Trade War Jitters Continue to Influence ahead of the G7
Earlier in the Day:
Economic data released through the Asian session this morning included the May’s BRC Retail Sales Monitor numbers out of the UK, April household spending out of Japan, 1st quarter current account numbers out of Australia and China’s Caixin services PMI figure for May. On the policy front, the RBA is scheduled to announce its June interest rate decision and release its rate statement, which could contain more hawkish language following the latest retail sales and corporate gross operating profit numbers, though concerns over trade wars will likely temper the tone to a certain degree.
For the Japanese Yen, household spending fell by 1.3% year-on-year, coming in short of a forecasted 0.8% rise, following March’s 0.1% fall.
Month-on month, spending fell by 1.6%, also falling short of a forecasted 0.7% rise, following March’s 0.1% decline.
The year on year decline was attributed to a 5.6% fall in spending on fuel, light and water charges, a 3.8% fall in spending on culture and recreation, a 2.5% fall in spending on clothing & footwear and a 1.2% fall in spending on transportation and communication, with spending on food down 0.8%.
Partially offsetting the decline were a 9.9% rise in spending on furniture and household utensils, a 3% rise in spending on housing and a 2.5% rise in spending on education.
The Japanese Yen moved from ¥106.920 to ¥109.952 against the Dollar upon release of the figures, before moving to ¥109.89 at the time of writing, down 0.06% for the morning, the household spending numbers yet more bad news for the BoJ.
For the Aussie Dollar, the current account surplus narrowed from A$14bn to A$10.5bn in the 1st quarter, which was better than a forecasted narrowing to A$10bn.
The Aussie Dollar moved from $0.076442 to $0.0.76464 upon release of the figures, with the Aussie Dollar having found strength off the back of the retail sales figures released on Monday.
Out of China, the Caixin Services PMI held steady at 52.9 in May, which was in line with forecasts.
The rate of activity growth remained unchanged from April, while new business saw a pickup in pace, supported by stronger client demand and new product offerings.
In contrast to the manufacturing sector, the services sector continued to hire, with the rate of job creation the quickest in the last 4-months.
As a result of a quicker pace of hiring, backlogs declined, with the pace of hiring reflecting improved optimism in the sector.
The Aussie Dollar moved from $0.76464 to $0.76424 upon release of the figures. At the time of writing, the Aussie Dollar was down 0.09% to $0.7641, with focus shifting to the RBA interest rate decision and rate statement.
In the equity markets, it was a mixed morning, the Nikkei and CSI300 in positive territory at the time of writing, while the Hang Seng and ASX200 were in the red, down 0.17% and by 0.31% respectively, market sentiment mixed with optimism over the U.S economy being offset by concerns of a trade war and an escalation of rhetoric going into Friday’s G7.
The Day Ahead:
For the EUR, economic data scheduled for release through the day includes May’s finalized service PMI numbers, together with the Eurozone’s April retail sales figures.
Consumer spending numbers out of Germany had impressed last week, while France’s numbers disappointed, which should pin back any major jump, leaving focus on the finalized service sector PMI numbers, any upward revisions EUR positive, with Spain and Italy’s numbers forecasted to show a pickup in activity from April.
Outside of the data, the markets will continue to keep an eye on Italy and Spain, with the respective governments now in the process of settling in for the long haul, which will likely create some noise in the coming weeks, particularly in Italy, the Spanish Prime Minister looking to maintain status quo with a minority government.
At the time of writing, the EUR was down 0.06% to $1.1692, today’s stats, political noise and trade tariff chatter in focus, while ECB President Draghi could provide some direction this afternoon should any references be made to policy, inflation or the economy in general.
For the Pound, following a steady construction PMI and rise in the manufacturing PMI, focus now shifts to May’s service sector PMI that could provide the Pound with a boost should the numbers be in line with or better than forecasted.
The survey based numbers have been of material influence to the BoE’s sentiment towards the economy and monetary policy, a full suite of positive numbers supporting a more hawkish stance, though Brexit and the threat of a disruption to the global economy by way of a trade war may leave Carney and the team on a more cautious footing and that’s before considering Brexit.
Earlier in the day, the UK’s BRC Retail Sales Monitor impressed, sales up 2.8% year-on-year in May, coming in ahead of a forecasted 0.8% decline, partially reversing April’s 4.2% slide.
The Pound was down 0.02% to $1.3311 at the time of writing, with today’s PMI number and Brexit chatter in focus, with talk of a free trade agreement with the U.S likely to begin garnering some attention.
Across the Pond, economic data scheduled for release through the day includes April’s JOLTs job openings that will likely have less of an influence than normal, following last week’s nonfarm payroll numbers, with May’s service sector PMI numbers also scheduled for release by the ISM and by Markiteconomics. The market’s preferred ISM PMI numbers will be the key driver, with forecasts being Dollar positive, as the U.S economy gains momentum through the 2nd quarter.
Outside of the stats, trade tariff noise from the Oval Office will also be a factor, as will be any updates on the North Korean Summit next week.
At the time of writing, the Dollar Spot Index was up 0.04% to 94.07, with today’s ISM manufacturing PMI and any noise from China and the Oval Office the key drivers through the day.
Across the border, the Loonie is back in action this afternoon, with 1st quarter labour productivity numbers scheduled for release. While forecasts are Loonie positive, NAFTA noise will also be an influence, though there’s unlikely to be any progress to cause any major moves through the day.
The Loonie was up 0.03% to C$1.2927 at the time of writing, with today’s stats, the Oval Office and crude oil to provide direction through the day.