Currency markets quickly adopted a negative view on the outcome of yesterday’s EU summit and sent the EUR down to 2-year lows versus the US dollar.
It appears the “new” plan is to continue the already-agreed 2020 growth plan and focus on investment, trade and implementing single market acts. There were differing views on the hotly-debated joint Eurobond issue, with Italy’s Monti saying the majority of EU leaders favour them – but that majority lacks the consent of the all-powerful German vote. So no progress there! The early Asian sell-off fell just short of the overnight low of 1.2545.
Flash PMI data for China’s manufacturing sector extended the recent run of softer data, with the HSBC flash PMI sliding to 48.7 from 49.3 last time. This marked the seventh month that the HSBC index has been below the key 50 contraction/expansion threshold, the longest run of sub-50 reading since the global financial crisis (that ran for 8 months). The data will no doubt fuel calls for additional stimulus from the Chinese authorities to stem the tide of economic slowdown, and lays the groundwork for the Friday rumour mill to churn out weekend RRR cut chatter. The kneejerk reaction was to mark risk currencies lower, but only by a fraction and then we consolidated.
There was marginal good news on New Zealand’s trade data with the trade surplus widening slightly to NZ$ 355 mln in April from a revised NZ$186 mln in March. Exports saw a pullback from March’s strong number but the decline in imports outpaced exports resulting in the better surplus. Weaker commodity prices dented shipments abroad and, with dairy cooperative Fonterra announcing lower payout prices from June onwards, the outlook looks particularly uncertain. NZDUSD traded 30 points lower despite the better surplus but then steadied mid-range for the rest of the session.
EUR weakness was again the major theme overnight with Greek exit contingency plan talk flooding the headlines. EURUSD touched 2-year lows and EURJPY popped below the 100 mark while the commodity index weakened, piling more pressure on the commodity-bloc currencies. As if GBP wasn’t facing a tough enough time, BOE minutes suggested the bank was close to pulling the trigger on further QE last time and softer retail sales data combined to pile on the pressure.
US housing data was generally better than expected, with the FHFA house price index rising 1.8 percent m/m, the largest increase on record, while new home sales also beat forecasts with a 3.3 percent m/m gain. Wall St could not benefit greatly from the better data with the Euro-zone issues a constant cloud. DJIA finished down 0.05 percent but the S&P rose 0.17 percent and the Nasdaq +0.39 percent.
Data Highlights
- CA Apr. Leading Indicators out at +0.3% m/m, as expected vs. revised 0.3% prior
- CA Mar. Retail Sales out at +0.4% m/m vs. 0.3% expected and -0.2% prior
- US Mar. House Price Index out at +1.8% m/m vs. 0.3% expected and 0.3% prior
- US Apr. New Home Sales out at +3.3% m/m vs. 2.1% expected and revised -7.3% prior
- NZ Apr. Trade Balance out at +NZ$355 mln vs. +NZ$400 mln expected and revised +NZ$186 mln prior
- AU Q1 House Affordability out at 61.8 vs. 58.5 prior
- China May HSBC Flash Manufacturing PMI out at 48.7 vs. 49.3 prior
(All Times GMT)
- GE Final Q1 GDP (0600)
- Swiss Trade Balance (0600)
- GE PMI Manufacturing (0730)
- GE IFO Surveys (0800)
- EU PMI Manufacturing/Services (0800)
- UK Q1 GDP (0830)
- UK Index of Services (0830)
- EU ECB’s Nowotny to speak (0915)
- US Durable Goods Orders (1230)
- US Initial Jobless Claims (1230)
- EU ECB’s Draghi to speak (1300)
- US Bloomberg Consumer Comfort Index (1345)
- US Kansas City Fed Manufacturing Activity (1500)