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Market panorama. 5 June 2018

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I. Market focus:

At the beginning of Tuesday’s session, market participants’ focus was on the RBA’s meeting on monetary policy. The outcomes of the gathering coincided with expectations: the cash rate was left unchanged at 1.50 percent. The statement accompanying the RBA’s June decision was similar to the May one, and its tone remained neutral. The key issues of the meeting concerned inflation prospects, which "is low and is likely to remain so for some time," and the outlook for household consumption, a “continuing source of uncertainty." Since the RBA meeting did not become a big event, as its results did not provide any new information to the markets, the reaction of the Australian dollar to it was rather limited.

The situation in Italy also remains in the focus of the markets. Despite the fact that the government has finally been formed in the country, investors are worried about the ability of the new executive to compromise its election promises (higher social spending and lower taxes) with the EU fiscal rules that impose strict limits on the member states. Today, the new government headed by Giuseppe Conte is expected to face votes of confidence in the Italian parliament. Two parties - Forza Italia, led by ex-premier Silvio Berlusconi, and the Democratic Party (PD) - have already stated that they will not vote in favor of Conte’s cabinet. But the government still has chances to receive the parliamentary approval, as the two political powers that formed the government (the 5-Star Movement and the League parties) hold a majority in the country's parliament. The voting is scheduled for 17:30 GMT.

The main macroeconomic reports today will be the UK’s service sector PMI (08:30 GMT) and the U.S. ISM’s non-manufacturing PMI (14:00 GMT). Among scheduled Tuesday's speeches, attention should be paid to the comments of the representative of the Bank of England (BoE) Jon Cunliffe (10:00 GMT), the head of Germany's Bundesbank Jens Weidmann (17:30 GMT) and the RBA assistant governor Michele Bullock (23:00 GMT).


II. The market highlights are:

  • The U.S. Commerce Department’s data showed on Monday that the value of new factory orders decreased 0.8 percent m-o-m in April, following a revised 1.7 percent m-o-m gain in March (originally a 1.6 percent m-o-m advance). Economists had forecast a 0.5 percent m-o-m decline. According to the report, orders for durable goods plunged by 1.6 percent m-o-m in April, weighed down by a drop in demand for transport equipment (-6.0 percent m-o-m), while orders for non-durable goods edged up 0.1 percent m-o-m. Total factory orders excluding transportation, a volatile part of the overall reading, rose 0.4 percent m-o-m in April, while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, increased 1.0 percent m-o-m. The report also showed that shipments of core capital goods rose 0.9 percent m-o-m in April, following a 0.8 percent m-o-m gain in the prior month. In y-o-y terms, factory orders rose 8.3 percent in April.

  • The Ministry of Internal Affairs and Communications announced on Monday that the Japanese household spending unexpectedly fell in April. According to the official data, household spending dropped 1.3 percent y-o-y in April, following an unrevised 0.7 percent y-o-y drop in March. Economists had expected household spending to increase 0.8 percent y-o-y in April. Individually, spending was down for utilities (-5.6 percent y-o-y), culture & recreation (-3.7 percent y-o-y), apparel (-2.5 percent y-o-y), transportation and communication (-1.2 percent y-o-y) and food (-0.8 percent y-o-y), but increased for furniture & household utensils (+9.9 percent y-o-y), housing (+3.0 percent y-o-y), education (+2.5 percent y-o-y) and medical care (+0.5 percent y-o-y).

  • The Australian Bureau of Statistics (ABS) reported on Tuesday that Australia’s current account deficit, seasonally adjusted, narrowed by 28.6 percent to AUD10.47 billion in the first quarter of 2018 compared to a revised AUD14.66 billion gap in the prior quarter. Economist forecast a deficit of AUD9.95 billion. That was the smallest current account deficit since the first quarter of 2017. According to the ABS report, exports of goods and services rose 7.4 percent q-o-q to AUD102.99 billion, while imports of goods and services increased 2.0 percent q-o-q to AUD98.91 billion. The balance on goods and services surplus in the first quarter was AUD4.08 billion, a turnaround of AUD5.11 billion on from a deficit of AUD1.02 billion in the prior quarter. Meanwhile, the primary income deficit rose 7.7 percent q-o-q to AUD14.25 billion. In volume terms, exports rose stronger than imports this quarter, and as a result, international trade is expected to contribute 0.3 percentage points to growth in the March quarter 2018 GDP. Australia's net international investment position was a liability of $954.6 billion in the first quarter, down 3.4 percent q-o-q. Its net foreign debt liability position edged up 0.2 percent q-o-q to AUD1.03 trillion, while its net foreign equity asset position increased twofold q-o-q to AUD71.3 billion.

  • Markit/Caixin’s survey revealed on Tuesday that the Chinese services sector’s activity continued to rise modestly in May. The Caixin/Markit services purchasing managers' index (PMI) came in at 52.9 last month on a seasonally adjusted basis, unchanged from the previous month's reading. Economists’ had predicted the reading to stay at 52.9. The 50 mark divides contraction and expansion. According to the survey, new order growth softened, while employment recorded the quickest growth rate for four months, and service providers’ sentiment improved slightly. Caixin China Composite PMI, which covers both manufacturing and services, was unchanged from April’s reading of 52.3, signaling a steady and moderate pace of expansion.

  • The Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 1.50 percent at its June monetary policy meeting. The move was widely expected by the markets. In the statement accompanying the decision, the governor of the policymakers noted that wages growth and inflation remained low. He also reiterated that the outlook for household consumption remained “continuing source of uncertainty,” as “household income has been growing slowly and debt levels are high.” In regard to the consumer prices, the RBA reiterated its view that inflation was likely to remain low “for some time”, reflecting weak growth in labour costs and strong competition in retailing. The Bank also repeated concerns that appreciation of the Australian dollar might result in a slower pick-up in economic growth and inflation. Overall, the June meeting of the RBA provided no new information to the markets.


III. Market Situation
Currency Market
The currency pair EUR/USD traded slightly lower, due to a new wave of the U.S. currency appreciation. Investors are awaiting the April report on retail sales in the Eurozone and the data on the activity in the U.S. service sector in May from the ISM. According to economists’ forecasts, the Eurozone’s retail sales in April grew by 0.5 percent m-o-m and by 1.7 percent y-o-y, while the U.S. ISM non-manufacturing PMI improved to 57.5 points in May from 56.8 points in April. Later this week, the focus of market participants will be on the Eurozone’s final data on GDP for the first quarter. Resistance level - $1.1829 (high of May 22). Support level - $1.1511 (low of May 29).

The currency pair GBP/USD consolidated near the opening level, as investors took a breather after yesterday's decline in the pair while awaiting the release of the UK services PMI. Yesterday’s fall of the pair was attributable to the upward correction in the U.S. dollar. Investors also digested the comments of the Bank of England (BoE) representative Silvana Tenreyro, who said she expected rates to rise gradually over the next three years. "While I anticipate that a few rate rises will be needed, the timing of those rate rises is an open question,” she added. As for today's data, experts forecast that the services PMI in May rose to 53.0 points from 52.8 points in April. Resistance level - $1.3420 (high of May 24). Support level - $1.3204 (low of May 29).

The currency pair AUD/USD fell moderately, on the back of partial profit-taking after yesterday's growth, and a new wave of strengthening of the U.S. dollar. The pair’s performance was also influenced by the outcomes of the RBA meeting and data on Australia’s current account for the first quarter. The Australian Bureau of Statistics (ABS) reported on Tuesday that Australia’s current account deficit, seasonally adjusted, narrowed by 28.6 percent to AUD10.47 billion in the first quarter of 2018 compared to a revised AUD14.66 billion gap in the prior quarter. Economist forecast a deficit of AUD9.95 billion. That was the smallest current account deficit since the first quarter of 2017. According to the ABS report, exports of goods and services rose 7.4 percent q-o-q to AUD102.99 billion, while imports of goods and services increased 2.0 percent q-o-q to AUD98.91 billion. The balance on goods and services surplus in the first quarter was AUD4.08 billion, a turnaround of AUD5.11 billion on from a deficit of AUD1.02 billion in the prior quarter. Resistance level - AUD0.7682 (high of April 23). Support level - AUD0.7513 (low of June 1).

The currency pair USD/JPY traded in a narrow range, remaining near the opening level, due to the lack of new catalysts. Meanwhile, the yen growth was limited by disappointing data on Japan’s household spending for April. The Ministry of Internal Affairs and Communications announced that the Japanese household spending unexpectedly fell in April. According to the official data, household spending dropped 1.3 percent y-o-y in April, following an unrevised 0.7 percent y-o-y drop in March. Economists had expected household spending to increase 0.8 percent y-o-y in April. The April drop in household spending suggests that the economy is in a weak position, reducing the likelihood of sustainable inflation. Resistance level - Y111.39 (high of May 21). Support level - Y108.11 (low of May 29).

Stock Market

Index

Value

Change

S&P

2,746.87

+0.45%

Dow

24,813.69

+0.72%

NASDAQ

7,606.46

+0.69%

Nikkei

22,539.54

+0.28%

Hang Seng

31,063.33

+0.21%

Shanghai

3,114.41

+0.75%

S&P/ASX

5,994.90

-0.51%


U.S. stock indexes closed higher on Monday, as stronger-than-expected U.S. labour market data for May continued to push the stock market higher for the second day. Investors also digested factory orders report for April, which revealed that the value of new factory orders decreased 0.8 percent m-o-m in April, following a revised 1.7 percent m-o-m gain in March (originally a 1.6 percent m-o-m advance). Economists had forecast a 0.5 percent m-o-m decline. According to the report, orders for durable goods plunged by 1.6 percent m-o-m in April, weighed down by a drop in demand for transport equipment (-6.0 percent m-o-m), while orders for non-durable goods edged up 0.1 percent m-o-m. Total factory orders excluding transportation, a volatile part of the overall reading, rose 0.4 percent m-o-m in April, while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, increased 1.0 percent m-o-m.

Asian stock indexes closed mostly higher on Tuesday, after a strong lead from Wall Street overnight. Meanwhile, trade concerns limited the growth.

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


Bond Market
Yields of US 10-year notes hold at 2.94% (0 basis points)
Yields of German 10-year bonds hold at 0.42% (0 basis points)
Yields of UK 10-year gilts hold at 1.30% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in July settled at $65.03 (+0.43%). The crude oil prices rose moderately, correcting after a significant drop in recent two weeks. Market participants are now awaiting data on oil inventories in the U.S. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA).

Gold traded at $1,291.10 (-0.06%). Gold prices fell slightly, due to the positive dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.06 percent to 94.08. Since gold prices are tied to the dollar, a stronger dollar usually makes the precious metal more expensive for holders of foreign currencies.

IV. The most important scheduled events (time GMT 0)


07:50

France

Services PMI

07:55

Germany

Services PMI

08:00

Eurozone

Services PMI

08:30

United Kingdom

Purchasing Manager Index Services

09:00

Eurozone

Retail Sales

10:00

United Kingdom

MPC Member Cunliffe Speaks

12:30

Canada

Labor Productivity

13:45

U.S.

Services PMI

14:00

U.S.

ISM Non-Manufacturing

14:00

U.S.

JOLTs Job Openings

17:30

Germany

German Buba President Weidmann Speaks


Market Focus

  • U.S industrial production rose 0.6 percent in November after moving down 0.2 percent in October
  • UK PM May: Was Crystal Clear About Assurances Needed On Brexit
  • U.S retail sales were $513.5 billion in November, an increase of 0.2 percent from the previous month
  • Eurozone Composite PMI fell from 52.7 in November to 51.3 in December, its lowest since November 2014
June 2018
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All posted material is a marketing communication solely for informational purposes and reliance on this may lead to loss. Past performance is not a reliable indicator of future results. Please read our full disclaimer.

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