CIBC
FX Flows
New Zealand’s Q1 manufacturing activity rose 1.2% over the quarter but volume fell 3.5%. Total card spending rose 1.4% in May while retail card spending up 1.9%. These are lower tier data and did not have an effect on the Kiwi. Our macro strategist Patrick looks for further downside, reiterated his view that too much hawkishness is not a good thing. He would wait for retracement to 0.6420 for sell. Intraday resistance come in at 0.6459.
Selling interests in $YEN and YEN-crosses kicked off at the Tokyo open. Finance Minister again on the wires, usual remarks with nothing earth shattering. He refrained from talking about FX intervention nor level. Once the fixing was done and dusted, saw $YEN climbed up slowly but low activity. There should be a small barrier at 134.75 and bigger one at 135.00. Only strike maturing today is 134.00 US$ call for $570mio.
AU$NZ$ is offered, we believe this is due to widening of the long-dated yield spreads between the two countries. AU$ tried to climb but hurdles above 0.7100. Base metal futures are in the red, not helping the Aussie dollar. Patrick suggested going short near 0.7130-40.
After EUR$ took out the Fibonacci retracement at 1.0620 yesterday, there was one commentary that said the critical point was 1.0645, since we broke below that the subsequent pullback found resistance in the 40s. The same writer also mentioned stronger resistance at 1.0684. I suspect we will see some profit taking into US CPI and ahead of weekend.
We have seen constant selling of $CAD since before Toronto closed and market has taken it well. On the $CAD price action post-Governor Macklem, our esteem colleague Bipan said the $CAD price action was led by weak ECB communication and lack of clarity on how to contain peripheral spreads. CAD rates outperformed - Macklem emphasized the resting spot for terminal rather than larger incremental sized moves and GoC cancelled issuance of ultra-long bonds. Feels like this move in EU rates can continue and should weigh on risk a bit. This will serve as a reminder to everybody who got bullish that the inertial move is still towards risk-off as macro liquidity picture looks grim. Bipan is still sticking to his view 1.25-1.30 range. Option strikes for today, $595mio at 1.2600, $440mio at 1.2700 and $820mio at 1.2750. Tonight we will have the Canadian labour report for May.
The focus now turns to tonight’s US CPI and next week's FOMC meeting to what the Fed will do in September and whether the terminal rate will exceed 3.5%. Our economics team said the base effects will help annual inflation slow further in June, but that will be limited by the climb in oil prices and upside in service prices. That should compel the Fed to raise rates by 50 bps at each of the next two FOMC meetings. Thereafter, the pace of tightening could slow as consumer demand will be thwarted ahead by sky-high prices eating into real households incomes, while the construction and real estate sectors are already responding to higher rates. Our call is in line with consensus, monthly CPI +0.7% from +0.3%; annual headline +8.2% from +8.3%; and core CPI ex-food/energy +5.9%. Also tonight we have the Uni of Michigan sentiment.
Citi
European Open
Overall sleepy post-ECB session as market waits for latest US CPI print. More aggressive ECB repricing casts spotlight onto the less aggressive central banks, with BoJ in focus as swaption vols tick higher for a fifth day and cross-market trades in AUD gain traction. G10 FX flows were mixed with no obvious theme, save for a stronger Yen closer to the European open. Concerns about another round of China lockdowns have failed to manifest in CNH, though bonds are a touch firmer, while CPI prints came in a touch lighter than expected. PEN hiked rates as expected by 50 bps to 5.50%.
Ahead, US CPI and University of Michigan data looms. NOK, CZK and RON also look for CPI prints, while EUR looks to IP data and ECB speak from Holzmann. CAD looks for employment figures, and PLN looks to central bank minutes. RUB looks to a rate decision, where Citi Economics looks for a 100bps cut to 10.00%
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.