It has been a volatile ride for the FX markets on Wednesday, based largely on the differing outcome from two sets of data. Firstly, the ADP employment report showed just 27K jobs growth in May, compared to 185K expected, and just two days ahead of the US employment report it initiated another wave of US$ selling, underpinning expectations for a Fed rate cut. This was then followed by the ISM non-manufacturing survey, which unexpectedly rose to 56.9 from 55.5 in a show of surprise strength and saw a quick run back into the dollar which is finishing the US session towards its highs. The shorter term charts are now suggesting further possible strength in the next 24 hours although the US bond market sees yields stay under pressure, so any dollar rally may be limited and we are likely to chop sideways ahead of the ECB meeting later in the coming session.
In other markets, the US indices are up by around 0.8% as hopes of a rate cut continue, with stocks also underpinned by hopes that the US and Mexico will reach a deal on migration which would to avoid any trade tariffs between the two nations. The metals had a volatile session but are essentially not now too far removed from levels seen yesterday in Asia, while the other big move of the day was in oil. WTI is down by around 3.5%, although it was down by more than 5% at one stage in reaching its lowest level since January after the Energy Information Administration reported crude oil inventories increasing by 6.77 million barrels in the week to May 31, versus forecasts for a stockpile draw of just 0.85 million barrels.
Looking ahead, Thursday is going to focus the ECB meeting for guidance, with the market waiting to see how dovish, or otherwise, Mario Draghi is likely to be; and he is likely to maintain the status quo, given that the ECB recently lowered its growth expectations at the March meeting. On the other hand, there will be some possibility of restarting the ECB’s asset purchase program, with traders also looking to any possible alteration to the targeted liquidity program to European banks. We shall see.
Other points of interest will include a speech from the Australian Trade Balance (exp +$5.10bio), BOJ Governor, Kuroda, the Q1 EU GDP (exp 0.4%qq, 1.2%yy), but there will be little to come from the US, where attention will be turning to tomorrow’s Jobs/NFP/Average Hourly Earnings data (exp 3.7% headline rate, +185K;NFP, 34.5;AWH, 0.3%mm;AHE)
Economic data highlights will include:
Thur: Australian ANZ Commodity Price index, Trade Balance, BOJ Governor Kuroda Speech, German Factory Orders EU GDP, Employment Change, ECB Meeting, Interest Rate Decision, Statement, Press Conference, US Trade Balance, Jobless Claims, Fed’s Williams Speech
Fri: Australian Home Loans, BOJ Governor Kuroda Speech, German Trade Balance, Industrial Production, Jobs/NFP/Average Hourly Earnings data
Market moves, in brief:
FX: DXY 97.37 (+0.25%)
Bonds: US10Y; 2.135% (-0.06%), German 10Y; -0.225% (-8.8%), UK 10Y; +0.865% (-4.13%), Australian 10Y; 1.492% (-1.22%), NZ 10Y; +1.70% (+0.29 %), China 10Y; 3.252% (-0.99%)
Stock Indices: DJI; +0.82%, S+P; +0.82%, NASDAQ; +0.64%, EUStoxx50; +0.19%, FTSE100; +0.08%, Shanghai Composite; -0.03%,
Metals: Gold $1330 oz (+0.38%), Silver $14.80 oz (-0.05%), Copper $2.623 lb (-1.72%), Iron Ore $98.32 per tonne (NYMEX) (-2.29%),
Oil: WTI $ 51.68 pb (-3.5%)
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