Daily Market Update 7th July 2016
OVERNIGHT NEWS
- US:
- ISM Non-Manufacturing PMI came in at 56.5 for June vs 52.9 in May. The new orders component jumped 5.7 points to 59.9%. The production index rose to 59.5%. Employment increased 3.0 points to 52.7%, suggesting a rebound from a slowdown in May. In June, only one ISM index component, backlogs, was in contraction
- Markit U.S. services PMI showed marginal expansion at 51.4 in June, up fractionally from 51.3 in May. The June reading was the best in three months
- The U.S. trade deficit in May widened by 10% to a three-month high of $41.1 billion, thanks to high prices and stronger demand by consumers for imports such as cellphones, sneakers and home furnishings. Petroleum imports also shot up as the cost of a barrel rose to the highest level of 2016. As a result, U.S. imports increased 1.6% in May to a seasonally adjusted $223.5 billion. U.S. exports, meanwhile, slipped 0.2% to $182.4 billion. The U.S. exported fewer autos, airplanes and computer accessories in May.
- UK:
- More U.K. property funds froze withdrawals as panic spread in Brexit's aftermath. Henderson, Columbia Threadneedle and Canada Life suspended trading in at least 5.7 billion pounds ($7.4 billion) of funds. Aberdeen cut the value of a real estate pool by 17% and briefly halted redemptions so that investors who asked for their money back have time to reconsider. This follows Standard Life, Aviva and M&G investments
- FED:
- The Fed’s June meeting showed officials were unnerved by May’s weak payrolls report. Some participants suggested the decline in new positions might be statistical noise, and many bankers at the pre-Brexit meeting favoured raising rates should hiring return to a faster pace.
- Many were reluctant to change their outlook “materially” based on 1 data release; participants generally expected to see resumption of monthly gains in payrolls sufficient enough to promote strengthening of labor mkt
- CHINA:
- The PBOC will from Aug. 15 begin imposing a 20% reserve requirement on offshore financial institutions trading foreign-exchange forwards for clients. The money will have to be deposited when the firms settle trades in the onshore market, and it will be held at zero interest for one year.
FOREIGN EXCHANGE (INDICATIVE RATES)
| Currency | Last | % Change | Overnight Range |
|---|---|---|---|
| DXY | 96.05 | -0.28% | 95.977 - 96.496 |
| EURUSD | 1.1099 | 0.39% | 1.1029 - 1.1112 |
| USDJPY | 101.04 | 0.32% | 100.2 - 101.47 |
| AUDUSD | 0.7513 | 1.08% | 0.7427 - 0.7529 |
| GBPUSD | 1.2908 | -0.01% | 1.2865 - 1.3016 |
(Source: FabTrader)
Commodities (INDICATIVE RATES)
| Currency | Price USD | % Change | Overnight Range |
|---|---|---|---|
| Gold | 1366.57 | 0.05% | 1360.46 - 1375.28 |
| Silver | 20.16 | 0.65% | 19.863 - 20.512 |
| Oil (BRENT) | 48.80 | 0.96% | 47.17 – 49.22 |
| Oil (WTI) | 47.78 | 2.64% | 45.92 – 47.68 |
(Source: Bloomberg and Saxo)
COMMODITIES
Precious Metals: Global Gold Holdings topped 2,000 metric tons for the first time since July 2013. Holdings in bullion-backed exchange-traded funds rose 4.1 tons to 2,001.4 tons. Continued risk aversion could see 1350 as a key support for Gold prices.
Oil: Oil rose and U.S. industry data showed the nation’s crude stockpiles fell, mitigating concerns about an oversupply.
FOREX NEWS
- GBP was the biggest mover the past 2 days with the aftershock of the Brexit vote starting to kick-in. The outflows seen in the property funds (see news above) and the overall risk off sentiment triggered strong selling interest in GBPUSD and GBPJPY from the hedge fund community. Several banks are calling for a bigger move lower – some mentioned another 7%
- There is a lot of onshore selling in USDJPY and Cross/JPY. It has been the case for a while but this time, NY stopped buying since the June month-end
- AUD is consolidating at the high end of the range with the strong resistance at 0.7600
Fed minutes suggest rate hikes on hold until Brexit impact clearer
Federal Reserve policymakers decided in June that interest rate hikes should stay on hold until they have a handle on the consequences of Britain's vote on EU membership, according to the minutes of the Fed's June policy meeting released on Wednesday.
The minutes of the June 14-15 meeting, which took place ahead of the June 23 referendum in which Britons voted to leave the European Union, showed widespread unease over the so-called "Brexit" vote, including among voting members on the rate-setting Federal Open Market Committee.
"Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data on the consequences of the U.K. vote," according to the minutes.
Worries have only intensified since the vote and Fed Governor Daniel Tarullo cited the rise in uncertainty on Wednesday when he argued for holding off on rate hikes until inflation had turned decisively higher.
At the June policy meeting, policymakers also cited a severe slowdown in hiring by U.S. employers as a reason for leaving interest rates steady last month, the minutes showed.
The Brexit vote shocked investors and triggered $2 trillion in losses in global stock markets the day after the referendum. (Source: reuters.com)
