Asia Roundup: Yen gains against the dollar, sterling declines after BoE's Carney hints rate cuts, Asian shares recover on risk appetite - Friday, July 1st, 2016

Market Recap

  • BoJ Tankan June big mfg index +6, non-mfg +19, +4 and +19 eyed, +6 and +17 forecast for September, +3 and +17 eyed, FY ‘16/17 CAPEX +6.2%, +5.9% eyed, FY ‘16/17 recurring profits -11.6%, USD to average 111.41, Brexit not reflected in survey, 70% of survey replies by June 13, too optimistic?

  • Japan June mfg PMI 48.1, flash 47.8, May final 47.7, 4th straight contraction.
  • Japan May nationwide core CPI -0.4% y/y, as eyed, fastest y/y drop since Apr ’13, June Tokyo core CPI -0.5% y/y, as eyed.
  • Japan May household spending -1.5% m/m, -1.1% y/y, -0.2% and -1.4% eyed.
  • Japan May unemployment 3.2%, jobs applicants ratio 1.36, 3.2% and 1.35 eyed, jobs-applicants ratio highest since October ’91.
  • Japan ’15 land prices rise for first time in 8-years – Reuters.
  • Sources - Japan GPIF had portfolio losses of Y5-5.5 trln in fiscal year ended March - Reuters.
  • Foreign CB US debt holdings -$13.496 bln to $3.224 trln June 29 wk, Treasury holdings -$12.945 bln to $2.912 trln, agencies -$583 mln to $262.612 bln.
  • NY Fed – FX swaps with foreign CBs total $2 mln June 29 week, all with BoJ, low use of lines hints at little market stress post-Brexit.
  • St Louis Fed Bullard – Fed not on autopilot, paying attention to data, to stick with idea of need for single rate hike, global markets holding up well despite Brexit vote – Reuters.
  • China June Caixin mfg PMI 48.6, 49.1 eyed, May 49.2, 16th month of contraction at 4-month low, new orders/output off large.
  • China June official services PMI 53.7, May 53.1.
  • Australia June PMI +0.8 point to 51.8, 12th month of expansion.
  • Australia June CoreLogic home price index +0.5% m/m, May +1.6%, Apr +1.7%.
  • Economic Data Ahead

    • (0300 ET/0700 GMT) Norway Jun PMI mfg, 50.5 eyed; last 51.1.
    • (0315 ET/0715 GMT) Spain Jun PMI mfg, 52.1 eyed; last 51.8.
    • (0315 ET/0715 GMT) Switzerland May retail sales; last -1.9% y/y.
    • (0330 ET/0730 GMT) Switzerland Jun PMI mfg, 55.4 eyed; last 55.8.
    • (0345 ET/0745 GMT) Italy Jun PMI mfg, 52.5 eyed; last 52.4.
    • (0350 ET/0750 GMT) France Jun PMI mfg, 47.9 eyed; flash 47.9.
    • (0355 ET/0755 GMT) Germany Jun PMI mfg, 54.4 eyed; flash 54.4.
    • (0400 ET/0800 GMT) Eurozone Jun PMI mfg, 52.6 eyed; flash 52.6.
    • (0400 ET/0800 GMT) Italy May unemployment, 11.6% eyed; last 11.7%.
    • (0400 ET/0800 GMT) Norway Jun unemployment, 3.0% nsa eyed; last 2.9%, 101.67k sa.
    • (0430 ET/0830 GMT) Great Britain Jun PMI mfg, 49.9 eyed; last 50.1.
    • (0500 ET/0900 GMT) Eurozone May unemployment, 10.1% eyed; last 10.2%.
    • (0945 ET/1345 GMT) United States Jun Markit PMI mfg – final; flash 51.4.
    • (1000 ET/1400 GMT) United States Jun ISM PMI mfg, 51.4 eyed; last 51.3.
    • (1000 ET/1400 GMT) United States May construction spending, +0.6% m/m eyed; last -1.8%.
    • (1330 ET/1730 GMT) United States Jun total vehicle sales, 17.3 mln AR eyed; last 17.45 mln.

    Key Events Ahead

    • (0315 ET/0715 GMT) ECB Coeure in Paris roundtable discussion.
    • (0430 ET/0830 GMT) ECB/Austria CB Nowotny presents latest financial stability report.
    • N/A London Financial Times event, ECB Praet, BoE Haldane amongst speakers.
    • (0600 ET/1000 GMT) UK DMO GBP0.5/2.5/2.5 bln 1/3/6-month treasury bill auctions.
    • (1100 ET/1500 GMT) Cleveland Fed Mester speaks at London EEFC seminar.

    FX Beat

    USD: The dollar index, against a basket of currencies trades flat at 95.91, after rising as high as 96.42 in the previous session.

    EUR/USD: The euro came under pressure, after reports suggested that European Central Bank could apply looser rules for its quantitative easing program in order to strengthen investment and credit growth after the Brexit vote. The major trades 0.3 percent lower at 1.1074, having retreated from a 1-week high of 1.1154 touched in the previous session. The pair continues to dive lower amid persistent risk-on trades in the global stock markets. Traders will closely watch Eurozone's Markit manufacturing PMI and unemployment data, ahead of U.S. manufacturing PMI reports for further cues. Immediate support is located at 1.1049 (Jun 29 Low), break below drags the pair to1.1010. On the higher side, resistance is seen at 1.1130, break above targets 1.1154.

    USD/JPY: The greenback rose to an early high of 103.38, but failed to sustain gains above the 103 level, trading lower at 102.71. Data released earlier showed that Japan's May CPI came in at -0.4 percent y/y versus consensus -0.5 percent, while the BoJ Q2 Tankan Large Manufacturing Index rose to 6, surpassing expectations of 4 and previous 3. The major will be drive by broad based market sentiment, ahead of series of U.S. economic data. Immediate support is seen at 102.36, break below could take the pair till 102.17 /102.00. On the upside, resistance is located at 103.49 (10-DMA), break above targets 104 level.

    GBP/USD: Sterling slumped after Bank of England governor said more stimulus would probably be needed over the coming months after Britain voted to leave the European Union last week. The central bank's Monetary Policy Committee would announce an initial assessment of the economy at the July meeting and a full assessment alongside new forecasts for growth and inflation in August. Markets focus will remain on UK's manufacturing PMI for further momentum. Sterling trades lower at 1.3263, having declined as low as 1.3205 in the previous session. Immediate resistance is located at 1.3484, break above targets 1.3533/1.3600. On the lower side, support is seen at 1.3205 (Previous Session Low), break below could take the pair near 31-year low. Against the euro, the pound trades at 83.24 pence.

    AUD/USD: The Australian dollar declined amid global turmoil and uncertainty caused by Britain's vote to leave the European Union. The Aussie trades lower at 0.7444, pulling away from a high of 0.7468 touched earlier in the session. Traders now await Reserve Bank of Australia policy meeting, which is expected to leave the cash rate steady at a record low 1.75 percent on Tuesday. Meanwhile, traders look forward U.S. manufacturing reports from both Markit and ISM for fresh cues. Immediate resistance is located at 0.7481 (Jun-20 High), break above targets 0.7500 level. On the downside, support is seen at 0.7414 (5-DMA), break below could take the pair lower 0.7400.

    NZD/USD: The New Zealand dollar rose for the fourth consecutive session, supported by oil price recovery. The Kiwi trades higher at 0.7144, retreating from a low of 0.7057 struck in the previous session. With the New Zealand economic calendar absolutely data empty, market will continue to track broader market sentiment, ahead of U.S. manufacturing PMI data. Immediate resistance is located at 0.7188 (Jun-22 High), break above targets 0.7200 level. On the lower side, support is seen at 0.7085 (5-DMA).

    Equities Recap

    Asian shares gained as risk appetite continued to recover from Brexit shock, while sterling came under immense pressure after the BoE's governor hinted at interest rate cuts.

    MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 percent.

    Tokyo's Nikkei gained 0.68 pct at 15,682.48, Australia's S&P/Asx 200 index nudged up 0.12 pct at 5,239.50 points and Seoul shares added 1.01 pct.

    Shanghai composite index trades 0.1 percent up at 2,932.54 points and CSI300 index trades flat at 3,155.62 points.

    Hong Kong’s Hang Seng was trading 1.75 percent higher at 20,794.37 points. Taiwan stocks rose 0.8 pct at 8,738.24 points.

    Commodities Recap

    Oil prices rose, with Brent climbing back above $50 per barrel, as investors braced themselves for more price increases this year in expectation of a tighter market. Brent crude oil was trading 0.4 percent up at $50.02 per barrel at 0404 GMT, while U.S. West Texas Intermediate crude was up 28 cents at $48.61 a barrel.

    Gold extended gains and was on track for its fifth straight weekly gain, as a weaker dollar offset recovery in equity markets post the Brexit vote. Spot gold rose 0.6 percent to $1,329.69 an ounce by 0406 GMT, while U.S. gold was up 0.3 percent at $1,324.40.

    Treasuries Recap

    The 10-year U.S treasury yield stood at 1.4323 percent down by 0.06 bps, while 5-year was 0.041 bps down at 0.9753 percent.

    The yield on the 10- year Japanese government bonds hit a record low below minus 0.240 percent, while the JGB 5-year yield touched record low below minus 0.320 percent.

    The Australian government bonds rallied following Bank of England governor Mark Carney's comments. The yield on the benchmark 10-year Treasury note fell nearly 3 basis points to 1.979 percent and the yield on short-term 2-year note dipped 1 basis point to 1.587 percent.

    New Zealand government bonds were a touch firmer, keeping yields around 3 basis points lower.

    Canadian government bond prices were higher across the maturity curve, with the 2-year price up 7.3 Canadian cents to yield 0.517 percent and the benchmark 10-year rising 65 Canadian cents to yield 1.060 percent. Canada's 10-year yield fell as low as 1.044 percent in the session, its lowest level since Feb. 12.


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