Ahead Today
G3: US Q1 GDP, Q1 core PCE, initial jobless claims; Eurozone: consumer confidence, unemployment rate; Spain inflation
Asia: Australia building approvals
Market Highlights
US dollar gains momentum as US yields rise following poor auction sales of the 2y note and 5y notes. The US 2y yield has inched towards the 5% level, while US 10y yield rose 14bps to a 3 -week high of 4.60% in the past two trading sessions. Bond traders are looking for just one cut this year. USJPY moved up to above 157 level. Risk sentiment has eased, with some profit-taking on the S&P 500 index. These movements also follow comments from Fed’s Kashkari yesterday that rate hikes are on the table.
Markets will turn their focus to the weekly initial jobless claims (IJC) for signs of labor market softening. Markets expect IJC of 217k for last week, from 215k in the prior week. Elsewhere, US mortgage applications fell 5.7% last week, after rising 1.9% in the prior week, amid elevated 30-yr mortgage rate of around 7%. But Richmond Fed manufacturing index improved to zero from -7. The Fed’s beige book also shows the US economy expanding modestly but consumers have pushed back on higher prices.
Meanwhile, German CPI was 0.2%mom in May vs. 0.6% prior. But on a year-on-year basis, German CPI was 2.8%yoy, higher than the 2.4% pace in April and the 2.7% market expectation. An ECB rate cut in June appears to be a done deal, though the pace of cuts beyond June remains uncertain.
Regional FX
Asian currencies weakened against the US dollar yesterday and we think the weak momentum could persist today. USDCNH drifted higher above the 7.2700 level, on a lack of credit and fiscal impulse, along with a still struggling real estate sector. Negative spillover effects from CNY weakness were particularly felt by the KRW. Meanwhile, markets could continue to trade on BSP dovishness and broad US dollar strength. PHP underperformed with a 0.8% fall yesterday. VND has remained under huge depreciatory pressure against the US dollar, hovering near the upper bound of SBV’s FX trading band. Strong macro data release from Vietnam yesterday did not provide much support for the VND, given a lack of USD liquidity onshore. USDINR also rose modestly, with limited positive impact from S&P upgrading its outlook of India’s BBB- rating to positive from stable.
