DXY depreciated to 103.95, below 104 for the first time since 9 June. DXY depreciated by an average of 0.2% in the past four out of five sessions. It needs to break the support at 103.50 to extend its downtrend. The European currencies led the sell-off in the DXY – SEK (+0.4%), EUR (+0.3%) and CHF (+0.2%). JPY bucked the trend with a 0.2% loss but held close to 135 per USD in the past three sessions. USD/CAD is looking to extend its fall beneath the 1.2860 low seen on 16 June. USD/CHF has already done so by edging into a lower 0.95-0.96 range last Friday after consolidating a week between 0.96 and 0.97. GBP/USD also entered a tight range on 17 June but has spent more time trying to push above 1.23 than it did below 1.22.
Since 16 June, EUR tried and failed a third time to close above 1.06 but has found buyers whenever it dipped below 1.05. Today, the European Central Bank will kick off its two-day Central Banking Forum 2022 “Challenges for monetary policy in a rapidly changing world” in Sintra, Portugal. The panel discussions should demonstrate the convergence amongst the Western central banks to anchor inflation expectations via rate hikes. This should go some way to explain why the major exchange rates have been more consolidative than trending. Nonetheless, EUR bulls will be looking at Friday’s Eurozone CPI to decide if the ECB hasten hikes from the telegraphed 25 bps in July to 50 bps in September.
US stocks could not extend last week’s rally. Dow, S&P 500 and Nasdaq Composite ended Monday lower by 0.2%, 0.3% and 0.7% respectively. Investors remained wary of bear market rallies and could not shake off lingering US recession worries. The Dallas Fed’s Texas Manufacturing Outlook Survey was grim. General business activity fell deeper into negative territory to -17.7 in June from -7.3 in May. New orders turned negative for the first time in two years from a decline in demand, resulting in marked falls in capacity utilization and shipments. However, prices and wages increased strongly amidst robust employment growth and longer workweeks.
Today, the Richmond Fed’s Fifth District Survey of Manufacturing Activity is expected to stay negative for a second month. Consensus expects the composite index to be -5 in June after it fell to -9 in May from +14 in April. In the last survey, firms reported weaker shipments and new orders and were less optimistic about conditions in the next six months. However, some producers also reported supply chain improvement. While many companies raised wages, the employment index fell to 8 in May from 22 in April.
US 10Y bond yield firmed 7 bps to 3.20%; 2Y rose 5.8 bps to 3.12%. After the stronger-than-expected CPI readings, the market remains wary of upside surprises in Thursday’s US PCE deflators. Consensus sees PCE headline inflation picking up to 0.7% MoM in May from 0.2% in April, and PCE core inflation rising to 0.4% from 0.3%. Given the concern about consumer demand by manufacturers in the Fed surveys above, today’s Conference Board consumer confidence index should matter. Consensus expects the headline index to slow to 100 in June from 106.4 in May, and how much present situation index will fall from 149.6 in May. In the last survey, consumers were already pivoting away from big-ticket items (e.g., cars, homes and major appliances) and vacations to spending on services because of high inflation and rising interest rates.
Overall, markets are paying more attention to the resilience of US consumer demand and private investment that the Fed relies on to expedite rate hikes to neutral.
Quote of the day
“You cannot simultaneously prevent and prepare for war.”
Albert Einstein
28 June in history
In 1914, Austrian Archduke Franz Ferdinand was assassinated, setting of events that began World War I. Five years later, the Treaty of Versailles ending The Great War was signed on the same day in 1919.
Topic
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