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Market Update – 2 June 2022

MARKET WRAP – 2 June 2022

Wall St finished the session fractionally lower with the NASDAQ closing -.7%, The S&P 500- .8% and the Dow Jones -.5%.  U.S 10-year yields rose 7bps to 2.91% while oil was flat at $114.90 a barrelThe AUD traded in a .7156/.7231 before closing at .7180.

 Asian equities were mixed on the close with the Nikkei +0.65% and Hang Seng -0.6%. The ASX finished Wednesdays session +0.3%, boosted by a better-than-expected Q1 GDP reading of 0.8%. European equities opened higher with Eurostoxx 50 +0.6%, and FTSE100 +0.4%.

Germany reported weak retail sales in April of -5.4%, missing expectations of -0.5%. In France, May final Manufacturing PMI was revised higher from 54.5 to 54.6. Eurozone final May Manufacturing PMI fell to an 18-month low of 54.6 (April 55.5). Unemployment in the Eurozone was unchanged printing at 6.8% in April, in-line with expectations. European Central Bank policymaker Robert Holzmann, a more hawkish member, said the new inflation record backs the need for a 50bp hike.

US ISM Manufacturing for May printed at 56.1, up from 55.4 and above expectations of a decline to 54.5 with rises in Prices Paid and New Orders though Employment slipped. Also, out of the US and April Construction Spending rose by 0.2% against expectations of +0.5%. Wall St was weaker from the open with losses moving towards 1% across the board over the NY morning. Across the Atlantic, European markets also fell in late trade with losses of around 1% the norm though the DAX lost just 0.3% to be a relative outperformer.

The Fed released their latest Beige Book which indicated that growth in the US economy was “slight or modest” with employment growth “modest or moderate”, these being a slight downgrade from “moderate” in both instances in the prior release. Members also noted that inflation, rising interest rates, the Russian invasion of Ukraine and COVID remained key concerns with some districts reporting greater concerns about future growth prospects.   

FX

AUD/USD traded to lows of 0.7159 yesterday, before rebounding to finish the Asian session just shy of 0.7190. EUR/USD spiked in response to the ECB’s Holzmann’s comments to reach new daily highs of 1.07395.

Into the London lunch session, AUD/USD continued to climb, reaching 0.7197 highs. NZD/USD rebounded from lows of 0.6479 to trade back above 0.6510. EUR/USD fell back to 1.0710. GBP/USD traded back towards daily lows of 1.2574. USD/JPY continued to climb to 129.615. USD/CAD fell back beneath 1.2640.

The antipodeans continued higher into the NY morning with the local unit pushing up through 0.7200 to reach highs while across the Tasman, NZD/USD reached 0.6540 highs. EUR/USD and GBP/USD headed the other way, dipping slightly while USD/CAD fell to lows of 1.26155 ahead of the Bank of Canada decision.

The USD was bid in the aftermath of the ISM data with AUD/USD sliding back towards the lows in the following half hour while NZD/USD fell to new lows of 0.6474. EUR/USD and GBP/USD made respective lows of 1.06515 and 1.24855 while USD/JPY made highs just short of 130.00. USD/CAD dipped to 1.2605 on the BOC decision though then bounced to around 1.2650 on the back of the stronger greenback.

After a brief pause around the London rate set, the USD made further gains into the NY afternoon. AUD/USD fell to lows of 0.7156 with NZD/USD down to 0.6465 while EUR/USD hit 1.0627 and GBP/USD fell to 1.2459. USD/JP{Y moved up through 130.00 to hit 130.135 while USD/CAD made new highs of 1.2677. AUD open this morning at 0.7175.

Market Outlook

Australia’s trade balance for April is out today and markets expect it to remain deep in surplus territory. Iron ore and coal volumes loaded for export were firm and the prices commanded by both commodities remained strong too. Sustained oil price strength in April should also have preserved (or even boosted) LNG’s contribution to the trade surplus.

Eurozone PPI will be released later today and markets expect it to remain exceptionally strong, further undermining the ECB’s hope that the current inflationary pulse is transitory. But how can it be transitory with so much upstream price pressure building up at the producer level (and captured by PPI) which will eventually filter through into higher CPI?

The AUD/USD remained within its recent ranges on what was a relatively quiet session.  Offering interest remains staggered to .7250 while demand should materialise if we dip toward .71c.

Overnight Currency Ranges 

Currency Pair Low High
AUD/USD 0.7156 0.7231
EUR/USD 1.0627 1.07395
GBP/USD 1.2459 1.2616
USD/JPY 128.65 130.19
NZD/USD 0.6465 0.654
USD/CAD 1.2605 1.2677
USD/CNH 6.673 6.7132
AUD/JPY 92.28 93.61
AUD/NZD 1.1012 1.1077
DXY 101.738 102.731

Source Bloomberg

 

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