Asian stock markets are mostly higher

May 31, 2016

FX News Today

European Outlook: Asian stock markets are mostly higher and U.S. and European stock futures also remain underpinned. This should keep pressure on Bund futures, which moved sideways in after hour trade yesterday after a declining sharply during the main session. Gilt futures could underperform in catch up trade, after yesterday’s holiday. The European calendar is again very busy, with German retail sales at the start of the session, followed by German and EMU unemployment data. The focus will be on the next set of preliminary May inflation numbers from France, Italy and for the Eurozone as a whole. After the higher than expected German number we see Eurozone HICP lifting out of negative territory to 0.0% y/y (med -0.1%) from -0.2% y/y, thus backing the ECB’s wait and see stance ahead of Thursday’s council meeting.

Japanese sales tax announcement: As Japanese housing starts rise the most in 10 months with a 9.0% y/y rise compared to expectations of only 3.9% all eyes are on PM Abe and the expected announcement in the sales tax hike that was due next year. Mr Yamaguchi (the coalition partner of the PM) is due to speak with the press later today. Mr Abe met with his with Finance Minister Mr Aso (who opposes the postponement of the sales tax) yesterday in a bid to rearranged summer elections for support of the sales tax deferment. The “will they wouldn’t they” has helped the continued easing of the yen with USDJPY trading at 111.28 and GBPJPY 163.26.

Australian Data: A poll by Bloomberg of 27 economists has raised Australian Q1 GDP to 0.8% from 0.6%.  Exports fared much better than expected and building approvals were significantly better than expected coming in at 3.0% whilst expectations were for a 3.1% decline.  Balance of payments missed expectations but private sector credit held up and was a slight improvement net at 0.5% from last month’s 0.4%. The AUD has reacted positively to the raft of good news with the AUDUSD rallying to the 0.7250 handle, next stop the Daily 200 DMA at 0.7260.

Fedspeak:  St Louis Fed’s Bullard did not comment on policy or the economy in the text of his rather academic talk on “Incomplete Credit Markets and Monetary Policy with Heterogeneous Labor Supply,” at a Bank of Korea event. In Q&A, however, the voting president confirmed his desire that policy remains dependent on the data. Hence he said he’d like to reserve judgement on the June 14, 15 outcome, especially as there are a lot of key numbers on the immediate horizon. He was mildely encouraged by the revised GDP number on Friday, where growth was bumped up to 0.8% from 0.5%. The global markets should be well prepared for a possible hike. We suspect Bullard will vote for a rate increase next month if the data don’t disappointing.

Main Macro Events Today

EURO Area CPI We are looking for Eurozone headline inflation to lift to 0.0% y/y  from -0.2% y/y in the previous month. German data yesterday came in a tad higher than originally expected, confirming that the drop back last month was largely due to base effects connected to the earlier timing of Easter this year, which saw holiday related prices peaking in March, rather than April and thus added to the variation over the March/April period. In any case, expectations for a gradual rise in the headline rate remain intact and with the ECB firmly in wait and see stance and focused on implementing the measures already announced, the HICP rate this month will not have much of a bearing on the discussion on Thursday.

US Consumer Confidence  May consumer confidence is out on Tuesday and should reveal an increase to 95.0 (median 96.0) from 94.2 in April and 96.1 in March. This compares the already released Michigan Sentiment data for the month which revealed a headline increase to 95.8 from 89.0 last month and the IBD/TIPP poll which increased to 48.7 from 46.3.

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