After Friday’s EURUSD rebound, Asia kicked off the week with an uncertain, directionless session for both risk and the single currency.
EURUSD initially pushed higher following a weekend WSJ headline that Germany would eventually be willing to give some ground on the latest crisis plan with the pair pushing up to just above 1.2440. However, the details of the article suggested that conditions revolve around weaker European countries giving up more sovereignty and transfer greater control over national budgets to Europe and hence the positive reaction did not last long. Very weak equity markets then saw risk trading off again and we soon traded back below 1.24 by mid-morning. Comments from PBOC’s Zhou that China will continue to buy Euro-zone government bonds, support the IMF and invest in infrastructure and privatization projects (but conditional on reforms being seen in invested countries) helped the bounce back through 1.24 again late-morning.
At the weekend China released its non-manufacturing PMI data. The index fell for a second straight move (but at least still held above the 50 contraction/expansion threshold) as it dipped to 55.2 in May from 56.1, its lowest reading since March 2011. There was some strength in the retailing, leasing and inventories sub-indices but this was more than countered by falls in export orders and real estate.
In other Asian data releases, inflationary pressures appear to be disappearing from the Australian economy with the TD Securities inflation gauge coming in flat for May and easing off to +1.8 percent y/y, the third month in a row it has been below the RBA’s targeted 2.0% rate.
The long wait for the US non-farm payroll number was finally over on Friday – and the headline number was a shocker! Just 69k jobs added versus 150k expected (plus downward revisions to previous months) while the unemployment rate edged up to 8.2 percent from 8.1 percent. Initial reaction was a huge risk-off trade with EURUSD pushing down to 1.2288 but a hefty Friday short-squeeze soon ensued, partly triggered by reports of the BOJ checking EURJPY levels, but also excessive EUR short positioning helped. The rumour mill also ran into overdrive with chatter ranging from ECB rate cuts to coordinated intervention to renewed QE3 talk. 1-1/2 big figures in EURUSD was easily achieved and the pair had their highest daily close in 3 days.
On the PMI front, indices were generally weaker across the board (only Norway bucked the trend with a strong 54.9 print while Germany and the Euro-zone managed a marginal improvement) with a noticeable decline in the UK (to 45.9 from 50.2). The US’ manufacturing ISM report was also below forecasts at 53.5 from 54.8 (53.8 expected) while prices paid were a soft 47.5 from 61.0. Wall St sank following the data with the DJIA losing 2.22 percent (and now negative for the year-to-date), S&P -2.46 percent and the Nasdaq -2.82 percent.
Note the UK is still celebrating the Queen’s diamond jubilee today and tomorrow, so markets there will be closed.
Data Highlights
US May Change in Non-farm Payrolls out at 69k vs. 150k expected and revised 77k prior
US May Unemployment Rate out at 8.2% vs. 8.1% expected and 8.1% prior
US May Avg. Hourly Earnings out at +0.1% m/m, +1.7% y/y vs. 0.2%/1.8% expected and 0.1%/1.8% prior resp.
US May Change in Household Employment out at +422k vs. -169k prior
US Apr. Personal Income out at +0.2% vs. 0.3% expected and 0.4% prior
US Apr. Personal Spending out at +0.3%, as expected vs. +0.2% prior
US May ISM Manufacturing out at 53.5 vs. 53.8 expected and 54.8 prior
US May ISM Prices Paid out at 47.5 vs. 57.0 expected and 61.0 prior
US Apr. Construction Spending out at +0.3% m/m vs. 0.4% expected and 0.3% prior
China May Non-manufacturing PMI out at 55.2 vs. 56.1 prior
JP May Monetary Base out at +2.4% y/y vs. -0.3% prior
AU May TD Securities Inflation out at flat m/m, +1.8% y/y vs. 0.3%/1.9% prior resp.
AU Q1 Inventories out at +0.9% vs. 0.7% expected and 1.4% prior
AU May ANZ Job Advertisements out at -2.4% m/m vs. revised -0.8% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
Sweden PMI Services (0630)
Sweden Service Production (0730)
EU Sentix Investor Confidence (0830)
EU Euro-zone PPI (0900)
US ISM New York (1345)
US Factory Orders (1400)
Andrew Robinson,
SAXO BANK