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Market panorama. 12 June 2018

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I. Market focus:

The focus of the markets is on the meeting between the U.S. President Donald Trump and North Korean leader Kim Jong-un, being held in Singapore. No statements or comments on the progress of the meeting have been provided so far, but the media reports that it is proceeding in a friendly atmosphere. It is expected that Donald Trump's press conference will be held at 08:00 GMT, and later in the day, he will give an interview to Fox News. The meeting of the heads of the United States and the DPRK is historic, but it is unlikely that the sides will announce about the achievement of specific agreements on denuclearization today. The current summit is only the first step, and building relationship between the two countries will take a long time. Overall, the markets are optimistic about the outcome of the talks, but there is no need to expect any significant movements after they end, except for the case the summit fails. For the same reason, the attention of market participants should quickly switch to other important events and data scheduled for today's session, and there will be a lot of them.

The main expected events in the first half of the day will be the UK labor market statistics (08:30 GMT). It is expected that the employment situation in the UK remained satisfactory in May, although a slight slowdown in earnings growth is projected.

The European indices of economic sentiment from ZEW will be released at 09:00 GMT and will also be of some interest to the markets, but the reaction to them should not be strong.

The main expected event of the second half of the day will be data on the U.S. consumer price index (CPI) for May, which will come out at 12:30 GMT.

In addition, the focus of market participants is on the meeting of two central banks - the U.S. Federal Reserve (the outcomes will be announced on Wednesday) and the European Central Bank (the results will be released on Thursday), - which will be the main events of the current week and may cause a rise of volatility in markets.


II. The market highlights are:

  • The joint survey, conducted by Japan’s Ministry of Finance and the Economic and Social Research Institute, showed on Monday the Business Sentiment Index (BSI), measuring sentiment among the large Japanese manufacturers, unexpectedly fell into negative territory in the second quarter of 2018. According to the survey, the BSI came in at minus 3.2 this quarter, down from plus 2.9 in the first quarter. Economists had forecast the BSI to improve to plus 3.2 in the second quarter.

  • The National Australia Bank (NAB) reported on Tuesday its business confidence index fell by five points to +6 index points in May from a revised +11 last month (originally +10). That was the lowest reading since December 2016 and was around its long-run average level. A reading above zero signals an improvement in business confidence, and a reading below zero indicates a deterioration. At the same time, the NAB’s business conditions index decreased by 6 points to +15 index points in May, easing back from the historical highs seen in April. By component, sales (-6 points to +22 in May), profitability (-9 points to +13) and employment conditions (-5 points to +8) all posted declines last month. Conditions decreased in all industries except for transport & utilities and retail. Commenting on the May Business Survey, Alan Oster, the NAB’s Chief economist, noted “The Survey results for May are consistent with our outlook for the Australian economy. Despite the easing in conditions, the survey continues to suggest a broad-based strength across industries and most states. Both business conditions and leading indicators continue to suggest a pick-up in economic growth and that, over time, jobs growth should see the unemployment rate fall towards 5%. The outlook for the labour market and evidence of a pick-up in wage growth remain key for monetary policy. Evidence of a genuine pickup in wages growth and a flow-through to inflation more broadly will provide a launch pad for the RBA to begin lifting rates from current record lows. We don’t expect this to occur until May 2019, as while the survey continues to point to a growing economy, strength in employment and a decline in the unemployment rate, these factors are yet to materialize in a significant pick-up in wages.”

  • The Australian Bureau of Statistics (ABS) announced on Tuesday that the Australian home loans fell 1.4 percent m-o-m in April, following a revised 2.3 percent m-o-m drop in March (originally a decline of 2.2 percent). Economists had expected a 1.9 percent m-o-m decrease. According to the report, the value of loans to owner-occupiers edged up 0.2 percent m-o-m in April, while lending to investors fell 0.9 percent m-o-m. Meanwhile, the number of loan approvals to build new dwellings dropped 0.2 percent m-o-m in April, while approvals for purchase of established homes fell 1.3 percent m-o-m and approvals to buy new dwellings tumbled 3.7 percent m-o-m.

  • Japan’s Ministry of Economy, Trade and Industry said on Tuesday its tertiary industry index, which measures the changes in the value of services purchased by businesses, rose 1 percent m-o-m to 106.1 in April, after dropping 0.3 percent m-o-m in March. Economists had forecast tertiary industry index would gain 0.6 percent m-o-m in April. Among the index components, information and communications (+2.5 percent m-o-m), finance and insurance (+2.5 percent m-o-m), retail trade (+2.3 percent m-o-m), electricity, gas, heat supply and water (+2.3 percent m-o-m), living and amusement-related services (+2.0 percent m-o-m), wholesale trade (+0.8 percent m-o-m), goods rental and leasing (+0.8 percent m-o-m) and medical, health care and welfare (+0.1 percent m-o-m) recorded advances, while transport and postal activities (-0.7 percent m-o-m), business-related services (-0.5 percent m-o-m) and real estate (-0.1 percent m-o-m) fell.


III. Market Situation
Currency Market
The currency pair EUR/USD fell sharply at the beginning of the session, but soon erased almost all of the losses, as investors prepared for the publication of ZEW's economic sentiment indicators for the Eurozone and Germany for June, as well as the U.S. consumer price index (CPI) for May. In April, consumer price inflation in the U.S. was slightly weaker than expected - the headline CPI rose by 0.2 percent m-o-m, while the core CPI increased only by 0.1 percent m-o-m. In recent months, food and energy components have been quite volatile, especially food prices, which have recorded the largest monthly increase in almost a year. A weaker reading of core CPI is likely to reflect some correction after the rapid growth in the first quarter of 2018. Overall, the upward trend remains unchanged - the annual increase in the CPI accelerated to 2.5 percent. The clearly rising trend of price pressure is an argument for the Fed to raise interest rates at its June meeting, which will end on Wednesday. Resistance level - $1.1838 (high of June 7). Support level - $1.1726 (low of June 8).

The currency pair GBP/USD traded slightly lower, as investors were cautious ahead of the release of the UK’s labor market statistics. It is expected that the employment situation in the UK remained satisfactory, although a slight slowdown in earnings growth is forecast, to 2.5 percent y-o-y in April from 2.6 percent y-o-y in March. Meanwhile, the unemployment rate, according to expectations, was unchanged at 4.2 percent in April, while the claimant count rose by 11,300 in May after an increase of 31,200 in April. Apart from the economic data, traders will also focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3492 (high of May 22). Support level - $1.3295 (low of June 4).

The currency pair AUD/USD fell sharply early in the session, but then recovered to yesterday's high on the back of increased risk appetite. The pair’s performance was also somewhat pressured by the survey from the National Australia Bank (NAB), which revealed that the NAB’s business confidence index fell by five points to +6 index points in May from a revised +11 last month (originally +10). That was the lowest reading since December 2016 and was around its long-run average level. A reading above zero signals an improvement in business confidence, and a reading below zero indicates a deterioration. At the same time, the NAB’s business conditions index decreased by 6 points to +15 index points in May, easing back from the historical highs seen in April. By component, sales (-6 points to +22 in May), profitability (-9 points to +13) and employment conditions (-5 points to +8) all posted declines last month. Conditions decreased in all industries except for transport & utilities and retail, the survey noted. Resistance level - AUD0.7676 (high of June 6). Support level - AUD0.7560 (low of June 8).

The currency pair USD/JPY rose moderately, updating its June’s high, supported by expectations of a favorable outcome of the meeting between the U.S. President Trump and North Korean leader Kim Jong-un. Trump said today that he had established “a very good relationship” with the DPRK leader, as the two countries attempted to achieve a diplomatic breakthrough at the historic summit in Singapore. The two leaders are looking for ways to resolve disagreements over the nuclear tensions on the Korean Peninsula. The meeting, a key event for the global markets, takes place a few months after the leaders of the two countries exchanged streams of fiery insults, aggravating the tensions that had erupted in the region due to North Korea's nuclear program. Resistance level - Y111.39 (high of May 21). Support level - Y109.19 (low of June 8).

Stock Market

Index

Value

Change

S&P

2,782.00

+0.11%

Dow

25,322.31

+0.02%

NASDAQ

7,659.93

+0.19%

Nikkei

22,878.35

+0.33%

Hang Seng

31,157.03

+0.30%

Shanghai

3,080.55

+0.91%

S&P/ASX

6,054.40

+0.15%


U.S. stock indexes closed higher on Monday, as investors managed to shrug off the weekend's fractious G7 summit and focused on an action-packed week that includes a historic meeting between the leaders of the U.S. and North Korea as well as the Fed gathering.

Asian stock indexes closed higher on Tuesday, as investors awaited a successful outcome of the historic summit between the U.S. President Donald Trump and North Korea’s leader Kim Jong Un.

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


Bond Market
Yields of US 10-year notes hold at 2.96% (0 basis points)
Yields of German 10-year bonds hold at 0.50% (0 basis points)
Yields of UK 10-year gilts hold at 1.41% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in July settled at  $66.20 (+0.15%). The crude oil prices rose slightly, despite the strengthening of the U.S. dollar. Market participants are 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 $1,297.50 (-0.19%). Gold prices dropped moderately, amid weakening demand for safe-haven assets and 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 0.14 percent to 93.70. 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)


08:30

United Kingdom

Average Earnings

08:30

United Kingdom

Average earnings ex bonuses

08:30

United Kingdom

Claimant count

08:30

United Kingdom

ILO Unemployment Rate

09:00

Eurozone

ZEW Economic Sentiment

09:00

Germany

ZEW Survey - Economic Sentiment

12:30

U.S.

CPI excluding food and energy

12:30

U.S.

CPI

18:00

U.S.

Federal budget

22:45

New Zealand

Food Prices Index


Market Focus

  • The number of job openings was little changed at 6.7 million on the last business day of June
  • UK house prices in the three months to July increased by 3.3% against the same period a year earlier
  • German industrial production declined more then expected in June
  • The average of household spending in Japan was down 1.2 percent on year
June 2018
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Quotes

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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