Market panorama. 23 June 2017

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I. Market focus:

23/06/2017

At the beginning of the final session of the week, the main currency pairs demonstrated mixed dynamics due to the lack of macroeconomic data releases and other announcements which could revive the volatility in the market. A similar picture was observed in the stock and commodity markets. In the next few hours, the situation may change radically, as today's session is quite busy with economic statistics.

In the first half of the day, investors will pay attention to the European PMIs. It is expected that preliminary estimates will indicate an expansion of activity, as the political risks in Europe lowered after the recent elections in France.

In the second half of the day, the Canadian data on inflation (12:30 GMT) will be in the focus of market participants. The economists’ forecasts imply a slight reduction in inflation pressure during the reporting period. Justification of such expectations will provoke a correction of the Canadian dollar after its yesterday's growth, which lifted the Canadian currency close to the important resistance level against the U.S. dollar. On the contrary, if stronger-than-expected data are released, the Canadian dollar can continue its growth. The attention should also be given to the U.S. data on new home sales (14:00 GMT) as well as the comments of the Federal Reserve Governor Jerome Powell (18:15 GMT).

 

II. The market highlights are:

  • Statistics Canada announced Thursday that the Canadian retail sales increased 0.8 percent m-o-m to CAD 48.64 billion in April after growing 0.5 percent m-o-m in March (revised from an initially estimated 0.7 percent m-o-m gain). The result was better than the economists’ forecast, suggesting a 0.2 percent m-o-m advance. Excluding sales at motor vehicle and parts dealers, retail sales climbed 1.5 percent m-o-m in April after dropping 0.1 percent m-o-m in the prior month (revised from an initially estimated 0.2 percent m-o-m decline), while economists had expected a 0.7 percent m-o-m surge. According to the report, sales rose in 9 of 11 subsectors, representing 71 percent of total retail trade. The main contributors to the April gain were higher sales at general merchandise stores (+2.1 percent m-o-m), building material and garden equipment and supplies dealers (+3.5 percent m-o-m), gasoline stations (+1.7 percent m-o-m), clothing and clothing accessories stores (+3.1 percent m-o-m) and food and beverage stores (+0.6 percent m-o-m). On the contrary, sales at motor vehicle and parts dealers (-1 percent m-o-m) and furniture and home furnishings stores (-0.3 percent m-o-m) decreased. In y-o-y terms, Canadian retail sales increased 7 percent in April after a downwardly revised 6.8 percent advance in March (originally 6.9 percent).

  • The data from the Labor Department revealed Thursday the number of applications for unemployment benefits rose more than expected last week but continued to point to a tightening labor market. According to the report, the initial claims for unemployment benefits grew by 3,000 to a seasonally adjusted 241,000 for the week ended June 17. Economists had expected 240,000 new claims last week. Claims for the prior week were revised upwardly to 238,000 from the initial estimate of 237,000. Meanwhile, the four-week moving average of claims increased by 1,500 to 244,750 last week. It was the 120th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.

  • The President of the Federal Reserve Bank of St. Louis James Bullard stated Thursday he did not see any need for further interest-rate increases but the Fed should start to shrink its $4.5 trillion balance sheet “sooner rather than later.” Bullard noted that last week's rate hike was "not such a big problem," but the projection to increase the federal-funds rate to 3 percent over the next 2.5 years was "unnecessarily aggressive." "The trajectory that the committee has laid out seems to me to be inappropriate given the situation that we're in," he said. At the same time, he noted that “the balance sheet policy was designed to cope with a near-zero policy rate, but now that the policy rate has increased, having such a large balance sheet is less critical.”

  • The preliminary data from IHS Markit showed Friday that growth of Japan’s manufacturing sector expanded at the weakest pace in seven months in June. The Nikkei Flash Manufacturing Purchasing Managers' Index (PMI) fell to 52 in this month from 53.1 in May. Economists had forecast the reading to come in at 53.4 in June. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. Commenting on the Japanese Manufacturing PMI survey data, Paul Smith, Senior Economist at IHS Markit, which compiles the survey, said: “Slower growth was signaled in June, with both orders and output rising at the weakest rates since late last year amid reports of a slight softening in market conditions. That said, external demand is holding up well, and the sector continues to operate within a solid growth range. This is helping support employment gains, whilst also enabling firms to pass costs on to clients to the greatest degree in over two-and-a-half years.”

 

III. Market Situation
Currency Market
The currency pair EUR/USD rose moderately, recouping almost all yesterday’s losses. Recall, the pair was under pressure in the previous session on the back of an increase in risk aversion in response to the growth in the U.S. stock market and the recovery in oil prices. Today, investors will continue to focus on comments by the Fed’s officials, hoping to glean clues on the way forward for U.S. monetary policy. The Fed-funds futures currently show that the probability the regulator will increase its benchmark fed funds rate again this year is estimated at 48.2 percent compared with 41.3 percent a week ago (June 16). The President of the Federal Reserve Bank of St. Louis James Bullard stated yesterday that he did not see any need for further interest-rate increases but the Fed should start to shrink its $4.5 trillion balance sheet “sooner rather than later.” He also noted that last week's rate hike was "not such a big problem," but the projection to increase the federal-funds rate to 3 percent over the next 2.5 years was "unnecessarily aggressive." Apart from the speeches of the Fed officials, investors will also pay attention to the U.S. data on new home sales and the PMIs data on manufacturing and services. Resistance level - $1.1212 (high of June 19). Support level - $1.1109 (low of May 30).

The currency pair GBP/USD traded slightly higher, mainly due to a broad weakening of the U.S. dollar. Meanwhile, the pound remained under pressure the uncertainty surrounding the future of the government, expected to be formed by the Conservatives in coalition with Northern Ireland's Democratic Unionist Party (DUP), was high. In addition, Chancellor Philip Hammond admitted yesterday that UK's planned withdrawal from the EU was already hitting economic investment. Mr. Hammond said that businesses were already pulling investment because of Brexit and urged that a “transitional arrangement” should be agreed as soon as possible. With an empty economic calendar in the UK ahead, investors will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.2817 (high of June 14). Support level - $1.2589 (low of June 21).

The currency pair AUD/USD rose moderately, reaching yesterday's high. The pair was supported by the broad weakening of the U.S. currency, as well as the recovery in commodities prices. Later today, the pair’s performance may be affected by the U.S. data on PMIs, which are likely to disappoint the markets. Although the manufacturing PMI and services PMI are both expected to post increases, which, however, will be rather limited. Recall, PMIs are leading indicators, which allow determining the prospects of the economic growth. Fed policymakers are signaling a propensity for policy tightening, but for the rate hikes to be justified, the data should be clearly better. Resistance level - AUD0.7634 (high of June 14). Support level - AUD0.7498 (low of June 7).

The currency pair USD/JPY traded near the opening level, impacted by the preliminary data from IHS Markit, which showed that growth of Japan’s manufacturing sector expanded at the weakest pace in seven months in June. The Nikkei Flash Manufacturing Purchasing Managers' Index (PMI) fell to 52 in this month from 53.1 in May. Economists had forecast the reading to come in at 53.4 in June. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. Resistance level - Y112.10 (high of May 24). Support level - Y108.82 (low of June 14).

 

Stock Market

Index

Value

Change

S&P

2,434.50

-0.05%

Dow

21,397.29

-0.06%

NASDAQ

6,236.69

+0.04%

Nikkei

20,132.67

+0.11%

Hang Seng

25,677.89

+0.01%

Shanghai

3,157.43

+0.32%

S&P/ASX

5,715.88

+0.17%


U.S. stock indexes closed flat on Thursday as gains in health-care shares, spurred by the release of Senate's version of the healthcare reform bill, offset a decline in financial and consumer staple stocks. Crude oil managed to break its three-day losing streak, allowing the energy sector to relieve after significant declines suffered earlier this week. On the macroeconomic front, the data from the Labor Department revealed the number of applications for unemployment benefits rose more than expected last week but continued to point to a tightening labor market. According to the report, the initial claims for unemployment benefits grew by 3,000 to a seasonally adjusted 241,000 for the week ended June 17. Economists had expected 240,000 new claims last week. Claims for the prior week were revised upwardly to 238,000 from the initial estimate of 237,000. Meanwhile, the four-week moving average of claims increased by 1,500 to 244,750 last week. It was the 120th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.

Asian stock indexes closed mixed on Friday as investors awaited new drivers, while oil fluctuated. The Chinese equities were in focus as the nation’s banking regulator reportedly increases scrutiny on some of the biggest global dealmakers.The Australian stocks advanced, responding to recovery in commodities prices. The Japanese stock index rose slightly as the dollar-yen levels steadied, failing to provide catalysts for export-oriented companies.  

European stock indexes are expected to trade mixed in the morning trading session.

 

Bond Market
Yields of US 10-year notes hold at 2.16% (0 basis points)
Yields of German 10-year bonds hold at 0.26% (0 basis points)
Yields of UK 10-year gilts hold at 1.02% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded flat. Crude oil for delivery in August settled at $42.97 (+0.54%). The crude oil prices rose, supported by the weakening of the U.S. dollar. However, oil prices continued to hover near 2017 lows amid worries about the global oil supply glut. Market participants are awaiting weekly data on the U.S. oil rig count from Baker Hughes.

Gold traded at  $1252.70 (+0.22%). Gold prices rose, as the U.S. currency demonstrated the broad weakening. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell by 0.18% to 97.42. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.

IV. The most important news that are expected (time GMT0)

 

06:45

France

GDP (finally)

07:00

France

Manufacturing PMI (preliminary)

07:00

France

Services PMI (preliminary)

07:30

Germany

Manufacturing PMI (preliminary)

07:30

Germany

Services PMI (preliminary)

08:00

Eurozone

Manufacturing PMI (preliminary)

08:00

Eurozone

Services PMI (preliminary)

12:15

U.S.

FOMC Member Dudley Speak

12:30

Canada

Consumer price index

12:30

Canada

Bank of Canada Consumer Price Index Core

13:45

U.S.

Manufacturing PMI (preliminary)

13:45

U.S.

Services PMI (preliminary)

14:00

U.S.

New Home Sales

16:15

U.S.

FOMC Member Jerome Powell Speaks

16:40

U.S.

FOMC Member Mester Speaks

17:00

U.S.

Baker Hughes Oil Rig Count

 

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Focus market

  • U.S. commercial crude oil inventories decreased by 2.5 million barrels from the previous week
  • Canada: Retail Sales, m/m, November 0.2% (forecast 0.5%)
  • U.S.: Nonfarm Payrolls, January 227 (forecast 175)
  • Eurozone: Consumer Confidence, January -4.9
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