Brexit News Drives Sterling, as U.S – China Trade Talks Begin

The Dollar was on the back foot early, while the Pound made a move on news of the UK government planning to announce a willingness to remain within the EU customs union beyond 2021, a concession that may lead to others…
Bob Mason
Brexit – Flag of European Union

Earlier in the Day:

Economic data released through the Asian session this morning included New Zealand’s 1st quarter producer price figures, April CAPEX figures out of Japan and Australia’s all-important April employment numbers.

For the Kiwi Dollar, 1st quarter producer input prices rose by 0.6%, coming in ahead of a forecasted 0.3% increase, while easing from a 4th quarter 0.9% rise.

According to figures released by NZ States, the 1st quarter rise was attributed to a 1.7% rise in input prices for dairy product manufacturing and a 7.2% rise in input prices for petroleum and coal product manufacturers, stemming from rising crude oil prices.

The Kiwi Dollar moved from $0.69062 to $0.69072 upon release of the figures, before rising to $0.6928, a gain of 0.46% for the early part of the session.

For the Japanese Yen, Japan’s April core machinery order figures disappointed, following the 1st quarter GDP numbers on Wednesday, with orders sliding by 3.9% year-on-year. The figure was worse than a forecasted 2.7% decline, while more than offsetting March’s 2.1% increase.

In spite of the fall, forecast for the quarter April-June is for a pickup in CAPEX, though much will depend on U.S China trade talks this week and whether there is a renewed U.S interest in Japan’s trade terms.

The Japanese Yen moved from ¥110.373 to ¥110.37 against the U.S Dollar upon release of the figures, before hitting ¥110.16 at the time of writing, up 0.22% for the morning.

For the Aussie Dollar,

According to the ABS, the labour force participation rate rose by 0.1% to 65.6%, contributing to the rise in the unemployment rate in April, which rose from 5.5% to 5.6%.

Full-time employment rose by 32,700, while part-time employment fell by 10,000, the shift in labour market composition more favourable for the outlook on wage growth and consumption.

Since April 2017, full-time employment has increased by 265,200, while part-time unemployment has risen by just 66.900.

The Aussie Dollar moved from $0.75182 to $0.75231 upon release of the figures, recovering from an immediate dip to $0.75056, before rallying to $0.7546, up 0.40% for the morning.

In the equity markets, it was a mixed start to the day, the Nikkei making a move, up 0.44% in spite of the stronger Yen, with the Hang Seng coughing up gains coming off the back of Tencent Holdings’ earnings to see minor gains early on, while the ASX200 and CSI300 saw red, the ASX200 struggling following April’s unemployment rate number, the latest uptick reflecting continued spare capacity in the economy, though anticipation of trade talks later today will have had some influence.

The Day Ahead:

For the EUR, there are no material stats scheduled for release through the day to provide direction, leaving the EUR in the hands of geo-political risk and broader market risk appetite.

Moves through Wednesday came in response to a dated Italian coalition government plan hitting the news wires, talks of a forgiveness of €250bn in debt taking the markets back to 2015 and Greece’s Syriza victory that led to threats of defaulting on IMF loans that would have ultimately left Greece out in the cold.

Things are a little different, when considering the fact that Italy is the Eurozone’s 3rd largest economy, any political disruption and uncertainty over Italy’s membership to the Euro likely to weigh heavily on the bloc’s growth and financial stability.

Through the early part of the day, the EUR was on the move off the back of a softer Dollar, the markets locking in profits ahead of today’s trade talks between the U.S and China, though whether the EUR can sustain such levels remains to be seen.

At the time of writing, the EUR up 0.19% to $1.1831, the EUR recovering from Wednesday’s sub-$1.18 level lows.

For the Pound, while there are no material stats scheduled for release through the day, while Brexit news has provided some new found strength, with reports of the British government’s plan to advise the EU of its willingness to remain within the customs union beyond 2021 seeing the Pound on the move in the early hours.

It’s either policy or Brexit and, with sentiment towards BoE monetary policy taking a turn for the worse, the only salvation for the Pound will be from Brexit chatter near-term, as unpredictable is it may be.

At the time of writing, the Pound was up 0.56% to $1.3561, with $1.36 levels in play later in the day should Dollar weakness persist.

Across the Pond, it’s a relatively quiet day, economic data out of the U.S limited to the weekly jobless claims numbers and May’s Philly FED Manufacturing Index figures.

While forecasts are for manufacturing activity to ease, a surprise number would provide the Dollar with a boost, while the markets will also have FOMC members Kashkari and Kaplan to consider, alongside possible geo-political tension as the U.S and China begin trade talks.

At the time of writing, the Dollar Spot Index was down 0.13% to 93.268, with trade chatter, sentiment towards North Korea and FOMC member commentary likely to take centre stage through the day.

Across the border, economic data out of Canada is limited to March foreign securities purchases that are likely to be of little influence as the markets look to gauge whether there will a conclusion to NAFTA trade talks later today.

At the time of writing, the Loonie was up 0.28% to C$1.2754 against the U.S Dollar, with rising oil prices, Bank of Canada chatter on the economy and outlook, coupled with some U.S Dollar weakness providing the upside for the Loonie.

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