Europe Roundup: Sterling rebounds after polls show "remain" camp in lead, oil hits 2016 high on reducing supply, European shares gain - Tuesday, June 7th, 2016

Market Roundup

• Clinton reaches magic numbers in fight for Democratic nomination
   
• Japan MoF gauges bank appetite for neg rate lending
   
• Japan Apr Coincident indicator +2.0m/m vs +0.5m/m previous
   
• Japan Apr Leading indicator +1.4 vs -0.5 previous
   
• China May FX reserves $3.19tn vs 3.22 previous, $3.20 exp
   
• PBOC Sets Yuan Mid-Point at 6.5618 / Dlr Vs Last Close 6.5642
   
• PBOC Injects 50bln Yuan through 7-Day Reverse Repos – Traders
   
• Australia's central bank (RBA) stands pat, neutral tone lifts Aussie
   
• RBA keeps cash rate at record low 1.75 pct
   
• RBA: Steady policy consistent with sustainable growth
   
• All potential euro zone members fail accession criteria-ECB
   
• Euro Zone Q1 GDP revised 0.6%q/q vs 0.5% previous, 0.5% exp
   
• Euro Zone Q1 GDP revised 1.7%y/y vs 1.5% previous, 1.5% exp
   
• German April Industrial output 0.8% vs -1.3% previous, 0.7% exp
   
• Polish president to present CHF FX loan proposal at 1500GMT
   
• UK May BRC Retail sales +0.5%y/y vs -0.9% previous
   
• UK May Halifax house prices +0.6%m/m vs -0.8% previous, 0.3% exp
   
• UK May Halifax house prices 3(m)y/y 9.2% vs 9.2% previous, 8.9% exp
   
• 52% of Brits want to stay in EU vs 40% leave ‘among full sample’ – ORB poll for Telegraph
   
• Betting indicates 72% probability of UK voting to stay in EU-Betfair
   

Economic Data Ahead

• (0830 ET/1230 GMT) The U.S. Labor Department is likely to report that nonfarm productivity edged up to -0.6 percent in the first quarter, from a slump of -1.0 percent in the previous quarter.
   
• (0830 ET/1230 GMT) The U.S. Labor Department will release labor costs report for the first quarter. The indicator is expected to nudge down to 4.0 percent from previous 4.1 percent. 
   
• (0830 ET/1230 GMT) Chile's central bank is likely to report a trade surplus of $433.50 million in the month May, after posting a surplus of $556.0 million in April.
   
• (1000 ET/1400 GMT) Canada's pace of purchasing activity is expected to have picked up in May, however, at a slower pace than April’s reading. The seasonally adjusted Ivey Purchasing Managers Index likely rose to 51.5 in May compared to a gain to 53.1 in March.
   
• (1500 ET/1900 GMT) The U.S. Federal Reserve is expected to report that consumer credit declined to $18 billion in April from $29.67 billion in March.
   
• (1630 ET/2030 GMT) API reports its weekly crude oil stock.
   

Key Events Ahead

• (1145 ET/1545 GMT) FedTrade Operation 15-year Fannie Mae / Freddie Mac, max $600mn.
   
• (1230 ET/1630 GMT) FedTrade Operation 30-year Ginnie Mae, max $1.400bn.

FX Beat

USD: The dollar index, against a basket of currencies stood lower at 93.98, trading not far from 4-week lows after Federal Reserve Chair Janet Yellen did not specify whether the Fed will raise rates in near-term.

EUR/USD: The euro edged down to 1.1343, moving away from Monday's nearly 1-month high of 1.1393. The major weakened despite eurozone posting an upbeat gross domestic product report. Eurozone's first quarter gross domestic product s.a. rose 1.7 percent y/y, surpassing market consensus and previous 1.5 percent y/y. On the higher side major resistance is around 1.1400 and any indicative break above targets 1.1435/1.1500 level. The short term trend is slightly bullish as long as support 1.1300 holds. Any break below 1.1350 will drag the pair down till 1.1320/1.1300/1.1265. The short term bullish invalidation is only below 1.11000.

USD/JPY: The Japanese yen extend losses against the dollar, trading 0.1 percent lower at 107.73. The greenback rose to an early high of 107.90, just short of 108.00 level and well away from Monday's low of 106.35, its weakest in a month. The pair faces major resistance at 108 and any break above confirms minor trend reversal, a jump till 109/109.55. On the lower side minor support is around 106.80 any break below 106.80 will drag it till 106.35/105.50. Further weakness is only below 105.50 (200 W MA).

GBP/USD: Sterling rebounded against the euro and dollar after two polls showed a narrow lead to the "Remain" camp ahead of the June 23 referendum on Britain's European Union membership. Support for the "Remain" campaign had a one-point lead in both an online YouGov survey published for The Times newspaper and an ORB telephone poll. Sterling trades 1 percent higher at 1.4580, having touched an early high of 1.4656, pulling away from a 3-week low of 1.4351 hit on Monday. The short term trend is weak as long as resistance 1.4750 (200 DMA) holds. Any break  above 1.47500 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 1.4550 will drag it till 1.4500/1.4440/1.4350.  Against the euro, the pound was trading 0.8 percent higher at 77.94 pence.

USD/CHF: The Swiss franc rose for the third consecutive session against the dollar. It trades 0.4 percent higher at 0.9656, hovering towards an early high of 0.9644. The greenback weakened on dovish Yellen tone and upbeat Swiss forex reserve data. The Swiss national bank reported that the forex reserves increased to 602.063 bln sfr for the month of May versus 587.879 bln sfr in April. The major support is around 0.9645 (90 W EMA) and any break below will drag the pair down till 0.9600/0.9540 level. On the higher side resistance is around 0.9740 and any break above targets 0.9800/0.9/0.9960.

AUD/USD: The Australian dollar advanced 1 percent after the Reserve Bank of Australia kept interest rates on hold and appeared to raise the bar for further monetary easing. The central bank kept the cash rate on hold at a record low 1.75 percent at its monthly review, after cutting last month for the first time in a year. The Aussie trades 1.1 percent higher at 0.7451, it’s highest since May 6. On the higher side, the pair faces resistance at 0.7450 and any break above major resistance will take it till 0.7515/0.7570. The major support is around 0.7370 and break below will drag it till 0.73200/0.7260.

NZD/USD: The New Zealand dollar rose following a rally in oil prices. The kiwi trades 0.5 percent higher at 0.6956, hovering towards an high of 0.6963, it’s highest since May 3. Markets focus will now remain on RBNZ policy meeting scheduled later in the week. Immediate resistance is located at 0.6983 (Apr-21 High), break above targets 0.6990/0.7000. On the lower side, support is seen at 0.6892 (Session Low).

Equities Recap

European shares gained as a dovish tone from Janet Yellen reduced near-term U.S. rate hike expectations.

Europe's FTSEurofirst 300 was up 1 pct in early trades, Germany's DAX rose 0.7 pct, France's CAC 40 gained 0.6 pct and Britain's FTSE 100 added 0.4 pct.

Tokyo's Nikkei gained 0.58 pct at 16,675.45, Australia's S&P/ASX 200 index nudged up 0.11 pct at 5,366.10 points and MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.5 percent.

Shanghai composite index and CSI300 index both gained 0.1 pct at 2,936.04 and 3,177.05 points, respectively. Hong Kong’s Hang Seng index added 1.4 pct at 21,328.24 points.

Commodities Recap

Oil prices rose to their highest in seven months, supported by a weak U.S. dollar and declining Nigerian oil output after a spate of attacks on infrastructure. Brent crude futures were up  at $50.76 a barrel by 1002 GMT, while U.S. crude oil futures were up 14 cents at $49.83 a barrel.

Gold declined but held near 2-week highs as it was underpinned by cautious remarks by Federal Reserve chair Janet Yellen. Spot gold slipped 0.3 percent to $1,241.27 per ounce by 1005 GMT. It touched a two-week high of $1,248.55 on Monday. U.S. gold dipped 0.2 percent to $1,244.40.

Treasuries Recap

US Treasuries traded modestly lower after Federal Reserve chair Janet Yellen painted a relatively upbeat view of the U.S. economy despite the weak May jobs report. Also, firm crude oil prices drove-out investors from safe-haven buying. Markets now look ahead to final non-farm productivity labour costs and consumer credit release on Tuesday, followed by a 3-Year note auction later in the session. Meanwhile, the yield on the benchmark 10-year Treasury note rose more than ½ basis point to 1.732 percent by 11:00 GMT.

The Eurozone government bonds gained as the recent polls showed the outcome of the referendum is too close to call, raising the possibility that Britain might leave the EU after 43 years of membership in the bloc. The benchmark German 10-year bonds yield, which moves inversely to its price fell ½ basis point to 0.081 percent, French 10-year bunds yield dipped 1 basis point to 0.443 percent, Irish 10-year bonds yield moved down 1-1/2 basis points to 0.781 percent, Italian equivalents inched lower 2-1/2 basis points to 1.368 percent, Netherlands 10-year bonds yield remained steady at 0.313 percent, Portuguese 10-year bonds yield tumbled 4 basis points to 3.171 percent, Spanish 10-year bonds yield slid 4-1/2 basis points to 1.485 percent and British 10-year bonds yield hovered at 1.288 percent by 10:00 GMT.

The German 10-year bund yields remained little changed after Federal Reserve Chair Janet Yellen said US interest rate hikes are likely on the way. Also, benchmark bund continued to hover around 0.08 percent mark after falling to one-year low of 0.06 percent on Monday.

The Japanese government bonds traded nearly flat Monday, succumbing to thin trading activity as investor’s awaited Q1 GDP figure on Wednesday. Moreover, super-long bond gains after 30-year bonds auction. The yield on the benchmark 10-year bonds, which moves inversely to its price stood unchanged at -0.117 percent, yield on super long 30-year bonds fell 1-1/2 basis point to 0.285 percent and the yield on short-term 2-year bonds remained steady at -0.246 percent by 06:40 GMT.

UK gilts slumped by hitting a four-day low after the Treasury Department saw weak demand at a 30-year bonds auction of 1.5 billion pounds. Meanwhile, the yield on the benchmark 10-year gilts rose more than 1 basis point to 1.293 percent by 11:15 GMT.

The Australian government bonds slumped after the Reserve Bank of Australia (RBA) maintained its key interest rate at a record low of 1.75 percent, as expected. The yield on the benchmark 10-year Treasury note, which moves inversely to its price rose more than 5 basis points to 2.208 percent and  short-term 2-year bonds yield jumped 8 basis point to 1.682 percent by 05:45 GMT.