From Marc to Market:
Overview: Follow-through dollar selling stalled as key levels were approached, including $1.19 in the euro, $1.3900 in sterling, $0.7600 in the Australian dollar, and CAD1.2300. Sentiment is mixed after the greenback sold-off before last weekend despite the fastest jobs growth in 10-months. Emerging market currencies are mixed, with the JP Morgan Emerging Market Currency Index slipping slightly. The 10-year US Treasury yield is flat near 1.42%, while European yields are 2-3 bp softer. Australian yields are firmer following the RBA decision to taper in Q4 and maintain its target on the April 2024 bond. New Zealand yields are also higher following a strong sentiment survey and calls for a rate hike as early as November. Bourses in the Asia Pacific region were mixed. Some strength was seen in Japan, South Korea, and India, among the larger markets. Europe's Dow Jones Stoxx 600 is recovering from earlier slippage to post minor gains near midday. and US futures are slightly softer. Gold is extending its recovery into the fifth consecutive session and is trying to sustain a foothold above $1800 for the first time since mid-June. OPEC+ seems to be in disarray, and the initial reaction is to take oil prices higher. August WTI has steadied after approaching $77. Brent is advancing for the sixth consecutive session. Industrial metals, including iron ore and copper, are extending recent gains.
Asia Pacific
Japan is considering extending the social restrictions in some cities, including Tokyo, even as the Olympics draw near. As a result, spectator attendance is set to be even more limited. Meanwhile, Japan reported stronger than expected household spending (11.6% year-over-year in May), but it was slow than April's 13.0% rise. This still represents a 2.1% decline month-over-month. Labor cash and real earnings rose faster than the downward revisions to the April series but still missed expectations. Cash earnings rose 1.9% year-over-year in May, after April's revised 1.4% increase (initially 1.6%). On the month, though, cash earnings fell by 0.9% after rising by 0.4% in April. Real cash earnings were 2% higher than a year ago in May and 1.9% in April. The takeaway is that the Japanese economy likely contracted in Q2. As a result, a supplemental budget is likely in the fall.
The Reserve Bank of Australia did not disappoint. It will not roll its 3-year target to the November 2024 bond, and once the A$5 bln a week bond-buying program ends in September, it will slow to A$4 bln a week. The next review will be in November. RBA Governor Lowe reiterated that the cash rate target will not be lifted until inflation returns to the 2-3% target in a sustained fashion. This is not expected to be achieved before 2024. The pandemic has restricted temporary workers from abroad, and the restrictions are not expected to ease for a few quarters, which may be helping bolster labor market readings.
A strong quarterly confidence survey and a couple local banks forecasting a hike as early as November helped lift the New Zealand dollar. The market has a 25 bp hike nearly fully discounted here in H2 21. The RBNZ meets on July 13, and it is now seen to be among the front of the queue among central banks from high-income countries. Norway's Norges Bank is the only other major central bank expected to hike rates this year....
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