Good morning,
Asian shares fell to near 10-week lows on Tuesday as a
stubbornly strong yen dragged Tokyo into the red while falling oil prices
deflated energy shares. With few fresh catalysts to drive sentiment,
investors eye the start of Thursdays G7 summit in Japan with the sputtering
global economy a key topic on the agenda during the 2 day meeting, while
worries over a possible US interest rate hike by the Federal Reserve as early
as next month again took hold. Adding to the US central bank's hawkish
signals last week that a June US rate raise could be on the cards, a prominent
Fed board member weighed in with comments that suggested markets could be
behind the curve on the Fed's intentions. Since raising rates in December for
the first time in nine years, the US central bank in March forecast essentially
two rate rises for this year, but markets have had much lower expectations amid
a batch of lack lustre US economic data. However, James Bullard, president of
the St. Louis Fed and a voting member of the policy-setting Federal Open Market
Committee, said in a speech on Monday in Beijing that US labour market and
inflation data suggested the Fed's projection "may be more nearly
correct". The Nikkei trades down 0.73%, Shanghai -0.77%, Hang
Seng -0.55% and the ASX -0.1%.
In the FX space the Aussie dollar extended loses below the
0.7200 handle against the US dollar as RBA Governor Stevens reinforced his
pledge to combat lower inflation levels by deploying appropriate monetary
policy framework, and thereby justifying his May rate cut stance. The kiwi
dollar also fell overnight as the bears took control as a classic risk-off
sentiment gripped the markets with the US dollar paring some of its recent
loses and the yen holding onto gains.
Gold extends its losing streak into a fifth-day this Tuesday
as US dollar strength weighs on the yellow metal capping any effort to the
upside. Having posted session highs of $1252.35 it quickly fell to lows of
$1244 and has looked vulnerable since. Oil dipped for a second day as comments
from Iranian officials vowing to keep production up did little to dispel
worries about global oversupply. WTI and Brent trade $47.90 and $48.11
respectively.
So to the day ahead and this week’s first tier data release
is German ZEW Economic Sentiment Indicator (1000 BST). Economic activity
accelerated in Europe’s biggest economy in May, according to yesterday’s survey
data from Markit Economics. The firm’s composite purchasing managers’ index for
Germany ticked up to 54.7 in this month’s flash estimate – a five-month high
and the first improvement so for in 2016. Whilst the PMI data is encouraging a
closer look still leaves room for caution. Today’s update in Germany’s
financial sector will provide more context for assessing the May macro profile.
The last two reports reveal a modest rebound in expectations, but the firmer
outlook for the future was accompanied by an ongoing slide in the current
reading of economic conditions.
UK Inflation Report Hearing (1000 BST) With exactly
one month left to go before the UK holds a referendum that will decide whether
or not it stays in the European Union, the British pound has generally remained
resilient in the face of substantial downside risk to the currency that would
very likely result from a successful “Brexit” vote. Aside from the Brexit
issue, last week saw mixed data out of the UK, including a lower-than-expected
inflation reading in the form of the Consumer Price Index, and
better-than-expected numbers for average earnings, unemployment claims, and
retail sales. Expect plenty of trading opportunities from todays lengthy
hearing.
US New Home Sales (1500 BST) The combination of job growth
and low interest rates have dispensed a bullish edge for the housing market so
far this year. Some indicators have been choppy at times, but sentiment in the
home building industry remains upbeat. Last week’s numbers on existing home
sales look promising too. Transactions edged higher in April for the third
month in a row, sticking close to the highest level since the recession ended.
Today’s update on newly built houses is expected to bring good news as well as
the market looking for a gain that will push sales up to 523,000 for April
(seasonally adjusted annual rate).
Good luck
Anish S. Lal – VP Sales
FX & Precious Metals, Atom8
Financial Services LLP
2nd Floor, Centenary House, Palliser
Road, London W14 9EQ, UK
Risk Warning
Trading on margin (spread betting, CFDs and FX)
carries a high level of risk and may not be suitable for all investors.
The high degree of leverage can work against you as well as for you.
Before deciding to trade your live account, you should carefully consider your
investment objectives, level of experience and risk appetite. You could
lose more than your initial investment and should not trade with funds you
cannot afford to lose. You should be aware of all the risks associated
with foreign exchange trading, and seek advice from an independent financial
advisor if you have any doubts.
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