Risk appetite has nosedived this morning amid new EU woes due to the situation in Portugal. The Aussie, meanwhile, was driven to a new low for the cycle in the wake of mostly bad economic data.
The news out of Australia was clearly not supportive of the Aussie, which plunged to new lows against the US dollar and elsewhere after the RBA’s Stevens was out talking down the prospects for Australia’s mining industry and saying that the currency could go lower still. Meanwhile, the Services survey was very weak, the Retail Sales report was slightly worse than expected on top of a significant downward revision to the April data. The Trade Balance data was supportive, but the accumulated current account deficit of the last many years for Australia is enormous and most of its bonds are owned by foreigners.
USDJPY slipped right past 100 like it was hardy there yesterday, but has reversed sharply back lower this morning as the JPY is back to its old behavior, ripping stronger across the board as risk appetite has soured and bonds are moving higher. EURJPY downside is one of the ways I find the most interesting for playing for a potential extension of that move as the Euro has very thoroughly lost its shine this morning (note EURGBP coming off hard and the swift break of 1.3000 in EURUSD overnight.)
Portugal worries
Portugal is suddenly gaining significant attention to the resignation of the foreign minister a day after the finance minister also quit. Prime Minister Coelho vowed to stay on, but bond markets are showing a sharp drop in confidence, as Portugal’s 10-year benchmark yield spiked to almost 8% in early trading today after trading below 6.50% as recently as yesterday. This is clearly weighing on the Euro this morning, as is the weak services survey data.
Riksbank
The Swedish data made it difficult to draw a bead on the Riksbank’s rate decision today, as the Services PMI was so disappointing after a strong Manufacturing PMI earlier this week. The unchanged GDP and CPI forecasts are therefore relatively hawkish and the rate forecast is nothing to write home about, suggesting that the rate will bottom here at 1.00% for the cycle – though two members still wanted to cut at this meeting.
I wouldn’t be too sure that 1.00% proves the bottom of the cycle. With risk appetite in a bit of a meltdown this morning, though, the news is not being greeted as it would be were markets quiet and SEK has only rallied modestly. I suspect that the Riskbank’s forecasts prove about as accurate as all of the other central banks forecast have over time – not very. Sweden has a tremendous housing bubble that will require a long hangover period and considerable stress on private balance sheets, bank balance sheets and the public balance sheet eventually. Let ‘s see if the market gets direction off the Ingves press conference up shortly.
Looking ahead
Note that the ECB/BoE meetings tomorrow are arriving on the 4th of July, and markets in the US will be closed. I’m getting interested in EURGBP downside potential on the other side of the meetings, but let’s see how this plays out. Draghi’s task has suddenly gotten much tougher with the rapidly unfolding events, while the stronger UK data of late affords Carney some time to get comfortable in his new position before signaling any new medicine for the UK economy.
The key focus later today is the US non-manufacturing ISM, the most significant survey of the most significant portion of the US economy. The May survey saw a small bounce, but the employment sub-index dropped to a disappointing 50.1 for the lowest reading since July of last year, even as the New Orders index registered a healthy 56.0.
Stay careful out there – markets are acting more than a bit nervy at the moment.
Economic Data Highlights
- UK Jun. BRC Shop Price Index out at -0.2% YoY vs. -0.1% in May
- Australia Jun. AiG Performance of Services Index out at 41.5 vs. 40.6 in May
- China Jun. Non-manufacturing PMI out at 53.9 vs. 54.3 in May
- Australia May Trade Balance out at +670M vs. +53M expected and +171M in Apr.
- Australia May Retail Sales out at +0.1% MoM vs. +0.3% expected
- China Jun. HSBC Services PMI out at 51.3 vs. 51.2 in May
- Sweden Jun. Services PMI out at 44.8 vs. 48.7 expected and 47.7 in May
- Sweden Riksbank left rate unchanged at 1.00% as expected
- Spain Jun. Services PMI out at 47.8 vs. 47.6 expected and 47.3 in May
- Italy Jun. Services PMI out at 45.8 vs. 47.0 expected and 46.5 in May
- Germany Jun. Final Services PMI out at 50.4 vs. 51.3 original estimate and 49.7 in May
- Euro Zone Jun. Final Services PMI out at 48.3 vs. 48.6 original estimate and 47.2 in May
- UK Jun. Services PMI (0830)
- Euro Zone May Retail Sales (0900)
- Sweden Riksbank’s Ingves holds press conference (0930)
- US Jun. ADP Employment Change (1315)
- Canada May International Merchandise Trade (1230)
- US May Trade Balance (1230)
- US Weekly Initial Jobless Claims (1230)
- US Weekly Bloomberg Consumer Comfort Survey (1345)
- US Jun. ISM Non-manufacturing Survey (1400)
- US Weekly DoE Crude Oil and Product Inventories (1430)
- Japan BoJ’s Kuroda to Speak (0030)
- Australia May Building Approvals (0130)
- Australia RBA’ s Lowe to Speak (0230)