FOREX News Today

Japan and the BOJ: Japan’s PM Mr Abe has announced a meeting with the press next Wednesday June 1 the expectations are that he could announce the date of a snap election and/or if the much heralded sales tax hike will go ahead next year as planned. In parliament the BOJ’s governor Mr Kuroda repeated that they will add further stimulus if required, that deflation is still not completely behind them and that it would be desirable if the exchange rate moved in a stable manner and reflected the fundamentals. USDJPY remains unmoved just shy of 110 at 109.96.

Eurogroup agree Greek debt relief: As expected the Eurozone and IMF agreed debt relief package for Greece. “On the package of reforms Greece had committed to last summer, we now have full agreement,” said Jeroen Dijsselbloem, the Dutch finance minister who presided over the meeting of finance ministers. Once all 19 eurozone members have formally signed off on the new deal, Greece will get €10.3 billion ($11.48 billion) in fresh loans, which would be given out in several installments. A first slice, of €7.5 billion could come as early as June. “It is an important moment in the long Greek program,” Dijsselbloem said. The IMF warns that Greek debt, which currently stands at 180% of GDP, would shoot to 300% of GDP without debt restructuring.

US New home sales beat estimates with a 16.6% April surge to a 619k expansion-high after big Q1 boosts, just as the median price surged to a $321,100 all-time high after upward Q1 revisions, leaving a robust start to the critical spring season for the housing sector. Inventories slipped 0.4% from a six-year high in March. New home sales are poised for a new quarterly cycle-high in the 560k area in Q2, after a 532k (was 517k) cycle-high in Q1. New home sales have risen 129% from the 273k record-low in February of 2011, alongside smaller cyclical climbs of 45% for pending home sales and 58% for existing home sales from lows in 2010. We saw big cyclical climbs of 145% for housing starts and 118% for permits from lows in 2009, and 151% for new home construction from a low in 2011. We previously saw a 1.7% April existing home sales rise to a 5.45 mln pace, a 6.6% April housing starts bounce to a 1.172 mln pace, and a 3.6% April permits rise to a 1.116 mln rate.

Fedspeak A US Federal Reserve rate hike in June or July wasn’t set in stone, but labor data suggested it was time to pull the trigger, St. Louis Fed President James Bullard told CNBC. “There’s no reason to prejudge June,” Bullard said, adding that the Federal Open Markets Committee would look at the data and decide then. Muddying the waters on the timing of the move, Bullard noted that there was no reason the Fed must hold a press conference in conjunction with a rate hike. A press conference is scheduled to follow the June 14-15 meeting, but one is not scheduled after the July 26-27 meeting. “We can wait until we get to the meeting, see what the latest data says, and try to make a good decision there. I think on the issue of press conferences, we have made many moves over the years without press conferences,” he said.

Main Macro Events Today

• BOC Interest rate Decision: No change in rates is expected in the announcement today, but Governor Poloz could emphasize the caution in the Bank’s cautiously optimistic outlook. Economic data has featured some high-profile disappointments since the April announcement: Exports and manufacturing shipments both fell in February and March. Investment intentions for 2016 showed an expected reduction in spending. And the oil sands production stoppage has tripped the Q2 GDP outlook into negative territory (we see real Q2 GDP falling 0.5%). But it is not all doom and gloom, as the U.S. economy is seeing enough improvement that prospects have firmed for two Fed rate hikes this year, with one possible as soon as June. And oil prices have firmed. We suspect the BoC will still view the ingredients as being present for the expected recovery. Recent data will be deemed consistent with an economy undergoing a difficult rebalancing, with Federal government stimulus seen providing a key lift later this year. We see the announcement as remaining consistent with an extended period of steady policy while they maintaining that they have the room to implement further accommodation if needed.

• German IFO:  The Ifo Business Climate reading for May should benefit from robust orders inflows and ongoing strong consumer demand, which already helped to lift the current conditions reading in the ZEW yesterday. We are looking for a rise in the overall reading to 106.8 from 106.6. However, the significant negative surprise in the ZEW headline number yesterday (it was less than half of expectations) highlights downside risks.

Janne Muta

Chief Market Analyst

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