FX News Today
European Outlook: Asian stock markets are mostly higher, although Hang Seng and Chinese bourses headed south as concerns about the impact of slowing Chinese growth resurfaced. U.S. and U.K. stock futures are also down and it seems markets are heading for some profit taking after the rally over the past days. Eurozone markets may still outperform as the deal with Greece as the deal with Greece will go some way to restore confidence in the Eurozone project. Oil prices are slightly higher on the day, with the front end WTI futures moving towards USD 50 per barrel and the Brent contract having already reached and breached this key psychological level. The European calendar today has final Q1 GDP numbers from Spain and the U.K. as well as BBA mortgage data for the U.K. and Italian retail sales.
Bank of Canada held rates steady at 0.50%, matching widespread expectations. The bank judges that the risks to the inflation profile are roughly balanced, an identical assessment to April. Household vulnerabilities have moved higher amid strong regional divergences in the housing market. The economy will be hit by the Q2 oil production slowdown, but a rebound is seen in Q3 as oil production resumes and reconstruction begins. Overall, the announcement was consistent with no change in rates for an extended period.
US Markit reported its flash services PMI stumbled to 51.2 in May, after increasing to 52.8 in April from 51.3 in March. The index has been correcting from the February drop to 49.7, but this slowing in activity is a bit of a disappointment. It was 56.2 a year ago. Employment slid to 51.8 from 53.1 from 54.0 in March, and is the lowest print since December 2014. Prices charged did rise, however, to the highest since November 2015. The flash composite index dropped to 50.8 from last month’s 52.4 and compares to 51.3 in March. The employment component softened to 51.7 from 52.6, and is the lowest since April 2014. But as with the services index, the price component rose and hit its highest since July 2015.
Fedspeak: Harker, Kashkari, and Kaplan didn’t break new ground (and none are voters). The Philly Fed’s Harker repeated that 2 or 3 rate hikes are possible this year, echoing several other policymakers’ thoughts. Neither Minneapolis Fed’s Kashkari nor Dallas Fed’s Kaplan weighed in on policy per se, but neither suggested any opposition to the talk of further normalization. Kashkari said his view is for moderate U.S. growth. And, Dallas Fed’s Kaplan indicated that high debt to GDP ratios can be a headwind to growth, and he’s aware that global events can impact financial conditions.
Main Macro Events Today
US Durable Goods Expectations are for significant rebound in the Core rate to 0.3% from last month’s -0.2%. The overall headline figure (including the volatile transport sector) is expected to fall to 0.4% from 0.8% last time. Weekly jobless claims are also out at the same time so there is added potential for volatility around the USD at 12:30 GMT.
UK GDP Final 1Q GDP figures are out later and expected to confirm a YoY growth of 2.1% and QoQ growth of 0.4%. Any significant difference from consensus and the strong few days sterling has enjoyed is likely to see some profit taking.