4-July 2016
Market Summary
The global equity market rallied following the Brexit selloff. Over the past week the UK's FTSE soared 7.15%, DAXK at 2.24% to Japan's Nikkei at 4.89%. US’s Dow Jones climbed 3.38%. HSI strengthened by 4.94%.
It was also been a good week for the risk related currencies given the Brexit uncertainty in the air. GBP losses look contained for now. The Aussie, Kiwi and Canadian Dollar were the best-performing currencies this week which jumped 0.61% to 0.7496, 1.17% to 0.7179 and 0.53% to 1.2912 respectively. Economic data from the region improved with Chinese manufacturing activity remaining steady at 50. The Reserve Bank of Australia will meet this week interest-rate cut is not likely to be happened. Still, concerns from RBA about Brexit and the recent strength of AUD may address which poses a negative momentum to the currency.
Euro, like many other major currencies gains after its Brexit lows. However we may foresee more easing from the European Central Bank. On last Thursday, Bloomberg reported that the ECB is considering loosening its monetary policies, which triggered the plunge in EUR/USD. The losses were regained after the denial from ECB press officer. Still, the possibility remains with economic uncertainty amongst the region. GBP, however, continued its weakness with investors discouraged by the rumours that the Bank of England is likely to cut rates promptly.
Chinese yuan devaluation pressure adds but currency intervention remains from the central bank. Last Thursday Reuters published an article saying PBoC is willing to tolerate yuan fall to 6.8 per dollar this year to support economy. The news sent CNY yo the 5 year low at 6.66 but retraced promptly after the declaration from PBoC, added the authority is strongly against any false news which promote the selling actions on RMB. Nevertheless, with the gradual improvement in US data and the not satisfactory local data, depreciation pressure remains. A steady instead of sudden decline in yuan is predicted for fear of triggering the massive capital outflows that shook the economy.
The JPY stay flat last week at the level of JPY102. Still, the strong yen stays as a critical problem for Japan given its export-dependent nature. Especially Japan relies on a weak currency for the long-term economic prosperity, the 7% appreciation of the yen against the U.S. dollar this month highly hurts the local business. The possibility of BoJ in fastening its expansionary monetary policy rockets given Japan’s consumer prices continued to slide in May putting more pressure on the BoJ to expand its stimulus at later meeting this month.
Investors will be watching the USD closely in this week with the Nonfarm payrolls report and FOMC minutes. Even if there is strong economic growth, from the CME Group (NASDAQ:NASDAQ:CME) Fed Fund future prices, the market forecast that Federal Reserve is in no position to surge interest rates this year given the global economic and political uncertainty. Fed fund futures are now pricing no chance in rate hike in July only a 6% chance of a rate hike in September. For the next 12 months, rates are likely to remain unchanged, which supposed be positive for equities and risk appetite.
Key event risk for the week:
-RBA Interest Rate Decision
-ECB President Draghi Speaks
-US Services PMI (Jun)
-US ISM Non-Manufacturing PMI (Jun)
-FOMC Meeting Minutes
-US Average Hourly Earnings
-US Nonfarm payrolls (Jun)
-US Participation Rate
-US Unemployment Rate