The markets opened this week on a flat note in anticipation of Janet Yellen’s speech on Tuesday in Philadelphia. Following the gains from last Friday’s weak NFP print, the dollar remained weak on Monday with most of the USD crosses seen holding on their gains from the previous Friday. On Monday, the British pound weakened significantly as three independent opinion polls showed that the ‘Leave’ camp managed to edge higher than the ‘Stay’ camp. Monday also saw Saudi Arabia adjust its oil prices. While it cut the price of oil to its European customers by 35 cents, Saudi increased oil prices to its Asian customers by 35 cents. The Yen also started the week on a firm footing leading BoJ officials coming out to jawbone the yen’s exchange rate.
The RBA met this week on June 7th, and interest rates were unchanged as expected. In the monetary policy statement, the RBA struck an optimistic tone, highlighting that domestic demand was picking up. The RBA’s statement read, “recent data suggest overall growth is continuing, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators have been more mixed of late, but are consistent with the continued expansion of employment in the near term.”
By Tuesday’s close, the British pound reversed the declines from Monday. Earlier in the day, the pound surged by over a 100 pips in what was attributed to a ‘Fat Finger’ trade. However, reports suggested that the spike in the GBP came on the release of new opinion polls, showing the ‘Stay’ camp gaining a lead.
In the Eurozone, the first quarter GDP was positive, having been revised higher from 0.50% to 0.60%.
On Wednesday, the focus shifted to the RBNZ’s monetary policy meeting. Although a close call, it was expected that the RBNZ would hold rates unchanged. In other news during the day, Japan’s GDP was also revised higher. First quarter GDP expanded at a pace of 0.50%, up from previous estimates of 0.40%. In the UK, industrial and manufacturing production surprised, rising 2.0% and 2.30% respectively. The World Bank released its latest forecasts and called the global economic growth ’insipid’ with China and India’s GDP forecasts coming out as the only bright spot amid downgrades and weak GDP forecasts.
On Thursday, the RBNZ’s meeting concluded with the central bank leaving the OCR rate unchanged at 2.25%. The RBNZ’s statement was broadly positive, and there was little reference to the NZD’s exchange rate. The tone of the statement was considered neutral-hawkish sending the NZD to rise to a 1-year high against the US dollar.
China released monthly inflation figures, showing consumer prices rising at a slower pace of 2.0%
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China also released its monthly inflation figures on Thursday which showed consumer prices rising at a slower pace of 2.0%, down from April’s CPI increase of 2.30%. China’s PPI was, however, steady and continued to improve. For May, China’s PPI fell only 2.80%, slower than April’s 3.40% decline.
On Friday, Canada’s monthly employment report beat estimates with the economy shown to add 13.8k on the month, beating forecasts of 3.1k while the unemployment rate fell to 6.90%, beating estimates of a 7.10% unchanged print.
On the commodity front, Gold Prices surged back to reclaim the $1250 handle after a brief pause from Friday’s gains. Despite closing the month of May with the first monthly decline in prices, gold prices managed to rise later in the week.
As noted in the weekly gold analysis, “An upside break above 1230 will see gold extend gains to 1261.35 – 1253.75 resistance, which will mark a retest of the breakout level.” Gold prices were seen retracing following a rally to 1262 by early Thursday.
With gold prices reversing off the identified resistance level, this week’s gold analysis points to a near-term weakness in price but overall, gold is expected to stay steady above $1200. “On the daily chart, following the bounce off the 1200 level, gold prices are poised for further upside with the main resistance at 1261.35 – 1279 likely to cap further gains in prices.”
Oil prices were also seen inching higher after the weekly EIA, and API reports showed a drawdown in crude oil inventories. Supply disruptions continue to keep oil prices supported and based on our weekly Oil outlook, further upside to $54 at the very least is expected.
In conclusion, the markets this week managed to push modestly higher against a weaker US dollar, a sign that the pricing in of a no rate cut in June is taking place when the FOMC meets next week.
Summary of Economic events this week
- Australia MI inflation gauge m/m -0.20% vs. 0.10% previously
- ANZ job advertisements m/m 2.40% vs. -0.60% previously
- German factory orders m/m -2.0% vs. -0.40%
- Eurozone retail PMI 50.6 vs. 47.9 previously
- Eurozone Sentix investor confidence 9.9 vs. 7.10
- Fed Chair, Janet Yellen speaks
- RBA leaves cash rate unchanged at 1.75%
- German industrial production m/m 0.80% vs. 0.80%
- Eurozone final GDP q/q 0.60% vs. 0.50%
- US revised nonfarm productivity q/q -0.60 % vs. -0.60%
- US revised unit labor costs q/q 4.50% vs. 4.0%
- Canada Ivey PMI 49.4 vs. 54.2
- New Zealand manufacturing sales q/q -2.60% vs. -2.30% previously
- Japan GDP q/q 0.50% vs. 0.50%; GDP y/y 1.90% vs. 1.90%
- Japan nominal GDP q/q 0.60% vs. 0.60%
- Australia home loans m/m 1.70% vs. 2.50%
- China exports y/y -4.10% vs. -4.20%; imports y/y -0.40% vs. -6.80%
- China trade balance 49.80 billion vs. 55.60 billion
- Switzerland CPI m/m 0.10% vs. 0.20%; y/y -0.40% vs. -0.40%
- UK industrial production m/m 2.0% vs. 0.00%; y/y 1.60% vs. -0.40%
- UK manufacturing production m/m 2.30% vs. 0.0%; y/y 0.80% vs. -1.50%
- ECB’s Nouy speech
- Canada housing starts 188.6 k vs. 190 k
- Canada building permits m/m -0.30% vs. 2.30%
- RBNZ holds OCR at 2.25%
- Japan core machinery orders m/m -11.0% vs. -3.20%
- Japan M3 money stock y/y 3.40% vs. 3.30%
- China CPI y/y 2.0% vs. 2.30%; PPI y/y -2.80% vs. -3.10%
- Switzerland Unemployment rate 3.50% vs. 3.50%
- German trade balance 24bn vs. 21.4bn
- ECB President Draghi speaks in Brussels
- UK Goods trade balance 10.52bn vs. -11.bn
- US weekly jobless claims 264k vs. 270k
- US wholesale inventories m/m 0.60% vs. 0.10%
- Canada new HPI y/y 2.10% vs. 2.10%; m/m 0.30% vs. 0.20%
- Japan tertiary industrial activity m/m 1.40% vs. 0.70%
- Germany final CPI m/m 0.30% vs. 0.30%
- German WPI m/m 0.90% vs. 0.20%
- Germany industrial production m/m 0.50% vs. 0.30%
- UK construction output m/m 2.50% vs. 1.50%
- Canada employment change 13.8k vs. 3.1k
- Canada unemployment rate 6.90% vs. 7.10%
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