Markets
A low-volume trading session ended in tears for the dollar. The trade-weighted dollar closed back below the 90 big figure after giving away intraday lows of the end of last week. We don’t draw big conclusions yet as UK and US markets were closed yesterday for Spring Bank Holiday and Memorial Day respectively. Moreover, main US eco releases and an avalanche of Fed speakers are still to come this week. EUR/USD closed at 1.2227 from a 1.2182 open, but so far didn’t go for a re-run on 1.2243/66 intermediate resistance. Moves in other market pockets suggest that rallying commodity prices might have contributed to a softer greenback. Oil prices are on the rise going into today’s OPEC+ meeting, but $70/b resistance remains a tough nut to crack for Brent. Iron ore prices are up more than 5% this morning with several soft commodities to a lesser extent following yesterday’s coffee rally. Rising European inflation numbers in theory helped the euro side of the equation, but increases remained more or less in line with forecasts. EMU headline and core CPI are forecast to rise to 1.9% Y/Y and 0.9% Y/Y respectively in May but bar huge deviations we expect the release to pass unnoticed.
German yields slid towards Friday’s closing levels after failing to cling to intraday gains. The German yield curve flattened with yields shedding up to 1.8 bps (30-yr). Again, try not to read too much into this price action given thin trading. US yields this morning even add some 2 bps. The US manufacturing ISM kicks off a data-heavy US week. Consensus expects a stabilization at a lofty 60.9. Details will be closely watched after Chinese PMI’s (frontrunner in the recovery) showed first signs of some demand-side fatigue while supply issues kept related subindices and price gauges sky high. Heavy-weight Washington Fed governor Brainard speaks to the economic club of NY. The high-profile event could be used to guide expectations for the June 16 FOMC meeting. For now, any mutiny towards earlier slowing asset purchases remains very limited. Sterling slightly outperforms amongst majors with EUR/GBP back below 0.86 and cable testing the 1.4237 cycles high.
News Headlines
South Korean exports surged the most since 1988 in May in a sign the reopening of economies is boosting demand. Exports grew 45.6 y/y after an already whopping 41.2% last month. Exports to China rose 22.7% while both the US and the EU were up 62.8%. On the product level, hot-in-demand semiconductor shipments, which account for about a fifth of the total, increased with 24.5%. Imports also rose a significant 37.9%, the fastest pace since 2010 amid improving household sentiment and recovery of domestic activity. Other SK data showed manufacturing PMI business confidence slowing further from its recovery high, though still at a solid 53.7 in May (from 54.6 in April).
Two Czech opposition groups will hold a joint news conference later this morning about their plan to initiate a no-confidence vote in PM Babis’ minority government. It comes after the Czech police recommended charging Babis with fraud, having completed an investigation into alleged misuse of European Union funds. The prosecutor is now on the case and will decide whether to bring charges. It is the second time the police recommended charges after a first instance in 2019. The Czech koruna is trading stoic sub 25.5.
The Reserve Bank of Australia kept its policy and 3y target rate unchanged at 0.1%. The RBA took stock of the economy, which is recovering stronger than expected. The unemployment rate is declining faster than foreseen, coming in at 5.5% in April and expected at 5% by the end of this year. Nevertheless, it may take until 2024 at the earliest for the labor market to be sufficiently tight to generate wage pressures to bring inflation back to the 2-3% target range. Policy rates won’t be raised until then, the RBA said. It will however decide soon (in July) whether to retain the April 2024 bond as the target bond for its 3y yield target or to shift to the next maturity. It will then also discuss future bonds purchases as the second A$100bn envelope will be exhausted in September.
