MORNING ROLL CALL
DJIA closes at another 2017 record high, dollar soars, as do European indices, yen slumps whilst euro and sterling fall
The trading week began with the customary raft of monthly Japanese Tankan data, the majority of which either beat, or came in right on forecast. The large manufacturers’ index is (arguably) the most prominent and relevant in the Tankan data series; which came in at 17, beating the forecast of 15. The Japanese manufacturing PMI at 52.4 beat May’s reading by 0.4, whilst vehicle sales have risen in Japan, by 9.7% YoY.
However, consumer confidence fell to 43.3, missing the forecast of 43.9. The effect on yen, despite the mostly positive economic news, was negative, the currency fell sharply versus the majority of its peers, especially the U.S. dollar; USD/JPY closing up by circa 1% on the day at 113.38, breaching R2 and reaching a daily high in the New York session of 113.44.
Other Southern Hemisphere economic news released early on Monday morning, mainly concerned Australian building approvals, down -19.7% YoY and -5.6% in May. As to whether this represents a cooling of construction, after Australia’s record house price growth has finally began to recede, or indicative of other structural issues relating to the Australian economy, is a debate for another day.
What is for sure is that with the average mortgage eating up circa 42% of net household income in Sydney, even a modest rise in interest rates could cause significant affordability issues, and with perfect timing the RBA will announce its latest interest rate decision, early morning July 4th. AUD/USD reached a low of 0.7644 on Monday, just shy of S2, eventually closing out at approx. 0.7654, but the Aussie advanced sharply versus yen.
European economic calendar news centred on a raft of Markit PMI manufacturing data; France and Italy saw their PMIs miss forecasts by marginal amounts, whereas Germany beat the forecast by 0.3, coming in at 59.6. The Eurozone manufacturing PMI came in at 57.4, beating the forecast by 0.1. The UK’s PMI missed forecast by a considerable distance; 54.3 versus the 56.3 registered in May, suggesting that the UK’s brief manufacturing referendum honeymoon period, as sterling slumped, may now be over as the increased input costs are beginning to effect UK exporters’ and manufacturers’ competitive edge.
EUR/USD breached S2, and ended the day at circa 1.1358, down circa 1% on the day. The euro fell versus many of its peers, only rising during Monday versus yen and the Swissie. GBP/USD slipped through S1, to close the day out at circa 1.2938. European indices enjoyed significant rallies on Monday; euro STOXX 50 closed up 1.45%, DAX up 1.22%, CAC up 1.47% and the UK’s FTSE up 0.88%.
Tuesday is July 4th, Independence Day in the USA, therefore USA markets are closed and trading may be thinner than usual, in many U.S. dollar currency pairs and the leading USA equity indices.
From the USA the economic calendar news was mixed; Markit manufacturing PMI came in below forecast at 52, the ISM manufacturing beat forecast coming in at 57.8, whilst construction spending in May was flat. Despite these varied results, the dollar rallied versus the majority of its peers, as did the main equity indices; DJIA up 0.61% and the SPX up 0.23%, however the NASDAQ slipped by -0.49%. West Texas crude rose by circa 2.2% to end the day at $47.08 a barrel. WTI has now rallied by over 9% over the past eight days, after falling from a 2017 peak to enter a technical bear market (20% fall). As a direct consequence of its positive correlation with oil, as one of the leading commodity currencies, the Canadian dollar enjoyed gains versus the majority of its peers with the exception of the U.S dollar; USD/CAD closing the day out at circa 1.3010, up circa 0.5% on the day. Gold slumped by circa 1.6% on Monday, to $1,222.40 an ounce.
Economic calendar events for July 4th all times quoted are London GMT time
04:30, currency impacted AUD. Reserve Bank of Australia Rate Decision (JUL 04). The general consensus amongst the economists polled is for the interest rate to remain unchanged at 1.50%
08:30, currency impacted GBP. Markit/CIPS UK Construction PMI (JUN). The reading is predicted to fall to 55, from 56.
08:30, currency impacted GBP. BOE Publishes FPC Record of Meeting Held on June 21st. The minutes will be examined for forward guidance, regarding any intention to raise the UK’s base rate, from its current historical low of 0.25%
09:00, currency impacted EUR Euro-Zone Producer Price Index (YoY) (MAY). Producer prices are forecast to fall to 3.5% growth, from the previous April’s reading of 4.3%.
13:30, currency impacted CAD. Markit Canada Manufacturing PMI (JUN). The expectation is for little change from the reading of 55, registered in May.
