Market Wire - Bear Market Bounce Begins
The dollar is down, Treasury yields are climbing, and equity futures are pointing to a strong open - classic signs of a bear market reversal - as traders and investors take positions after the US long weekend.
- Bank of England Chief Economist Huw Pill said rates would need to climb further in coming months, but noted, “Monetary policy is not a panacea. Monetary policy is not an instrument that allows you to achieve lots and lots of different things at short term: stabilise the exchange rate, fine-tune developments in employment or activity”. Cable rose toward the 1.23 mark.
- The euro is climbing, but strong resistance could emerge at the 1.06 mark. Yesterday, European Central Bank President Lagarde said, “we intend to raise the key interest rates by 25 basis points at our July monetary policy meeting" and to hike again in September - words that reduced market-implied odds on even bigger moves.
- Japan's yen is holding near a 24-year low, with downside potential opening up as currency intervention hopes fade. Bloomberg noted this morning that the Bank of Japan’s efforts to defend its 0.25 percent yield cap on 10-year government bonds have accelerated over the last month, meaning it will soon control more than half the market - a level not reached by any other major central bank. Minutes from the Bank’s meeting, due for release this evening, could illustrate the thinking behind this.
- During the Q&A session after a speech last night, Governor Lowe kiboshed the idea of a 75 basis point hike at the Reserve Bank of Australia’s July meeting. He said, “I expect that next month we’ll be having the same discussion at our board meeting - 25 or 50 basis points. That’s what we discussed last time and that’s what we will discuss this time”. Implied rate expectations for the meeting fell, and the Aussie backed off the 70 cent threshold. Longer term yields are slightly higher.
- After rising steadily in overnight trading, the Canadian dollar is slipping lower as financial conditions tighten. Retail sales numbers for April are due at 8:30. The lagged nature of the data mean they are unlikely to prove market-moving, but could shed light on how household spending is holding up in the face of tightening monetary policy and slowing growth in house prices.
- Federal Reserve officials Barkin and Mester speak later today. Barkin isn’t a voter this year, and Mester is generally on the hawkish end of the spectrum.
- Jerome Powell is due to deliver semi-annual Congressional testimony tomorrow and Thursday. He will likely outline the thinking behind last week’s extra-large move, discuss the quantitative tightening process, and face a grilling from lawmakers on inflation.
= Copper and iron ore prices, often considered bellwethers for the global growth outlook, plunged yesterday. Both are down sharply over the last month as the Chinese property sector continues to weaken. Against this backdrop, demand for safe haven assets - like the dollar - looks likely to remain relatively strong.
Upcoming Events
TUESDAY
GBP Bank of England Speech, Pill
CAD Retail Sales, April
JPY Bank of Japan, April Meeting Minutes
WEDNESDAY
GBP Consumer Price Indices, May
CAD Consumer Price Indices, May
USD Federal Reserve Congressional Testimony, Powell
USD Federal Reserve Speech, Evans
THURSDAY
EUR European Central Bank Economic Bulletin
EUR S&P Eurozone Purchasing Manager Indices
GBP Retail Sales, May
USD Current Account Balance, Q1
USD Weekly Jobless Claims
USD S&P US Purchasing Manager Indices
GBP Bank of England Speech, Haskel
USD Federal Reserve Congressional Testimony, Powell
USD Department of Energy Weekly Inventories
MXN Bank of Mexico Rate Decision
CNY Current Account Balance, Q1
FRIDAY
JPY Bank of Japan Speech, Amamiya
AUD Reserve Bank of Australia Panel, Lowe
CAD Survey of Employment, Payrolls and Hours, April
USD Baker Hughes Weekly Rig Count
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