EUR/USD remains pegged close to the 1.2500 as uncertainty of Spanish situation remains critical. Meanwhile, range-bound activity predominates ahead of Friday’s critical US economic data.
Markets tried to start the day in a positive mood, as the Chinese equity market appears to be gearing up for an expected round of stimulus. Meanwhile, the Chinese leading index edged down into the sub-100 territory suggesting outright contraction. And the last April electricity generation number saw virtually no growth year-on-year as well – awaiting the May figures as April’s weak figure could merely be some mean reversion from a rather strong March. The mood soured somewhat in Europe, but most major currencies continue to trade within ranges established a few days ago.
In currency land, risk made a feeble attempt at rallying, with AUD/USD having a go at 0.9900 and USD/CAD poking down close to 1.0200, but the consolidations remain rather shallow given how far we have come. As for EUR/USD, it has yet to break up through the first line resistance just above 1.2600. The rather mild consolidations across the board despite a relatively healthy bounce in equity markets shows an interesting divergence – the market prefers to play the likes of EUR/AUD as the risk appetite measure du jour more than AUD/USD, since so much of the general risk focus is on Europe at the moment.
The pain in Spain remains the big issue in the EU crisis theme, with Spanish 10-year yields blowing out to close to the big 6.50% level that was an important level in November and again this month. Everyone, including Ambrose Evans-Pritchard over at the Telegraph, wonders where the bailout money for the Bankia bailout will come from, considering that the Spanish sovereign itself can’t borrow money at reasonable rates. Many questions, few answers. The ECB’s Nowotny was certainly not riding to Spain’s aid as he said today that the ECB is not planning on any more bond purchases at the moment while Spain says it would like to issue bonds to pay for the bailout.
It is also interesting to note that the market has voted to continue to consider France as “the core” as French yield plummeted last week and have stayed relatively low. As the chart below shows, Spanish and Italian spreads to Germany have vaulted higher, while those for France tightened and then remained stable in recent days.
Chart: Spreads to Germany
The chart shows that the pain in Spain has been the bigger focus (Italy had no housing bubble…) in this cycle. Note how slow EUR/USD was to respond to the re-aggravation of spreads.
SNB
The SNB is rattling its sabre on the franc, no doubt due to renewed pressure on the currency to appreciate with all of the latest EU uncertainty. SNB’s Jordan brought up the dreaded idea of capital controls over the weekend to double underline that the SNB will simply not allow currency appreciation. Rather than suggesting that an SNB move is imminent, the move is likely one to deter speculation on what will happen to the franc if the EU situation gets particularly chaotic. In that event, the SNB will likely have a plan already in place, in which case, good luck extracting your funds from the market. The franc is one currency I would steer clear of until normal market fluctuations are possible/evident.
Looking Ahead
Today we have the US Conference Board Consumer Confidence number. There has been an interesting deterioration in the weekly Bloomberg Consumer Comfort survey in recent weeks that has not been evident in other surveys – the University of Michigan Confidence survey, in fact, came out at a multi-year high on Friday. Which survey is right?
Later this week we have the ISM Manufacturing Survey and US employment reports up on Friday, though the predominant focus will remain squarely on the situation in the EU, with two-way risk due to the tremendous euro short positioning in this market.
Economic Data Highlights
- Japan Apr. Retail Trade out at -0.3% MoM and +5.8% YoY vs. +0.1%/+6.0% expected, respectively and vs. +10.3% YoY in Apr.
- Australia Apr. HIA New Home Sales out at +6.9% MoM
- Japan May Small Business Confidence out at 47.2 vs. 47.6 in Apr.
- Norway Q2 Consumer Confidence out at 22.4 vs. 17.0 expected and 17.0 in Q1
- Germany Apr. Import Price Index out at -0.5% MoM and +2.3% YoY vs. -0.3%/+2.6% expected, respectively and vs. +3.1% YoY in Mar.
- Switzerland Apr. UBS Consumption Indicator out at 1.41 vs. 1.20 in Mar.
- Spain Retail Sales out at -11.3% YoY vs. -4.0% in Mar.
- Sweden May Consumer Confidence out at 5.9 vs. 2.5 expected and 4.7 in Apr.
- Sweden May Manufacturing Confidence out at 0 vs. -3 expected and -1 in Apr.
- Sweden May Economic Tendency Survey out at 100.9 vs. 100.0 expected and 101.5 in Apr.
- Sweden Apr. Household Lending out at +4.8% YoY vs. 4.9% expected and 5.0% in Mar.
- Sweden Apr. PPI out at -0.2% MoM and 0.0% YoY vs. +0.2%/+0.3% expected, respectively and vs. +0.2% YoY in Mar.
- China Apr. Leading Index out at 99.86 vs. 100.48 in Mar.
- UK May CBI Reported Sales out at 21 vs. -8 expected and -6 in Apr.
- Germany May preliminary CPI out at -0.2% MoM and +1.9% YoY vs. -0.1%/+2.1% expected, respectively and vs. +2.1% YoY in Apr.
- ÜS Mar. S&P Case-Shiller Home Price Index (1300)
- US May Consumer Confidence (1400)
- US May Dallas Fed Manufacturing Survey (1430)
- New Zealand Apr. Building Permits (2245)
- Japan May Markit/JMMA Manufacturing PMI (2315)
- Australia Apr. Retail Sales (0130)