Indices positive
Most stock market indices were higher at the start of trading this week while the U.S. dollar consolidated Friday’s gains. U.S. indices traded between 0.21% and 0.35% with the Hong Kong index outperforming, recouping more than Friday’s losses after Legislative Council leader Carrie Lam announced at the weekend that she was suspending efforts to pass the legislation and issued a formal apology to Hong Kongers. Press reported that about 2 million people took part in a peaceful protest that jammed road near government offices on Sunday.
Source, all charts: OANDA fxTrade
PBOC liquidity trickles in
The second phase of recent Reserve Ratio Requirements cuts announce on May 6 came into effect today, releasing CNY100 billion into the banking system while in its daily open market operations it added a net CNY120 billion versus a CNY100 billion drain Friday. The weak industrial production data for May, released Friday, where expansion slumped to a 17-year low, has kicked off renewed expectations of further easing from the PBOC. China 10-year yields fell more than 3bps while the offshore yuan slid 0.02% to 6.9311.
India to levy tariffs
India has announced retaliatory tariffs on 28 U.S. goods in response to U.S. President Trump’s suspension of India’s status under the Generalized System of Preference trade program. The named goods include apples (worth about $156 million in 2018) and almonds worth about $543 million. This month the Indian rupee has declined 1.2% versus the U.S. dollar since U.S. President Trump announced the removal of preferential status would go ahead. The FX pair is now at 69.844.
A slow start to the week
The data calendar has little to offer investors at the start of the week with the European session featuring only Eurozone Q1 Labor Costs and the monthly report from Germany’s Bundesbank. The North American session is also quiet with the NY Empire State manufacturing index and the NAHB Housing market index for June are both due. For Canada, portfolio flows for April will be released.
No doubt the main event of the week will be the FOMC meeting from Tuesday to Wednesday. Market pricing is suggesting only an 18% probability of a 25bps cut at this week’s meeting, but expectations are building the comments and discussions will lead to a cut at the July meeting, with an 82% probability attached to that event.