FOREX News Today

FX Update: The dollar has trader softer today, which has driven EURUSD to a one-week peak at 1.1213 and USDJPY to a two-week low at 108.83, although some yen outperformance was a factor in the latter. The yen rallied with as the mood in most stocks markets in Asia remained cautious, while currency strength in turn exacerbated losses on the Tokyo Stock Exchange. The Nikkei 225 underperformed the region notably with a 2.3% loss. The longer-than-anticipated delay to the planned sales tax hike, announced by PM Abe yesterday, was held as a yen bullish view by some, though this shouldn’t affect BoJ policy considerations given disinflationary pressures and with the central bank holding two of the “three arrows” in the Abenomics stimulus plan. A Reuters survey two weeks ago found a strong consensus favouring the BoJ to expand policy by July, via the QQE program and possibly by a deepening of NIRP. Two big external events are approaching, the first being the ECB’s June policy meeting today, and the next being the release of the May U.S. payrolls report tomorrow. The former is not likely to be a market shaker as the central bank is an affirmed wait-and-see stance. The latter will be looked to in context of Fed tightening possibility at the upcoming FOMC on June 14th-15th. The general view at the moment is that after indifferent U.S. data this week, and given Brexit vote in the UK on June 23, the Fed will delay the decision until the FOMC in July.

European Outlook: Oil prices are under pressure and the front end WTI future below USD 49 per barrel ahead of the OPEC meeting. U.K. stock futures are posting small gains, but U.S. futures are also down and leads remain supportive for European bond futures, which already moved higher yesterday, with Gilt futures outperforming. Bund traders were cautious ahead of today’s ECB meeting, with Draghi unlikely to strengthen the dovish message at the moment and instead focus on putting further pressure on governments to implement reforms to complement the accommodative policy.

Poor Global manufacturing PMI’s: Although U.S. data revealed encouraging May gains in the ISM, to 51.3 from 50.8, and in vehicle sales, which we now peg at a 17.6 mln rate from 17.3 mln in April. Unfortunately, we also saw an April pull-back in construction spending after upwardly-revised Q1 gains that lowered GDP growth prospects on net, though we now assume a Q1 GDP boost to 0.9% from 0.8%. The April construction drop likely reflects some give-back of a winter weather-boost, and we still assume a solid spring-season for housing given April strength in pending, new and existing home sales. The PMI data from Asia and Europe was also weak with on the UK showing a move forward.

Canada Q1 GDP disappoints: Disappointing but not Disastrous: Canada’s 2.4% real Q1 GDP gain undershot relative to expectations. While the 0.2% m/m drop in March GDP left a poor hand-off for Q2 GDP, a contraction had already been factored in for that quarter due to the halt in oil production. Hence, Q1 and March GDP do not alter the underlying growth story for Canada in 2016, although the Q1 performance does suggest and even longer path back to sustainable growth than had been previously assumed. The longer wait implies an even more drawn out period of time at currently accommodative rates from the Bank of Canada.

Main Macro Events Today

• ECB Meeting & Press Conference  The central bank is widely expected to keep policy on hold at today’s council meeting, leaving the focus on Draghi’s press conference and the updated set of staff projections. We don’t expect a big change to the inflation forecasts, but the growth forecast for this year could be lifted after stronger than expected first quarter growth numbers. Draghi’s overall message though is likely to be the same as the last time around: The ECB is firmly in “wait-and-see” mode and focused on implementing the measures already announced, with the corporate bond purchase program starting this month. The ECB leaves the door to further easing open, but is unlikely to step up the dovish message, as council members increasingly shift the focus to the need for government action and structural forms to complement the ECB’s accommodative policy stance and help lift long term growth potential.

• BOE’s Governor Carney speech The new GBP five pound note is being unveiled and the Governor is due to speak, Brexit will inevitably be raised with reporters hanging on to any reference for policy implications.

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FOREX News Today

Sterling remains under pressure on new Brexit polls that showed a swing in support for the Leave campaign. The FT’s Brexit poll tracker is now showing 46% in favour of Remain and 43% in favour of Leave, versus respective figures of 46% and 41% that were being shown yesterday morning (London time). Bookmaker Ladbrokes are now reporting 75% of all Brexit bets are in favour of the UK remaining in the EU, down from 79% seen yesterday morning and off from the 81% level seen at the end of last week. At the same time in Japan PM Abe announced a two-plus year delay in the planned sales tax hike (which had been scheduled for April next year), raising concerns about fiscal sustainability although a widely anticipated move.

China’s manufacturing PMI was unchanged in May at 50.1, while the Caixin/Markit index slipped to 49.2 from 49.4. Those numbers are disappointing and could leave a bearish tone in equities. Though the manufacturing PMI is above the 50 expansion-contraction mark for a 3rd straight month, it’s been on a softening trend since mid 2014 and will add to worries over a growth slowdown. The non-manufacturing PMI slipped to 53.1 from 53.5. Also, the Caixin manufacturing PMI dipped to 49.2 from 49.4. That’s where it was a year ago. It’s a 15th consecutive month in contraction.

Switzerland’s economy expanded sluggishly in the Q1 2016 as government spending fell for the first time in 12 months. The slowdown to 0.1 % followed a period of expansion of 0.4% in the last quarter of 2015 and was less than the 0.3 % growth that economists forecasted. The report published by the State Secretariat for Economic Affairs in Bern also showed that government spending dropped 0.8 %.

Atlanta Fed’s GDPNow estimate remained at 2.9% for Q2 unchanged from the last reading on May 26 after taking the measure of the personal income report this morning: “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.9 percent on May 31, unchanged from May 26. The second-quarter forecast for real consumer spending growth remained at 3.6 percent after this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis.” See the Atlanta Fed GDPNow website for more insight.

Yesterday’s US reports revealed a hefty 1.0% April surge for consumption that beat estimates and dominated the day’s headlines, alongside a largely expected 0.4% April income rise, and disappointing May declines for the Chicago PMI to 49.3 from 50.4, for the Dallas Fed index to -20.8 from -13.9, and for consumer confidence to 92.6 from 94.7 (was 94.2). The big April spending surge lifted our Q2 GDP forecast to 2.6% from 2.0%, with a solid 3.47% (was 2.3%) Q2 growth clip for real consumption. Output is rebounding in Q2 as we approach the end of the inventory headwind, despite the day’s ugly confidence and sentiment setbacks for May.

• Euro Area Manufacturing PMI: Eurozone Manufacturing PMI numbers for May are out today and are expected to be confirmed unchanged at 51.5. Manufacturing PMI has fallen from 53.2 to 51.5 in 2016.

• UK Manufacturing PMI: While UK manufacturing PMI high in 2015 was 55.5 the current numbers are considerably lower. Today’s release is expected to confirm the number at 49.6 which would be an improvement from April’s disappointing number of 49.2.

• US Fed’s Beige Book: Fed’s Beige Book for the month of May is published today. Markets look forward to this publication in order to gain insights on Fed’s thinking process in terms of the future interest rates policy.

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

FX News Today

European Outlook: Asian stock markets are mostly higher and U.S. and European stock futures also remain underpinned. This should keep pressure on Bund futures, which moved sideways in after hour trade yesterday after a declining sharply during the main session. Gilt futures could underperform in catch up trade, after yesterday’s holiday. The European calendar is again very busy, with German retail sales at the start of the session, followed by German and EMU unemployment data. The focus will be on the next set of preliminary May inflation numbers from France, Italy and for the Eurozone as a whole. After the higher than expected German number we see Eurozone HICP lifting out of negative territory to 0.0% y/y (med -0.1%) from -0.2% y/y, thus backing the ECB’s wait and see stance ahead of Thursday’s council meeting.

Japanese sales tax announcement: As Japanese housing starts rise the most in 10 months with a 9.0% y/y rise compared to expectations of only 3.9% all eyes are on PM Abe and the expected announcement in the sales tax hike that was due next year. Mr Yamaguchi (the coalition partner of the PM) is due to speak with the press later today. Mr Abe met with his with Finance Minister Mr Aso (who opposes the postponement of the sales tax) yesterday in a bid to rearranged summer elections for support of the sales tax deferment. The “will they wouldn’t they” has helped the continued easing of the yen with USDJPY trading at 111.28 and GBPJPY 163.26.

Australian Data: A poll by Bloomberg of 27 economists has raised Australian Q1 GDP to 0.8% from 0.6%.  Exports fared much better than expected and building approvals were significantly better than expected coming in at 3.0% whilst expectations were for a 3.1% decline.  Balance of payments missed expectations but private sector credit held up and was a slight improvement net at 0.5% from last month’s 0.4%. The AUD has reacted positively to the raft of good news with the AUDUSD rallying to the 0.7250 handle, next stop the Daily 200 DMA at 0.7260.

Fedspeak:  St Louis Fed’s Bullard did not comment on policy or the economy in the text of his rather academic talk on “Incomplete Credit Markets and Monetary Policy with Heterogeneous Labor Supply,” at a Bank of Korea event. In Q&A, however, the voting president confirmed his desire that policy remains dependent on the data. Hence he said he’d like to reserve judgement on the June 14, 15 outcome, especially as there are a lot of key numbers on the immediate horizon. He was mildely encouraged by the revised GDP number on Friday, where growth was bumped up to 0.8% from 0.5%. The global markets should be well prepared for a possible hike. We suspect Bullard will vote for a rate increase next month if the data don’t disappointing.

Main Macro Events Today

• EURO Area CPI We are looking for Eurozone headline inflation to lift to 0.0% y/y  from -0.2% y/y in the previous month. German data yesterday came in a tad higher than originally expected, confirming that the drop back last month was largely due to base effects connected to the earlier timing of Easter this year, which saw holiday related prices peaking in March, rather than April and thus added to the variation over the March/April period. In any case, expectations for a gradual rise in the headline rate remain intact and with the ECB firmly in wait and see stance and focused on implementing the measures already announced, the HICP rate this month will not have much of a bearing on the discussion on Thursday.

• US Consumer Confidence  May consumer confidence is out on Tuesday and should reveal an increase to 95.0 (median 96.0) from 94.2 in April and 96.1 in March. This compares the already released Michigan Sentiment data for the month which revealed a headline increase to 95.8 from 89.0 last month and the IBD/TIPP poll which increased to 48.7 from 46.3.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.