Top Things to Know Today - page 13
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USD Developed A Key Reversal Formation: How To Play It?
USD has developed a key reversal formation, a technical signal suggesting a near-term trend change and USD strength for now. Yesterday morning we warned that the USD decline had entered an unsustainable period by concentrating on low-yielding currencies such as JPY,EUR and CHF pushing global risk appetite lower. Markets started to raise the question concerning the cost of USD weakness carried by currency areas where policy tools to weaken local currencies looked exhausted.
Here, Japan is the most exposed with its deposit-funded banking sector reversing the impact of negative interest rates, turning them into a destructive tool. Switzerland has seen a sharp decline in its money supply expansion and a rise of mortgage rates since the introduction of negative rates.Similar effects have started to emerge in Germany, where bank liabilities are deposit-focused too, thus reducing the cost elasticity of bank balance sheets. Interestingly the EU Commission has revised its inflation forecasts drastically lower
....We suggest being long USD against commodity and EM currencies and will look to close any of our long risk positions in our portfolio.
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EUR/USD: Pair Defends $1.14, Eyes on US Labor Market
The most traded pair in the world, EUR/USD, was seen hovering slightly above the $1.14 mark during the Frankfurt session on Friday, unchanged on the day, with investors off the market until the US labor market report later in the day.
Some disappointing labor market figures came out on Wednesday, when the ADP report showed that 156,000 new jobs were created in the US private sector in April, following a revised 194,000 a month before. The gauge was expected to show 195,000 new jobs in the reported month.
However, the greenback did not decline after this number as the focus shifted toward the payrolls number due today.
The payrolls number is expected to moderate to 200,000 from 215,000, while the unemployment rate should stay at 5.0%. Furthermore, average hourly earnings will be of major importance and are projected to stay at March levels.
"It is important to note that despite the markets fixation on the jobs numbers which have been consistently positive for the last eighteen months that the primary focus has shifted away from the jobs data and more towards the second pillar of the Fed’s mandate which is prices. The main focus in recent months has been on inflation and wages," Michael Hewson, chief market analyst at CMC Markets UK, said on Friday.
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5 Things to Watch on the Economic Calendar This Week
1. U.S. April retail sales report
The Commerce Department will publish data on April retail sales at 12:30GMT, or 08:30AM ET, Friday. The consensus forecast is that the report will show retail sales rebounded 0.7% last month, after falling 0.3% in March. Core sales are forecast to increase 0.5%, after rising 0.2% a month earlier.
2. Fed speakers
Market players will pay close attention to a number of speeches from Federal Reserve officials during the week to judge the balance of opinion among policymakers on the prospect of further rate hikes.
The Fed speakers start Monday with Chicago Fed President Charles Evans, Minneapolis Fed President Neel Kashkari and San Francisco Fed President John Williams are all due to speak throughout the day.
Tuesday sees New York Fed President William Dudley, the official viewed as most closely aligned with Fed Chair Janet Yellen, take the stage.
Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren and Kansas City Fed President Esther George will speak at public events on Thursday, followed by San Francisco Fed's Williams on Friday.
3. Chinese trade data
China released monthly trade data on Sunday, which showed that both exports and imports fell more than expected in April.
Exports slumped 1.8% from a year earlier, worse than forecasts for a decline of 0.1%, while imports dropped 10.9%, compared to expectations for a fall of 5.0%. That left China with a surplus of $45.6 billion last month, the General Administration of Customs said.
The Asian nation will also publish data on April consumer and producer price inflation on Tuesday, followed by reports on industrial production, fixed asset investment and retail sales late on Friday.
4. Euro zone Q1 GDP
The euro zone will publish revised data on first quarter economic growth at 09:00GMT, or 05:00AM ET, on Friday. The consensus forecast is that the report will show the economy grew 0.6% in the first three months of 2016, unchanged from a preliminary estimate and after expanding 0.3% in the final quarter of 2015.
Germany will release its individual report at 06:00GMT. The euro zone's largest economy is forecast to grow 0.6% in the first quarter after increasing 0.3% in the preceding quarter.
5. Bank of England "Super Thursday"
The Bank of England will release its rate decision as well as minutes of its Monetary Policy Committee meeting and its quarterly inflation report at 11:00GMT, or 07:00AM ET, on Thursday. Last month, the Monetary Policy Committee voted 9-0 to keep rates on hold at a record low 0.5%.
Expectations for a rate hike by the Bank of England have been pushed back to early-2017 due to a recent spate of weaker than expected data and amid uncertainty over a referendum on whether or not Britain should stay in the European Union.
SOURCE
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY
EUR/USD: Neutral: Pull-back has room to extend lower to 1.1300.
We just shifted to a neutral stance last Friday and there is no change to the view. The current movement is viewed as corrective pull-back which has scope to extend lower to 1.1300 but at this stage, a sustained move below this level is not expected. Overall, this pair is expected to remain under pressure unless it can reclaim 1.1495
GBP/USD: Neutral: Clear break below 1.4400 could lead to a quick drop to 1.4300.
We turned neutral GBP last Wednesday and were of the view that the corrective pull-back from the high 1.4770 has scope to extend lower to 1.4400. While a move below 1.4400 would not be surprising, downward momentum is not strong at this stage and a sustained move below this level appears unlikely. That said, a clear break below 1.4400 (say a daily closing below) could lead a quick drop towards the next support at 1.4300. Overall, this GBP is expected to be on the defensive unless it can reclaim 1.4545 in the next few days.
AUD/USD: Bearish: Partial profit taken at 0.7340.
As highlighted last Friday, the recent sharp drop in AUD appears to be running ahead of itself and those who are short should take partial profit at 0.7340 (low has been 0.7338). While further extension to 0.7300 is not ruled out, we are still of the view that the current drop is overextended and expect this pair to consolidate at these lower levels for the next couple of days. A move above 0.7480 would indicate that a short-term low is in place.
NZD/USD: Neutral: In a broad 0.6800/0.7000 range.
NZD touched a low of 0.6807 last Friday before rebounding quickly. While downward momentum has picked up, the odds for a sustained break below 0.6800 are not high at this stage. However, this pair is expected to be on the defensive unless it can move back above 0.6900 within the next few days.
USD/JPY: Neutral: In a 106.00/108.00 range now.
While short-term momentum has improved, we continue to view the current movement as part of a broader consolidation and expect further sideway trading between 106.00 and 108.00 for now.
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Japan: An Economy Of Zeros
The red sun on the flag of Japan symbolizes its position as the land of the rising sun. However, during WWII that round shape was pejoratively referred to as a zero. And now, since Japans economy is emitting so many zeros it can, unfortunately, once again be referred to as the land of zeros.
Prime Minister Shinzo Abe’s economic plan known as Abenomics consists of three arrows. The 1st Arrow is aggressive money printingknown as QQE in order to bring about yen depreciation. The 2nd arrow is massive deficit spending. And the 3rd arrow is structural reform, which is political claptrap for feckless growth proposals like increasing workforce diversity.
Therefore, the core strategy of Abenomics is to derive growth by increased government spending and flooding the world with the yen. If Abenomics were only about yen depreciation it would be considered a huge success. The yen lost 35% of its value between 2012-2015. Likewise, if the goal were to run huge deficits, Abenomics has also achieved its goal. Since December of 2012 fiscal deficits have ranged between 6-8% of GDP.
What did the Japanese citizens get for losing 35% of their purchasing power? A 10-Year note that has hovered around 0% for most of this year. Inflation that has been stuck around zero percent and growth that has been virtually zero for years. But most importantly, in an example of how addicted asset prices have become to Japan’s perpetually increasing stimulus, the fact that BOJ president Kuroda didn’t expand on his 80 trillion yen annual bond buying spree caused the Nikkei to drop over 1100 points in the 2 trading days following his announcement.
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Top 5 Things to Know In the Market on Wednesday
1. Dollar halts 6-day rally
The U.S. dollar eased against a basket of currencies after six straight days of gains on Wednesday, falling to 93.99 after climbing to 94.33 a day earlier, which was the most since April 28.
The greenback fell back below the 109-level against the yen as investors locked in gains following its steep rise after continued comments about possible intervention by the Japanese government.
2. Oil under pressure ahead of EIA supply data
Oil prices gave back some gains on Wednesday, amid speculation weekly supply data due later in the session will show U.S. crude inventories rose to a record high last week.
U.S. crude was down 36 cents, or 0.81%, to $44.30 a barrel by 9:55GMT, or 5:55AM ET, while Brent dipped 16 cents, or 0.35%, at $45.36.
The U.S. Energy Information Administration will release its weekly report on oil supplies at 14:30GMT, or 10:30AM ET, amid expectations for a gain of 0.7 million barrels. After markets closed Tuesday, the American Petroleum Institute, an industry group, said that U.S. oil inventories rose by 3.5 million barrels in the week ended May 6.
3. Global stocks mostly lower as weak oil prices dampen sentiment
U.S. stock futures pointed to a lower open on Wednesday, as market players kept an eye on movements in the oil market while awaiting a number of key earning reports that may shed further light on the health of the U.S. consumer.
Elsewhere, European stock markets traded lower for the first time in three sessions, dragged down by weakness in the banking sector, as sentiment was curbed by lower oil prices and a slew of disappointing corporate earnings.
Earlier, shares in Asia closed mostly lower, as the yen nudged higher against the dollar and oil prices retreated.
4. Gold bounces off 2-week lows to reclaim $1,270
Gold futures rallied nearly $10, or 1%, to $1,276.10 a troy ounce on Wednesday, after falling to the lowest level in almost two weeks overnight, as weakness in the U.S. dollar boosted the appeal of the precious metal.
Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
5. Disney off 5% in pre-market after rare earnings miss
Shares of Walt Disney Company (NYSE:DIS) lost more than 5% in pre-market trade on Wednesday, after the entertainment giant reported a rare miss after Tuesday’s closing bell as advertising and subscriptions declined at sports channel ESPN and theme park revenue came in weaker than expected.
Excluding some items, Disney earned $1.36 per share, missing analyst average expectation of $1.40 per share. Revenue rose to $12.97 billion from $12.46 billion, below the Wall Street target of $13.19 billion.
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Fed's Mester: Inflation expectations have been relatively stable
Speaking in Germany
The speech is on Inflation dynamics so not really anything on monetary policy. Not quite error bands but the BOE use a fan system when they produce the inflation report and that's something that gives them some breathing room, not that many people pay attention to it.
AUD traders - heads up for China data due this weekend
Yep - there is economic data due from China over the weekend
April Industrial Production y/y
Industrial production YTD y/y
April Fixed Assets (excluding rural) YTD y/y,
April Retail Sales y/y,
April New yuan loans CNY,
Aggregate financing RMB for April,
April money supply:
5 Things to Watch on the Economic Calendar This Week
1. FOMC meeting minutes
Investors will be focusing on minutes of the Federal Reserve’s April policy meeting due on Wednesday at 18:00GMT, or 2:00PM ET, for some clarity on where the U.S. central bank stands on its path toward rate hikes.
The Fed left interest rates unchanged following its meeting on April 27 and issued a statement implying it was in no hurry to raise rates.
The U.S. central bank has previously projected it plans to raise interest rates two more times before the end of the year, while market players expect just one more hike, most likely in December.
2. U.S. inflation data
The Commerce Department will publish April inflation figures at 12:30GMT, or 8:30AM ET, Tuesday. Market analysts expect consumer prices to inch up 0.3%, while core inflation is forecast to increase 0.2%.
On a yearly base, core CPI is projected to climb 2.1%. Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less.
Rising inflation would be a catalyst to push the Fed toward raising interest rates.
3. U.K. CPI, employment & retail sales data
The U.K. Office for National Statistics will release data on consumer price inflation for April at 08:30GMT, or 4:30AM ET, on Tuesday. Analysts expect consumer prices to rise 0.5%, after increasing 0.5% a month earlier.
At 08:30GMT, or 4:30AM ET, Wednesday, the ONS will publish the April jobs report. The amount of people receiving jobless benefits is expected to rise by 4,000 in April, with the jobless rate holding steady at 5.1%, while wage growth including bonuses is forecast to rise 1.7%.
On Thursday, the ONS will produce a report on April retail sales at 08:30GMT, or 4:30AM ET, which will offer further clues on the strength of the economy and the timing of a rate hike by the Bank of England.
Expectations for a rate hike by the BOE have been recently pushed back to early-2017 due uncertainty over a June referendum on whether or not Britain should stay in the European Union.
4. Japan first quarter preliminary GDP
Japan will publish preliminary first quarter economic growth data at 23:50GMT, or 7:50PM ET, on Tuesday. The report is expected to reveal that Japan's economy expanded by just 0.1% in the first three months of this year, maintaining pressure on policymakers to support the world's third largest economy.
5. RBA monetary policy meeting minutes
The Reserve Bank of Australia will publish minutes from its most recent monetary policy meeting on Tuesday at 01:30GMT, or 9:30PM ET on Monday. The RBA surprised markets earlier this month by cutting its benchmark interest rate by 25 basis points to a record low 1.75%, the first easing in a year, as it seeks to restrain a rising currency and stave off the creeping curse of deflation.
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HSBC pushes back BOE rate hike forecast to May 2017
HSBC out this morning with latest thoughts on UK 16 May 2016
HSBC joining the many banks pushing their rate hike forecasts ever further out.
Meanwhile GBPUSD 1.4357 as EURGBP runs into a few sellers.