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I. Market focus:
At the beginning of the new week, the markets continue to discuss the outcomes of the G7 summit, which ended on Saturday in Canada. The summit was predictably difficult due to a tough position of the U.S. President, who refused to sign a final communiqué as well. Donald Trump argued his decision by the “false statements” by the Canadian Prime Minister on the U.S. tariffs. At the same time, in the press service of Justin Trudeau noted that the head of the Canadian government said nothing he had not said before in private conversations with the President. Trump left the summit in Canada earlier than the protocol implied to head to Singapore, where he will meet with the DPRK leader Kim Jong-un tomorrow. On the way, the U.S. president spoke out again on Twitter, criticizing Trudeau, the EU and NATO. The Canadian dollar reacted the most to the outcomes of the G7 summit, demonstrating a sharp decline against the US dollar at the beginning of the new week.
The cryptocurrencies demonstrated more noticeable movements in the morning. In particular, bitcoin, showed a steep decline on reports the South Korean cryptocurrency exchange Coinrail was hacked over the weekend and the regulators from the U.S. Commodity Futures Trading Commission (CFTC) demanded extensive trading data on Bitcoin (BTC) futures from four cryptocurrency exchanges - Bitstamp, Coinbase, itBit and Kraken - in order to investigate whether manipulation might be compromising prices in digital currency markets. By the beginning of the European session, BTC price stabilized near $6,700, down from Friday's close of $7,600.
Apart from the historic meeting between the heads of the United States and North Korea, the focus of market participants this week will also be on the meeting of two central banks - the U.S. Federal Reserve (the outcomes will be announced on Wednesday) and the European Central Bank (the results will be released on Thursday).
As for today, the most significant event will be the releases of the UK’s data on industrial production and trade balance for April, scheduled for 08:30 GMT.
II. The market highlights are:
The Canada Mortgage And Housing Corp. (CMHC) reported on Friday the Canadian housing starts rose at a seasonally adjusted rate of 195,613 units in May, down from an upwardly revised 216,775 units in April (originally 214,379). Economists had forecast housing starts increasing by 218,000. According to the report, urban starts fell 11.1 percent m-o-m last month to 178,201, as multiple urban starts tumbled by 16.4 percent m-o-m to 119,811 units, while single-detached urban starts rose by 2.0 percent m-o-m to 58,390 units. At the same time, rural starts were estimated at a seasonally adjusted annual rate of 17,412 units (+6.9 percent m-o-m).
Statistics Canada revealed on Friday that the number of employed people fell by 7,500 m-o-m (flat m-o-m) in May, missing economists’ forecast for a 17,500 increase and after an unrevised drop of 1,100 in the previous month. Meanwhile, Canada's unemployment rate held steady at 5.8 percent last month, in-line with economists’ forecast. The jobless rate was at its lowest level since 1976 for the fourth consecutive month. According to the report, full-time employment decreased by 31,000 (-0.2 percent m-o-m) in May, while part-time jobs rose by 23,600 (+0.7 percent m-o-m). In May, the number of private sector employees was little-changed m-o-m (-4,800 or 0.0 percent m-o-m), while the number of public sector employees rose by 12,900 (+0.3 percent m-o-m). At the same time, the number of self-employed reduced by 15,600 m-o-m (-0.5 percent m-o-m) last month. Sector-wise, there were more people working in accommodation and food services (+1.4 percent m-o-m), professional, scientific and technical services (+1.2 percent m-o-m), transportation and warehousing (+1.3 percent m-o-m), and finance, insurance, real estate, rental and leasing (+1.0 percent m-o-m). At the same time, employment decreased in health care and social assistance (-1.0 percent m-o-m), manufacturing (-1.0 percent m-o-m), construction (-0.9 percent m-o-m), and "other services" (-1.5 percent m-o-m).
The weekly report from Baker Hughes, which was released on Friday, showed that the number of active U.S. rigs drilling for oil rose by one to 862 during the week ended June 8. That was the highest level since March 2015. In the prior week, the oil-rig count increased by two. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, rose by two to 1,062, as the gas rig count increased by one to 198 last week, and the miscellaneous rig count remained at 2. The U.S. rig count is up 135 rigs from this time last year when it stood at 927.
The National Bureau of Statistics (NBS) revealed on Saturday that China’s producer price index (PPI) rose 4.1 percent y-o-y in May, after gaining 3.9 percent y-o-y in the prior month. That was the highest producer inflation since January. Economists had expected PPI would increase by 3.9 percent y-o-y in May. Compared with a month ago, costs increased at a faster pace for both production materials (+5.4 percent y-o-y in May versus +4.5 percent y-o-y in April) and consumer goods (+0.2 percent y-o-y in May versus +0.1 percent y-o-y in April). The PPI rose 0.3 percent m-o-m in May, following a 0.2 percent drop in April. At the same time, the consumer price index (CPI) increased 1.8 percent y-o-y in May, the same pace as in the prior month and in-line with economists’ forecast. That remained the lowest inflation rate since January. The food prices increased 0.1 percent y-o-y in May after rising 0.7 percent in April, while non-food costs rose 2.2 percent y-o-y, following a 2.1 percent y-o-y growth a month ago. On a monthly basis, consumer prices declined 0.2 percent in May, the same as in April.
The report released by the Cabinet Office on Sunday showed Japan's core machinery orders rose more than expected in April. According to the report, core machinery orders, an indicator of capital expenditures in the coming six to nine months, surged 10.1 percent m-o-m in April, following an unrevised 3.9 percent m-o-m drop in March, while economists expected a 2.8 percent m-o-m increase. According to the report, manufacturing orders climbed 22.7 percent m-o-m in April, while non-manufacturing orders advanced 0.4 percent m-o-m. Government orders rose 6.2 percent m-o-m and orders from overseas surged 10.0 percent m-o-m, while orders from agencies edged down 0.2 percent m-o-m. In y-o-y terms, core orders, which excludes those of ships and electricity, rose 9.6 percent in April, compared to a 2.4 percent y-o-y drop recorded in March and a 3.9 percent y-o-y gain projected by the economists.
III. Market Situation
The currency pair EUR/USD rose moderately, reaching its Friday’s high, helped by the weakening of the U.S. dollar. With the empty economic calendars in the Eurozone and the U.S. ahead, traders will pay attention to the dynamics of the U.S. currency and the general market sentiment toward risky assets. Meanwhile, investors' focus is gradually shifting to the ECB meeting, the outcomes of which are set to be announced on Thursday. However, analysts do not expect that the euro will see a strong recovery when the ECB’s policymakers will meet to discuss the end of the quantitative-easing (QE) program, - the action signaled by few of them last week. Although such discussions could push the euro higher ahead of the ECB meeting, analysts do not forecast any solid gains in the euro and note that the strengthening of the single currency will be attributable to the adjustment of short-term positions rather than to the expectations of a change in the ECB’s policy. Resistance level - $1.1838 (high of June 7). Support level - $1.1726 (low of June 8).
The currency pair GBP/USD consolidated near the opening level, as investors were cautious ahead of the publication of the UK’s data on industrial production and trade balance for April. It is expected that industrial production in April rose 0.2 percent m-o-m and by 2.7 percent y-o-y. Experts note that favorable PMI data for May confirm the view that economic activity may be recovering. Thus, the weak growth in the first quarter was primarily due to temporary factors, for example, unfavorable weather conditions. Nevertheless, although the composite PMI index for May reached its highest level this year, the GDP growth is expected to accelerate in the second quarter only to 0.4 percent. Overall, any increase in activity after bad weather is likely to bring it up this quarter to levels that were observed before the snowfalls. Resistance level - $1.3492 (high of May 22). Support level - $1.3295 (low of June 4).
The currency pair AUD/USD traded slightly higher, supported by a broad weakness in the U.S. currency and gains in prices for some commodities. However, according to experts, Australia's close economic ties with China made its local dollar one of the most vulnerable currencies in the ongoing tensions between Beijing and Washington. In addition, Australia's dependence on exports of coal and iron ore that are used in world steel production only strengthens the prospect of the Australian dollar's vulnerability, as President Donald Trump's administration announced import tariffs for steel and aluminum. Meanwhile, the Reserve Bank of Australia (RBA) again left its interest rates unchanged last week, while the Fed is expected to announce a hike in rates this week, which will increase interest rate gap between the two economies. Resistance level - AUD0.7676 (high of June 6). Support level - AUD0.7513 (low of June 1).
The currency pair USD/JPY rose sharply, reaching the peak of Friday's session, due to the results of the G7 summit. The summit was predictably difficult due to a tough position of the U.S. President, who refused to sign a final communiqué as well. Donald Trump argued his decision by the “false statements” by the Canadian Prime Minister on the U.S. tariffs. Behind Mr. Trump’s outrage is his conviction that the U.S. is at a disadvantage when it comes to global trade and is on the losing end of tariffs imposed by other countries. But to many of the U.S. trade partners, his criticism sounds unfounded, given that the United States sets its own tariffs on everything from trucks and peanuts to sugar and so on. Resistance level - Y110.56 (high of June 6). Support level - Y109.19 (low of June 8).
U.S. stock indexes closed higher on Friday, despite a caution ahead of the start of the G7 summit in Canada and a drop in Apple’s shares (AAPL; -0.9%) on reports the company warned its suppliers about a 20 percent decline in parts orders.
Asian stock indexes closed mixed on Monday, as investors digested the G7 summit, which ended with deepening tensions over the U.S. import tariffs, while awaiting the historic Trump-Kim meeting and the outcomes of the gathering of three of the world’s major central banks - the Fed, ECB and the Bank of Japan (BoJ).
European stock indexes are expected to trade mixed in the morning trading session.
Yields of US 10-year notes hold at 2.96% (+2 basis points)
Yields of German 10-year bonds hold at 0.48% (+3 basis points)
Yields of UK 10-year gilts hold at 1.39% (-1 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in July settled at $65.59 (-0.23%). The crude oil prices fell moderately, weighed down by reports Saudi Arabia started to ramp up oil output as well as the latest data from Baker Hughes, which that the number of active U.S. rigs drilling for oil rose by one to 862 during the week ended June 8. That was the highest level since March 2015. In the prior week, the oil-rig count increased by two. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, rose by two to 1,062, as the gas rig count increased by one to 198 last week, and the miscellaneous rig count remained at 2. The U.S. rig count is up 135 rigs from this time last year when it stood at 927.
Gold traded at $1,298.30 (+0.03%). Gold prices edged up, reacting to the results of the G7 summit and the dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.10 percent to 93.46. Since gold prices are tied to the dollar, a weaker dollar usually makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Total Trade Balance
NIESR GDP Estimate
BSI Manufacturing Index
|remaining time till the new event being published|
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