Credit Agricole
Asia overnight
Sentiment was firm in Asia with both S&P 500 futures and most Asian bourses trading higher at the time of writing. Trust in central banks’ ability to tame inflation without causing recession seems to have returned to the market. In G10 FX, the USD remained weak along with the CHF and JPY. The NOK, CAD and AUD outpaced the rest of the G10 with the formers being given a boost by higher oil prices. Despite the RBA talking down aggressive market pricing for rate hikes, the AUD managed gains on the back of a bounce in iron ore prices.
Citi
European Open
RBA was front and centre on a quiet Asian morning following a US holiday. A dovish lean from RBA Governor Lowe and the minutes sent OIS markets repricing, and the Aussie curve bull steepening. Treasury yields opened higher afterday’s bund sell-off. Positive risk sentiment pushed stocks and oil higher, and high beta currencies outperformed in Asia. Conversely, USD was slightly offered. BoK Governor Lee’s comments early in Asia seemed slightly hawkish, while we flag that Israel is set for another election as the ruling coalition collapses.
Ahead, housing fata and Fedspeak will feature for the US. SEK will watch for the NIER Swedish Economy Report, while GBP listens closely to BoE’s Pill and Tenreyro. CAD receives retail sales data, HKD a CPI print ad BRL will eye central bank minutes. Lastly, we flag that CLP observes a local holiday.
What happened in markets?
FX: Risk sentiment was positive in markets, with USD and JPY lower modestly. High beta currencies outperformed, led by NOK at +0.4%. Volumes were around 30% lower in FX compared to 30d averages, after yesterday’s US holiday.
Stocks: A mild overnight rally has extended, with US equity futures up. S&P eminis are up 1.31% and Nasdaq100 futures are up 1.70%. Nikkei opens higher and trades at +2.24%. We flag that China stocks are underperforming today, though our sales desk sees investors turning increasingly constructive.
–Our futures desk sees some early fast money demand in ES1 as well as pockets of short covering in US futures, flagging 3770 as the next level to watch. They also see new long interest in China, though they note net flows overall are neutral.
Rates: Treasury yields opened higher by 4-5bps across the curve following the bund sell-off on Monday. Our trader Hideyuki Liu writes that Desk flows saw better RM selling in 10y, but things remain quiet in the Tokyo session coming out of the long-weekend.
Nothing but the dollar
DXY was offered in Asia, the only G10 currency other than JPY to trade in the red. We remind that CitiFX Strategy remains bullish USD in the medium term.
CitiFX Quant, write that after the strong buying at the start of last week investors are now close to neutral USD overall with our Positioning Indicator (CFPI) as of Friday close at +0.7 (out of -10 short to +10 long). There has been plenty of net USD buying since the beginning of June, illustrated by cumulative Citi flow with leveraged starting first and then real money following.
Ahead we look to housing market data and Fed speeches:
–Existing Home Sales MoM at 15:00 BST for May. Citi Economics expects existing home sales to decline in May to 5.40m. Risks for existing home sales are skewed to the downside in May and over the coming months. The continued rise in mortgage rates should continue to put downward pressure on existing home sales – which can only be compounded by continued low supply.
–Fed’s Mester Speaks at Women in Leadership Event at 17:00 BST, followed by Fed’s Barkin Speaking in Richmond at 20:30 BST. Citi Economics listens for any comments on whether they would prefer a 50bp or 75bp hike in July and what their reaction function to incoming inflation data will be moving forward.
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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.