Article / 23 May 2016 at 7:00 GMT

Morning Markets: June rate-hike fear cows sentiment

Former managing editor, / Saxo Bank



  • Eurozone: Manufacturing & Services PMIs           (0800 GMT)
  • US: Manufacturing PMI                                          (1345 GMT) 
  • Eurozone: Consumer Confidence Indicator           (1400 GMT)

The dollar rally lost steam after an anti-climactic G7 finance ministers meeting this weekend effectively saw Japan and the US agree to disagree on whether a yen-selling intervention was called for.

That propelled USDJPY away from the 110.59 high last Friday as dollar strength gently ebbed, spurred in part by Japan's trade surplus swelling to the biggest in five years, although that was in part due to lower levels of trade with Japan's exports tumbling 10.1% from a year earlier. EURUSD also came within touching distance of breaking through 1.1250 before settling in a 1.1220/30 zone.

A wait-and-see approach appears to be dominating sentiment as markets anticipate key speeches this week — that includes US Federal Reserve chair Janet Yellen on Friday — to assess whether the Fed is really serious about hiking rates in June or July.

The chance of a June rate hike has risen from 4% at the start of last week to more than 30%.

The US manufacturing PMI this afternoon will likely be watched even more closely than normal given the stress on the part of various Fed members on data. But, with the Brexit referendum vote now exactly one month ahead possibly ushering in another summer of turmoil for Europe, there still seems to be an air of unreality about the latest round of Fed talk.

Oil's attempt meanwhile to break through $50/barrel may be spent after Iran once again said it would not participate in any production freeze deal with both benchmarks looking over their shoulder towards the $48/b level and lower.

Market signals

Asian session

  • Japan's exports tumbled 10.1% in April from a year earlier, in line with expectations
  • It was the seventh straight month of export declines
  • The Nikkei extended losses, shedding 1.1% in early trading on exports data
  • Iron ore prices took another hit overnight down as 5.2% to $US46.27/tonne
  • The USD retreated against all of its major counterparts
  • Traders weighed against the Federal Reserve raising interest rates next month
  • The yen climbed 0.3% to 109.83 to the USD
  • Oil fell for a fourth day after Iran said it won’t countenance freezing output
  • Crude oil for delivery in July fell 0.7% to $48.09/barrel in mid term trading in Asia 
  • Asian shares rose on Monday after a solid session on Wall Street
  • The Nikkei was was down 0.56% at 0518 GMT
  • The Hang Seng was up 0.24% and the Shanghai Composite was up 0.55% at 0521 GMT
  • The Mumbai Sensex was up just 0.06% ar 0521 GMT
  • The ASX/S&P 200 was down 0.45% at 0645 GMT
  • Opec meets next week, and Iran says it won't join any output freeze deal
  • Ministers from the G7 nations will meet in Japan this week, from May 26 to 27

Forex ahead

  • The US dollar slipped below ¥110; it was worth just ¥109.8135 at 0311 GMT
  • US posturing at G7 premised on domestic considerations
  • The Australian dollar held just above 0.72
  • The Aussie dollar was worth 0.7241 at 0311 GMT

From the Floor

Sanity check. “Bayer – Monsanto seems like a pretty crazy deal ”, says Garnry

Brazil's bounce. “Petrobas returned to the international bond market, which is evidence of optimism returning in Brazil”, says Boye

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

The US manufacturing PMI is expected to be better than last month, writes James Picerno, but it still points to a shaky trend for this key corner of the economy.

Miners weigh heavy
The local market was held back by resources stocks writes the team at Saxo Capital Markets (Australia), and the Australian dollar hovered around 0.72.

Odds rise for Fed hike
It's almost June, with another FOMC meeting on the way, and Kay Van-Petersen says that the Fed-implied probability of two hikes by year end is 25%, but in reality it should be closer to 50%.

Greece's game
The mismanagement of the crisis in Greece becomes easier to understand when it is viewed as a game, writes Juhani Huopainen. Muddle through is the preferred soloution.

Stimulus moves, Brexit and FX will be on the table when ministers from the G7 nations (Canada, France, Germany, Italy, Japan, the UK and the US) meet in Japan this week. Photo: iStock

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