Market Roundup
- GBP/USD -1.05%, USD/JPY -0.8%, EUR/USD -0.02%
- DXY +0.03%, DAX -0.15%, Iron +2.1%, Brent -2.2%
- Germany Jun Service PMI 53.7 vs 53.2 previous, 53.2 exp
- Eurozone Jun Final Service PMI 52.8 vs 52.4 previous, 52.4 exp
- UK Jun Service PMI 52.3 vs 53.5 previous, 52.7 exp
- EU’s Weber-London in relative chaos
- UK BoE Current outlook for financial stability is challenging
- BoE Some Brexit risks starting to crystallise
- BoE reduces counter cyclical buffers to zero pct
- BoE Lower ccb will reduce capital buffers by 5.7 Bln Stg
- UK Standard Life Inv says suspended trade in its UK real estate fund
- UK turns to private sector for Brexit talks.
- 'Britain seeks consultants to bridge trade negotiator gap with Brussels
- UK Finance ministry says no FX intervention in June
- EZ May retail Sales 1.6% y/y vs 1.4% previous, 1.6% exp
- BoE Gov Carney to kick-off policy easing Tuesday.
- YouGov/CEBR - Pessimism among UK businesses almost doubles after EU vote
- RBA leaves OCR as is at 1.75%, inflation quite low
- RBS Infl to remain low for some time, AUD could complicate economic rebalancing
- Japan GPIF’s stock-heavy portfolio takes hit from Brexit turmoil
- Japan June services PMI 49.4, in contraction, vs May 51.2
- China June Caixin services PMI up to 52.7, 11-month high
- Chinese Premier Li says it’s not easy to achieve 6.7% GDP growth
- China has more room to fine tune monetary policy ibn H2 – China Sec Journal
Economic Data Ahead
- (1000 ET/1400 GMT) The Commerce Department is likely to report that new orders for U.S. factory goods for May declined by 1.0 percent, contradicting to a rise of 1.9 percent in April, the biggest increase in six months.
- (1000 ET/1400 GMT) The Investor's Business Daily (IBD)/ TechnoMetrica Institute of Policy and Politics (TIPP) will release its Economic Optimism for the month of July. The indicator stood at 48.2 in the prior month.
- (1901 ET/2301 GMT) The British Retail Consortium (BRC) will report its Shop Price Index for the month of June. The index posted a decline of 1.8 percent in the previous month.
Key Events Ahead
- (1145 ET/1545 GMT) FedTrade ops 30-yr Fannie Mae/Freddie Mac max $2.125 bln.
- (1430 ET/1830 GMT) Fed President William Dudley is scheduled to participate in a roundtable with the Greater Binghamton Chamber of Commerce.
- N/A The European Commission will propose a simple approval procedure for a planned EU-Canada trade deal in a bid to speed up the adoption of an agreement seen as controversial in many EU capitals.
FX Beat
USD: The dollar index, against a basket of currencies trades edged up to 95.61, hovering towards an early high of 95.70.
EUR/USD: The euro trades flat, after recovering from a low of 1.1119 struck earlier in the session. The major was support by upbeat German and Eurozone Markit Composite and Service PMI data. German Markit composite PMI for the month of June came in at 54.4 while service PMI rose to 53.7. Eurozone's Markit PMI composite stood at 53.1 surpassing expectations of 52.8, while service PMI edged up to 52.8 against consensus of 52.4. The major trades flat at 1.1156, having touched a high of 1.1185 earlier in the session. The short term bearish trend from 1.14278 till 1.09115 will come to an end only if the pair breaks above 1.11880 level. Any break above 1.1188 would take the pair to next immediate resistance 1.1235 (21 day MA and also 61.8% retracement of 1.14279 and 1.0911)/1.13000. On the lower side, the break below 1.1070 (trend line joining 1.09723 and 1.10239)/1.1000/1.0970.
USD/JPY: The greenback slumped, failing to sustain gains above the 102 level. The prevailing Brexit uncertainty continues to weigh on investor sentiment, strengthening safe-haven appeal of the yen. Markets attention now remains on U.S. factory orders and Fed William Dudley’s speech, ahead of FOMC meeting minutes due on Wednesday. The major trades at 101.76 yen, hovering towards sessions low of 101.64. The short term trend is slightly bearish as long as resistance 103.50 holds. The minor resistance is around 103.50 and any break above confirms minor trend reversal, a jump till 105/105.80 is possible. On the lower side minor support is around 101.40 and any break below 101.40 will drag the pair till 100/98.80/98.
GBP/USD: Sterling hit a 31-year low against the dollar and a 2-1/2-year low against the euro, as investors wary on the economic and financial fallout of Britain's vote to leave the EU. The BoE's Financial Policy Committee stated that it would reverse a decision it took in March to increase the amount of capital banks must hold against cyclical upturns in the credit cycle. Data released earlier showed that Britain's Markit services PMI for June declined to 52.3 against consensus 52.7 and previous 53.5. The major trades 1 percent lower at 1.3111, having touched a record low of 1.3100 in the session. Against the euro, the pound trades at 0.8 percent lower at 84.62 pence, its weakest since late October 2013. On the higher side, major resistance is around 1.3235 (7 4H EMA) and any break above 1.3235 will take the pair till 1.330/1.3500. On the lower side any break below 1.310 will drag it till 1.3000.
USD/CHF: The Swiss franc edged down after rising in the previous four-sessions. The greenback initially declined to 0.9684, but it recovered ground to trade 0.1 percent higher at 0.9717. The short term trend is bearish as long as resistance 0.9760 holds. On the higher side, any break above 0.9760 will take the pair to next level till 0.9800/ 0.9840 level. The major short term support is around 0.9670 and any break below targets 0.9630/0.9580. Overall bullish invalidation is only below 0.9500 level.
AUD/USD: The Australian dollar slumped down below the 0.7500 level, after RBA decided to leave the cash rate unchanged at 1.75 percent. The Aussie made a minor recovery from a low of 0.7486, however, the recovery momentum was fragile as global risk aversion strengthened demand for the greenback. The major trades lower at 0.7501, attempting to regain the 0.7500 level. On the higher side, any break above major resistance 0.7550 will take the pair till 0.7580/ 0.7635. The major support is around 0.7420 and break below will drag it till 0.7370/ 0.7320/ 0.7280.
NZD/USD: The New Zealand dollar declined, halting its 5-day consecutive gains streak amid persistent risk-off sentiment. The kiwi trades 0.5 percent lower at 0.7192, hovering towards a low of 0.7187. Markets now await New Zealand's Global Dairy Trade price index release ahead of FOMC minutes due on Wednesday. Immediate support is seen at 0.7166 (5-DMA), while resistance is located at 0.7240 (Previous Session High).
Equities Recap
European shares tumble, with China's data hurting commodity-linked firms and the banking sector weighed down by a near 60-percent decline in Italian bank shares this year.
Europe's FTSEurofirst 300 trades 1.1 pct lower at 1,290 points, Germany's DAX slumped 1.3 pct, France's CAC lost 1.2 pct and Britain's FTSE 100 gained 0.3 pct.
Tokyo's Nikkei declined 0.67 pct at 15,669.33, Australia's S&P/ASX 200 index dropped 1.09 pct at 5,224.00 points and South Korea's Kospi 200 lost 0.26 pct.
Shanghai composite index gained 0.6 pct at 3,006.39 points, while CSI300 index edged up 0.1 pct at 3,207.38 points. Hong Kong’s Hang Seng index slumped 1.5 pct at 20,750.72 points.
Commodities Recap
Oil price declined below $50 a barrel as concern about a potential slowdown in economic growth weighed on investor’s sentiment. Brent crude oil slumped 2.1 percent to $48.99 a barrel at 1012 GMT, having touched a low of $48.83 earlier in the session. However, it is still up more than 80 percent from a 12-year low close to $27 reached in January. U.S. crude was also down 2.2 percent at $47.69 a barrel.
Gold slipped below $1,350 an ounce after rising as much as one percent in the previous session, however, prices were supported by continued uncertainty following Britain's vote to leave the European Union. Spot gold was down 0.4 percent at $1,344.30 an ounce as of 1020 GMT.
Treasuries Recap
The US 10-year Treasuries yield fell to record low of 1.378 percent as global stocks dropped, darkening outlook for the economy gave investors further cause for caution in the wake of the UK’s vote to leave the European Union. Meanwhile, the yield on the benchmark 10-year Treasury note fell 7 basis points to 1.392 percent and the yield on short-term 2-year note dipped 2 basis points to 0.577 percent.
The UK gilts strengthened after data showed that service PMI fell more than expected in June. Also, the Bank of England announced in its financial stability report that they will reduce counter cyclical capital buffer to 0.0 percent from 0.5 percent with immediate effect until June 2017 at the least. The yield on the benchmark 10-year gilts fell nearly 4 basis points to 0.803 percent, yield on super-long 50-year bonds dipped 3 basis points to 1.407 percent and the yield on 30-year bonds slid 2-1/2 basis point to 1.633 percent.
The Switzerland’s government bond yields sunk below zero for the time on rising concern about the outlook for economic growth and inflation. Also, UK vote to leave EU shifted investors towards safe-haven buying. The yield on the benchmark 10-year bond fell 3-1/2 basis points to -0.615 percent, yield on 30-year bonds dipped 1 basis point to -0.084 percent and yield on super-long 50-year bond fell nearly 3 basis points to -0.003 percent.
The Italian government bonds slumped as investors worried that the country could be heading towards a new banking crisis. The yield on the benchmark 10-year bond rose nearly 3 basis points to 1.26 percent and the yield on short-term 2-year note also jumped nearly 3 basis points to -0.075 percent.
The German bunds gained as investors poured into safe-haven instruments amid losses in riskier assets including crude oil and stocks, pushing the yield on 10-year bund to -0.15 percent for the first time since 24 June and likely to test its intraday low of -0.17 percent from that day. The equity market bounce last week may have run its course, but in any case upcoming economic data will increasingly reflect post-UK referendum gloom as already manifested in the drop in the Sentix indicator to a one and half year low. The yield on the benchmark 10-year bond fell nearly 2 basis points to -0.154 percent, yield on super-long 30-year bonds dipped more than 3 basis points to 0.372 percent and the yield on short-term 2-year note slid 1/2 basis point to -0.670 percent.
The Japanese government bonds traded mixed after a solid 10-year auction, while strength in the super long zone shaved the 20-year yield down to a record low. Also, bond prices are expected to trade in a range bound due to thin trading activity during a relatively quiet session that saw little data of much significance. The yield on the benchmark 10-year bonds hovered around -0.242 percent, short-term 2-year JGB yield rose ½ basis point to -0.318 percent, JGB 5-year yield jumped more than 1 basis point to record low of -0.332 percent, super-long 40-year bonds slid more than 1 basis point to 0.097 percent, the yield on 30-year JGB tumbled nearly 2 basis points to 0.069 percent and the yield on 20-year JGB fell nearly 1 basis points to 0.030 percent..
The Australian government bonds continue to rally after the Reserve Bank of Australia (RBA) maintained its key interest rate at a record low of 1.75%, as expected. Also, the reserve bank opted to leave rates on hold at its July meeting, with Australia still in political limbo as the country awaits the outcome of Saturday’s inconclusive election cliffhanger. The yield on the benchmark 10-year Treasury note fell 7 basis points to 1.941 percent and the yield on short-term 2-year note also dipped 1-1/2 basis points to 1.596 percent.
