The financial markets turned steady after yesterday risk appetite rally. Nikkei opened the day mildly lower but pared loss quickly. That followed 129.7 pts, or 0.73% rally in DJIA overnight. Sterling remains the strongest major currency so far, followed by commodity currencies. Yen and Swiss Franc are the weakest as risk aversion receded, followed by Dollar. Eased fear of Brexit also pushed bond yields higher with US 10 year yield closed at 1.67%, comparing to last week's low of 1.52%. Gold continues to struggle in tight range below 1300 and crude oil is firm above 49. While the EU referendum in UK on June 23 is the main event of the week, focus will first turn to Fed chair Janet Yellen's testimony to Congress today.
Fed chair Yellen will testify before Senate Banking Committee today and House Financial Services Committee tomorrow. Brexit is certainly a risk that US economy is facing. However, Yellen would be expected to explain her views on other risks of the economy. In particular, there seemed to be a reversal in views of FOMC members on rate path before and after the weak May NFP numbers. Currently, fed fund futures are pricing in 12% chance of a July hike, 33% chance of September hike and 54% chance of December hike.
In Australia, the minutes of June RBA meeting, when cash rate was held at 1.75%, were released. RBA noted that "an appreciation of the exchange rate could complicate the adjustment of the economy to the lower terms of trade." Meanwhile, "short-term measures of inflation expectations - from consumers, market economists, union officials and inflation swaps - had remained below average. Long-term inflation expectations had also remained below average." And, "following the reduction in the cash rate in May, the board judged that leaving the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time." Also from Australia, house price index dropped -0.2% qoq in Q1 versus expectation of 0.8% qoq rise.
Elsewhere, Japan will release all industry activity index today. German ZEW economic sentiment is the main focus in European session. Swiss will release trade balance. UK will release public sector net borrowing and CBI trends total orders.