20 May, 2016
FX News Today
European Outlook: Data today includes the EMU current account, UK CBI industrial trends and German PPI which is expected to rise to 0.2% from 0.0%. Overnight Asian stock markets managed to stabilise in tandem with oil prices. Crude prices rose to a seven month high and the front end WTI future has broken USD 49 per barrel. Japanese stocks are heading for a second weekly gain after recovering earlier losses with a weaker Yen helping to put a floor under markets as investors weigh the impact of a June rate hike in the U.S. on the global economy. The Nikkei is currently up 0.54%, the Hang Seng 1.20%, the CSI 300 up 0.105 and the ASX up 0.44%. U.S. stock futures are also moving higher.
Japanese Sales-Tax should be delayed: So says Etsuro Honda adviser to PM Abe the comments reported by Bloomberg says the sales tax hike planned from April 2017 should be postponed until the economy is completely free from deflation also that any economic package cannot offset the impact of the sales tax hike. This is in stark contrast to a senior member of the ruling party (mr Yamamoto who says the economy will not recover if sales tax delay is just for show. The continued uncertainty and public disagreements by people close to PM Abe leaves a rather negative impact. USDJPY remains north of 110.00.
Mixed US data : The US data yesterday revealed a disappointing Philly Fed downtick to -1.8 from -1.6 that accompanied Monday’s Empire State plunge to -9.02 from 9.56, alongside a restrained 16k initial claims reversal of last week’s 20k pop that left a still-elevated 278k figure. Yet, we still have an improvement in producer sentiment since the bleak readings over the six months ending in February, and a claims rise in May after lean April data that mostly reflects seasonal adjustment difficulties from the early-Easter, the New York spring break, and the Verizon strike. We also saw a welcome 0.6% April leading indicators rise, as the index rebounds with an assumed bounce in GDP growth to 2.0% in Q2 from an upwardly-revised 1.0% (was 0.5%) in Q1.
Fedspeak – Fischer (Vice Chair) nothing revealing in his speech on policy or the economy. Dudley (3rd most significant opinion) a hike in June or July is reasonable if the data conform to his outlook, said the Fed dove, who also noted June is “definitely” a live meeting. Of course the markets got that from the FOMC minutes yesterday, and he’s pleased with that outcome. The Q1 slowing in growth was a bit of a surprise and Q2 is shaping up to see stronger growth. The strength in retail sales helped bolster his view on the Q2 rebound. He thinks the economy is growing above trend with a tighter labor market. Brexit is another variable in the policy mix, he added. He didn’t give a time frame for the next rate hike, but rather reiterated that policy is still data dependent. He did acknowledge that it is important for the markets to grasp the FOMC’s thinking. Chair Yellen has a speech scheduled for June 6th.
Main Macro Events Today
US Existing Home Sales: April existing home sales data is out on todayy and should reveal a 1.3% headline increase to a 5.400 mln (median 5.390 mln) pace from 5.330 mln in March and 5.070 mln in February. Housing starts for April have already been released and posted an improvement to 1.172 mln from 1.099 mln in March and the NAHB housing sentiment index managed to hold steady at 58 from March.
Canada CPI: We expect CPI, due today, to accelerate to a 1.9% y/y pace in April (median +1.7%) from the 1.3% y/y pace in March. CPI is seen rising 0.5% on a month comparable basis in April (median +0.4%) after the 0.6% bounce in March. Gas prices shot 9% m/m higher in April after expanding 5.7% in March. Hence, gas prices should again provide a hefty lift to month comparable CPI. Of course, the currency appreciated further, with USD-CAD 5.0% to an average 1.256 in April. With the loonie also making headway in February and March, the exchange rate is expected to restrain price growth. The BoC’s core CPI index is seen rising 0.2% m/m in April after the stunning 0.7% gain in March. Annual core CPI growth is expected to expand at a 2.1% y/y rate in April (median +2.1%), matching the 2.1% pace in March. The BoC was sanguine about the pick-up in total and core CPI through the end of 2015, as they continued to lean on indicators suggestive of ongoing slack to make the case that the spike in core CPI was transitory. Another month of elevated core CPI will not shake the BoC’s view on the price backdrop. Notably, inflation remains on the backburner as growth is the focus.
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