Credit Agricole
Asia Overnight
The rise in UST 5Y and 10Y UST yields back above 3% as well as higher oil prices weighed on investor sentiment during the Asian session. The Chinese technology stock rally that started yesterday also appears to have petered out. China’s trade data showed an upside surprise in its trade balance and exports, which helped support sentiment. A firmer CNH following the data also weighed a little on the USD. At the time of writing, most Asian bourses as well as S&P 500 futures were trading lower. G10 FX was trading in tight ranges ahead of the ECB meeting later today. The AUD was a modest underperformer during the Asian session given that China’s imports data was soft. The JPY was a modest outperformer on a softer USD
CIBC
FX Flows
Like yesterday and the day before that, $YEN prodded higher with talk of buying coming from the retail sector. Japanese retail day traders were long $YEN and have been reducing and going short above 130. They are now stopping out. Little fatigue after 134.525, the pair drifted back towards 134.12. Witness good volume around 134.15-25, profit taking from offshore names while speculators bought on higher US yields. $YEN moved lower over the Tokyo lunch, there wasn’t any headlines, I suspect maybe headlines available locally in Japanese.
Indeed a slow session as we head into ECB meeting. The pressure is on the central bank to deliver a monetary policy response to inflation. Nothing is expected in today’s meeting but rate expectations have been ramped up of late with markets torn between 25 bps or 50 bps move next month with asset purchases coming to an end. The majority of the Governing Council seems to be in support of a smaller move, but market participants will be closely watching remarks. Story in Bloomberg that hedge funds are positioning short US Treasuries into Thursday. What if the ECB disappoints? I believe EUR$ is still locked inside 1.0620 and 1.0787. Hawkish and we’ll see if we can take out the topside.
One of Australia’s biggest bank issued a report that it expects the current aggressive monetary policy tightening to weigh heavily on the economy and force RBA to reverse course and cut interest rates in the second half of 2023. I do not think AU$ reacted to this story. AU$ weakness was linked to lower AU$NZ$ cross. Yield spreads of the 2-year AU-NZ bonds widened to 76 bps this morning. Danger lurks below 1.1085. For the AU$, technical resistance at 0.7193 and intraday support at 0.7141.
$CAD ended the morning at middle of the day’s range, not reflecting AU$. In our FICC, Ian Pollick wrote given the BoC change in tone from the April meeting, we are likely going to change the policy forecast, but we want to see the employment data tomorrow first. If and when we adjust our forecast, it would likely be pulling forward the single hike we expected in 2023 into 2022, making September a 50 bps meeting (from 25 bps currently) and 2.50% being achieved earlier. Importantly, that is the level at which we see the Bank taking a pause for 2022, and perhaps for the rest of thecycle. Ian believes the peak in longer-term yields is fast approaching. For example, our current rates forecast has the peak in CAD 10yr yields at 3.15%, slightly below current levels at time of writing. Macro strategist Bipan is sticking to his view that $CAD range 1.25-1.30 and risk is to the upside. Option strikes due today, $740mio at 1.2500 and $440mio at 1.2690.
Strong trade data from China, export growth rebounded in May, data released, while import growth also beat expectations. Exports grew by 16.9%, total trade surplus was $78.76bn versus $51.12bn previous month. $CNH had a nudge lower onto 6.69-handle. Total of $2.39bn of 6.7000 strikes mature today.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.