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While equities have been in this lull, the greenback has continued to grind its way higher, this time benefitting from a round of mostly positive economic data. Focus has firmly returned to US lift-off and this is perhaps one of the causes of the choppy trade in equities and caution in some emerging markets. Investors focused on the ISM manufacturing print which was the first gain in manufacturing in seven months. However, comments by Fed vice chair Stanley Fischer suggested a hike will happen but the pace of hiking will likely be cautious thereafter. It’s still very much a data dependant Fed and I suspect the USD will continue to react as data comes in over coming months with volatility likely to ramp up as we head towards September. The euro was surprisingly resilient against the greenback and managed to hold its ground at around 1.0900. Perhaps this was a product of some optimism around Greece as European leaders called a meeting. Reports suggesting Angela Merkel, Christine Largarde, Mario Draghi and Francois Hollande would meet Greek Prime Minister Alexis Tsipras in Berlin were taken favourably. With Friday’s deadline for a Greece payment looming, it will remain a headline risk-driven euro.
Japan’s run stalls
Japan is relatively flat despite the upward trajectory in USD/JPY remaining rampant. USD/JPY traded as high as 125.09 (12-year high) and this supported the Nikkei earlier today. Japanese equities have been up for 12 straight sessions and it looks like this run may end today. Average cash earnings data released today was much better than expected, coming in at +0.9% versus +0.4% expected. This is consistent with the rebound we’ve been seeing in Japan data lately.
RBA turns data dependant
The RBA’s June meeting saw rates kept on hold which was widely expected by the market. Focus today was solely on the statement as some analysts felt the central bank would reinstate an easing bias. However, this was not the case and the RBA simply said the information on economic and financial conditions to be received over the period ahead will be key. On the currency, the RBA said further depreciation seems both likely and necessary particularly given the declines in key commodity prices. The response in the AUD was actually firmer with traders feeling the RBA hadn’t done enough to send the local currency lower. However, given AUD/USD remains in a downtrend and that the greenback has been grinding higher, I feel the smart money will be eyeing fresh shorting opportunities in the pair. Moves above 0.7700 could potentially be used as a selling opportunity by traders. The ASX 200 extended its losses on the move and the local market has now given up over 100 points (about -1.8%) so far this week.
Firmer open for Europe
Ahead of European trade we are calling the major bourses firmer with Greece headlines likely to remain the dominant theme. On the calendar we have Spanish and German unemployment along with a preliminary inflation reading. In the UK we have construction PMI and some credit data to look out for.