Another U-Turn in Sentiments on Fed, Dollar Back Under Pressure

Sentiments took another U-turn as Fed did the trick again, with expansion of its asset purchases. Asia markets surge broadly, following the strong rebound in US overnight. Dollar, Yen and Swiss Franc are back under pressure. But New Zealand Dollar is the worst performing one for today so far, driven by re-emergency of coronavirus cases in the country. Sterling is so far the strongest one for today, followed by Euro and then Aussie.

Technically, Dollar’s rebound seems to be over for now. EUR/USD breached 1.1340 minor resistance, GBP/USD breached 1.2653 minor resistance. USD/CAD also breached 4 hour 55 EMA. There is no clear sign of down trend resumption yet. But eyes would be back on 1.1422 short term top in EUR/USD. Meanwhile, as USD/JPY’s recovery is staying to lose momentum too, a retest of 106.57 temporary low could be seen soon if rejection by 4 hour 55 EMA is confirmed.

In Asia, Nikkei closed up 4.88%. Hong Kong HSI is up 2.57%. China Shanghai SSE is up 1.44%. Singapore Strait Times is up 2.28%. Japan 10-year JGB yield is up 0.010 at 0.017. Overnight< DOW rose 0.62%. S&P 500 rose 0.83%. NASDAQ rose 1.43%. 10-year yield rose 0.003 to 0.702.

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Risk sentiments reversed after Fed expands debt purchase

Risk sentiments staged a strong rebound overnight after Fed announced to expand the so called Second Market Corporate Credit Facility. Fed will starting buying a “broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.” The SMCCF will crease a portfolio made up of all bonds in the secondary market that satisfy the facility’s minimum rating, maximum maturity, and other criteria. The indexing approach will complement SMCCF’s current ETF purchases. .

DOW once declined over 760 pts but ended up 157.62 pts or 0.62% at 25763.16. S&P 500 also reversed earlier loss to day low of 2965.66, and closed up 0.83% at 3066.59. SPX somewhat drew support from 55 day EMA and recovered but is kept well below last week’s gap. We’d expect corrective pattern from 3233.13 to extend for the near term. Another decline will remain in favor to 38.2% retracement of 2191.86 to 3233.13 at 2835.36. Reactions from there would determine the next move.

UK unemployment rate unchanged at 3.9% in Apr, claimant count surged another 529k in May

UK unemployment rate was unchanged 3.9% in the three months to April, much better than expectation of a surge to 4.5%. Average earnings including bonus rose 3.0% 3moy, sharply lower from April’s 2.3%, missed expectation of 1.3%. Average earnings excluding bonus rose 1.7% 3moy, down from 2.7%, missed expectation of 1.8%.

In May, claimant counts rose 528.9k, larger than expectation of 370k. April’s claimant count increase was revised to 1032.7k. Combined, The total 2801.7k claimant account as recorded in May was as 125.9% increase since March, i.e., the start of the coronavirus pandemic.

RBA: Downturn shallower than expected, accommodative approach to stay

Minutes of June 2 RBA board meeting noted that while Australian economy was experiencing the “biggest economic contraction since the 1930s”, the downturn would be “shallower than earlier expected”. Though, outlook remained “highly uncertain” and the pandemic was “likely to have long-lasting effects” on the economy.

The policy package was “working broadly as expected”. The “substantial, coordinated and unprecedented easing of fiscal and monetary policy” was also helping the economy through this difficult period. Both fiscal and monetary support “would be required for some time”. This accommodative approach would be “maintained as long as required”.

The policy package included keeping cash rate at 0.25%, 3 year AGB yield target at 0.25%, Term Funding Facility to support credits and 10bps interest rate on Exchange Settlement balances.

Also released, Australia house price index rose 1.6% qoq in Q1, below expectation of 2.7% qoq. New Zealand Westpac consumer sentiment dropped to 97.2 in Q2, down from 104.2.

BoJ stands pat, economy to remain severe, CPI to stay negative

BoJ kept monetary policy unchanged today as widely expected. Under yield curve control, short term policy rate is kept at -0.1%. BOJ will also continue to purchase a “necessary amount”, “without setting an upper limit”, to to keep 10-year JGB yields at around 0%. The decision was made by 8-1 vote, With Goushi Kataoka dissented, pushing to ease further by lowering short- and long-term interest rates.

On outlook, BOJ said the economy is “likely to remain in a severe situation for the time being”. CPI is likely to be “negative for the time being”, affected by the coronavirus pandemic and decline in oil prices. But it’s expected to “turn positive and then increase gradually” as the economy improves.

On risks to outlook, BoJ said “there have been extremely high uncertainties over the consequences of COVID-19 and the magnitude of their impact on domestic and overseas economies”. Also, “it is necessary to pay close attention to whether, while the impact of COVID-19 remains, firms’ and households’ medium- to long-term growth expectations will not decline substantially and the smooth functioning of financial intermediation will be ensured with financial system stability being maintained.”

Elsewhere

Germany CPI was finalized at -0.1% mom, 0.6% yoy in May. Germany ZEW economic sentiment will be a focus in the European session. Later in the day, US retail sales, industrial production and Fed chair Jerome Powell’s testimony will be the major focuses.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2504; (P) 1.2554; (R1) 1.2654; More….

GBP/USD’s breach of 1.2653 minor resistance argues that pull back from 1.2813 short term top has completed at 1.2454, after drawing support from 55 day EMA. Intraday bias is back on the upside for retesting 1.2813. Firm break there will resume larger rise from 1.1409. On the downside, though, sustained break of 55 day EMA will argue that whole rebound from 1.1409 has completed. In this case, deeper decline would be seen to 1.2065 support for confirmation.

In the bigger picture, while the rebound from 1.1409 is strong, there is not enough evidence for rend reversal yet. Down trend from 2.1161 (2007 high) should still resume sooner or later. However, decisive break of 1.3514 should at least confirm medium term bottoming and turn outlook bullish for 1.4376 resistance first.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:00 NZD Westpac Consumer Survey Q2 97.2 104.2
1:30 AUD House Price Index Q/Q Q1 1.60% 2.70% 3.90%
1:30 AUD RBA Meeting Minutes
3:00 JPY BoJ Monetary Policy Statement
5:45 CHF SECO Economic Forecasts
6:00 GBP ILO Unemployment Rate (3M) Apr 3.90% 4.50% 3.90%
6:00 GBP Average Earnings Including Bonus 3M/Y Apr 1.00% 1.30% 2.40% 2.30%
6:00 GBP Average Earnings Excluding Bonus 3M/Y Apr 1.70% 1.80% 2.70%
6:00 GBP Claimant Count Rate May 7.80% 5.80%
6:00 GBP Claimant Count Change May 528.9K 370.0K 856.5K 1032.7K
6:00 EUR Germany CPI M/M May F -0.10% -0.10% -0.10%
6:00 EUR Germany CPI Y/Y May F 0.60% 0.60% 0.60%
9:00 EUR Germany ZEW Economic Sentiment Jun 60 51
9:00 EUR Germany ZEW Current Situation Jun -84.8 -93.5
9:00 EUR Eurozone ZEW Economic Sentiment Jun 53.4 46
12:30 USD Retail Sales M/M May 7.60% -16.40%
12:30 USD Retail Sales ex Autos M/M May 5.10% -17.20%
12:30 CAD Foreign Securities Purchases (CAD) Apr -9.78B
13:15 USD Industrial Production M/M May 2.50% -11.20%
13:15 USD Capacity Utilization May 66.50% 64.90%
14:00 USD Fed’s Chair Powell testifies
14:00 USD Business Inventories Apr -0.40% -0.20%
14:00 USD NAHB Housing Market Index Jun 43 37