecutive session to a new 3-month low, as commodities stocks tumbled around 2 percent and on worries about a potential British exit from the European Union.
Europe's FTSEurofirst 300 slumped 1.0 pct, Germany's DAX skidded 0.7 pct, France's CAC 40 declined 1.3 pct and Britain's FTSE 100 lost 1.2 pct.
Tokyo's Nikkei dropped 1.00 pct to 15,859.00, Australia's S&P/ASX 200 index declined 1.93 pct to 5,210.10 points and South Korea's Kospi 200 nudged down 0.31 pct.
Shanghai composite index and CSI300 index both lost 0.3 pct at 2,842.19 points and 3,075.98 points, respectively. Hong Kong's Hang Seng index dropped 0.6 pct at 20,387.53 points.
Commodities Recap
Oil declined as investor remains cautious over next week's vote on Britain's possible European Union exit. Brent crude oil futures fell by 69 cents to $49.67 a barrel by 1012 GMT, dropping for a fourth consecutive session, while U.S. crude futures lost 77 cents to $48.11 a barrel.
Gold nudged down as investors await for cues from a two-day U.S. Federal Reserve meeting beginning later in the day and a June 23 referendum that will decide whether Britain will stay in the European Union or not. Spot gold was down 0.2 percent at $1,279.85 an ounce as of 1015 GMT, but has gained more than 5 percent this month, touching a peak of $1,287 in the previous session, it’s highest since May 16. U.S. gold declined 0.4 percent to $1,282.30.
Treasuries Recap
The U.S. Treasury complex saw widespread gains, largely finding upward momentum as markets remain concerned about Brexit possibilities, solidified by stronger polling in favor of an exit in recent days. The yield on the benchmark 10-year Treasury note fell 3-1/2 basis points to 1.582 percent (seen marching lower towards 1.50 percent mark) and the yield on short-term 2-year Treasury note dipped nearly 3 basis points to 0.690 percent by 10:55 GMT.
The yield gap, or spread, between 10-year Portuguese bond yields and German peers was at 337 basis points, widest since February when concerns about the global economy rocked financial markets. The Spanish/German yield gap widened as far as 158 basis points, while the Italian/German yield spread moved to 146 basis points. Ireland's 10-year bond yield spread over Germany was also at its widest in almost four months, at around 82 basis points.
UK gilts continue to strengthen as investors have grown increasingly jittery after the recent opinion polls indicated that the momentum is growing for the leave camp. Also, weak consumer inflation reading in May drove investors towards safe-haven buying. The yield on the benchmark 10-year gilts fell more than 5-1/2 basis points to all-time low of 1.156 percent, yield on super-long 30-year bonds dipped more than 4-1/2 basis point to 1.988 percent and the yield on short-term 2-year note tumbled more than 5 basis points to 0.325 percent by 09:10 GMT.
German 10-year bund yields fell below zero for the first time after recent four polls suggested Britain is on course to leave the European Union. Also, weak crude oil prices shifted investors’ interest towards fixed income securities. The yield on the benchmark 10-year bonds, which moves inversely to its price fell nearly 6 basis points to -0.029 percent, yield on super-long 30-year bonds dipped more than 8 basis point to 0.550 percent and the yield on short-term 2-year note tumbled 3-1/2 basis point to -0.582 percent by 09:30 GMT.
New Zealand benchmark 10-year government bond fell to all-time low on Tuesday, following cues from global debt market. Also, investors were cautious ahead of potentially seismic events this month including Britain’s referendum on European Union membership, Bank of Japan and the Federal Reserve meeting. The yield on the benchmark 10-year bonds fell 1-1/2 basis point to 2.505 percent and the yield on short-term 2-year bonds dipped 1 basis point to 2.105 percent.
Australian government bonds rallied as investors wary after recent four polls suggested Britain is on course to leave the European Union. The yield on the benchmark 10-year Treasury note fell more than 3 basis points to 2.078 percent, super-long 15-year bonds yield dipped 3-1/2 basis point to 2.312 percent and the yield on short-term 2-year bond slid nearly 4 basis points to 1.635 percent by 05:25 GMT.
