Yen Broadly Lower as US Yield Strengthens, Also on North Korea Concerns

Yen weakens broadly as concerns over North Korea tensions continue. Japan Finance Minister spoke in a conference in California, US, yesterday. He warned that while yen is always "said to be a safe-haven currency", the situation in North Korea made it "extremely unstable". And he emphasized that "we should always think about what the yen would be like if something happens in North Korea." Regarding trade relationship, Aso said Japan and 10 other countries should push ahead with the Trans-Pacific Partnership with the involvement of the US. But he is optimistic that US will eventually find it better to rejoin. He said that "it’s not a fact that the U.S. will be able to gain more from bilateral framework than TPP." The Japanese currency is also weighed down by renewed strength in US treasury yields. US Treasury Secretary Steven Mnuchin said yesterday that ultra-long bonds are "something that could absolutely make sense for us at Treasury."

UK PMI manufacturing surged to three year high

UK PMI manufacturing jumped sharply to 57.3 in April, up from 54.2 and well above expectation of 54.0. That’s also the highest level in three years. Markit economist Rob Dobson noted that "although only accounting for 10% of the economy, the upturn in the manufacturing sector represents some welcome good news after the sharp slowing in GDP seen in the first quarter." And, "the big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad. Other surges seen since the middle of last year have generally proved short-lived, as weak wage growth sapped consumer spending."

Release from Eurozone, unemployment rate was unchanged at 9.5% in March. Eurozone manufacturing PMI was revised down to 56.7 in April. Germany manufacturing PMI was finalized at 58.2, unchanged. France manufacturing PMI was finalized at 55.1, unchanged. Italy manufacturing PMI rose to 56.2, up from 55.7 and beat expectation of 55.9. From Swiss, SVME PMI dropped to 57.4 in April, below expectation of 58.2, down from 58.6.

RBA left cash rate unchanged at 1.50%.

As widely anticipated, RBA left its cash rate, for an 8th meeting, at 1.50% in April. While headline CPI has more or less reached the central bank’s target level, the core reading has remained subdued. Policymakers have decided to take more time to gauge the inflation outlook before action. Meanwhile, the unemployment rate has remained elevated while excess capacity in the job market has rendered wage growth weak. More in RBA On Hold, Cautious Over Housing Market Despite Price Growth Slowdown In April.

China data points to loss of momentum

China’s latest set of PMI data indicated slowdown in the country’s activity growth. The official manufacturing index was reported to have dropped -0.6 point to 51.2 in April, whist the non-manufacturing PMI declined -1.1 points to 54 for the month. The slowdown was broadly based: the ‘output’ index slipped -0.4 point to 53.8 and the ‘new orders’ index dropped -1point to 52.3. The ‘new export orders’ index fell for the first time in 4 months, losing -0.3 point to 50.5, although the three-month moving average remained up. The ‘input price’ index sank -7.5 points to 51.8. The trend indicates that PPI inflation should have slowed more sharply in April. Recall that the March reading was 7.6% and the February reading was a record higher of 7.8%. The only sub-index that has shown improvement was the ‘stock of finished goods’ index, which gained 0.9 point to 48.2. More in Chinese Growth Probably Peaked In March, ‘Prudent And Neutral’ Policy Maintained.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.37; (P) 111.65; (R1) 112.09; More….

USD/JPY rises to as high as 112.30 so far as the rebound from 108.12 resumes. The current development indicates that corrective decline from 118.65 has completed with three waves down to 108.12. Further rally would be seen to 115.49 resistance first. Break will target 118.65 high. On the downside, break of 110.86 minor support will turn bias neutral and bring consolidations first.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It’s uncertain whether it’s completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Meanwhile, break of 115.49 resistance will extend the rise from 98.97 to retest 125.85. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update