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US non-farm payroll in spotlight, NASDAQ presses key resistance

    By
    ActionForex
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    Main focus now turns to US non-farm payroll report today. Markets are expecting 180k job growth in May. Unemployment rate is expected to tick up from 3.4% to 3.5%. Meanwhile, average hourly earnings are expected to show another month of robust 0.3% mom growth.

    Looking at some related economic data, ISM manufacturing employment rose slightly from 50.2 to 51.4, but ISM services data is not released yet. ADP private job data showed strong 278k growth. Four-week moving average of initial jobless claims fell slightly from 239k to 230k. There is nothing in these data that show significant loosening in the job market, not to mention weakness.

    Fed funds futures are now pricing in 76% chance of a “skip” at upcoming FOMC meeting on June 14. Meanwhile, there is around 60% chance of another 25bps hike in June to 5.25-5.50%. The landscape could change quite notably if there is surprises in today’s data.

    NASDAQ is back pressing key cluster resistance at 13181.08 after brief retreat earlier in the week. The level represents 100% projection of 10088.82 to 12269.55 from 10982.80 at 13163.53, as well as 50% retracement of 16212.22 to 10088.82 at 13150.52.

    Decisive break of this 13150/80 handle will confirm underlying bullish momentum in NASDAQ, and could prompt upside acceleration to 161.8% projection at 14511.22. Let’s see how NASDAQ reacts to today’s data.

    BoJ Ueda: No time frame to achieve inflation target, but not so long as 10 years

      By
      ActionForex
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      In a parliamentary address today, BoJ Governor Kazuo Ueda said “The time it takes for the impact of monetary policy to appear on the economy could move around a lot depending on circumstances.”

      “We therefore do not have any time frame in mind” in achieving the inflation target, he added.

      “Having said that, our baseline view is that it won’t take so long as over 10 years. We’ll still seek to hit the target at the earliest date possible,” he remarked.

      Ueda reiterated that the Bank of Japan’s purchases of Real Estate Investment Trusts (REITs) form part of their expansive monetary easing strategy. He noted, “We are conducting the purchases (of REITs) as part of our massive monetary easing program. Given it will take more time to achieve our price target, we will maintain the easy policy.”

      Fed Harker: We are clearly in restrictive, we can sit there for a while

        By
        ActionForex
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        Philadelphia Fed President Patrick Harker recommended a pause in interest rate hikes at the upcoming FOMC meeting, stating. “It’s time to at least hit the stop button for one meeting and see how it goes,” he said yesterday.

        Harker also noted, “I think we are at the point, or very close to the point now, where we are clearly in restrictive territory, and we can sit there for a while,” he explained. “We don’t have to keep moving rates up, and then have to reverse course quickly.”

        Looking ahead, Harker expects the US economy to grow less than 1% this year, and anticipates unemployment rate, currently at 3.4%, to increase to around 4.4%. Additionally, he forecasts a decrease in inflation to 3.5% this year and 2.5% next year, predicting it to reach Fed’s 2% target only by 2025.

        US ISM manufacturing dropped to 46.9, corresponds to -0.6% GDP annualized GDP contraction

          By
          ActionForex
          -

          US ISM Manufacturing PMI dropped from 47.1 to 46.9 in May, below expectation of 47.0. Looking at some details, new orders dropped from 45.7 to 42.6. Production rose from 48.9 to 51.1. Employment rose from 50.2 to 51.4. Prices dropped sharply from 53.2 to 44.2.

          ISM said: ” “This is the seventh month of contraction and continuation of a downward trend that began in June 2022. That trend is reflected in the Manufacturing PMI’s 12-month average falling to 49.4 percent.”

          “The past relationship between the Manufacturing PMI and the overall economy indicates that the May reading (46.9 percent) corresponds to a change of minus-0.6 percent in real gross domestic product (GDP) on an annualized basis.”

          Full US ISM manufacturing release here.

          US jobless claims rose to 232k, slightly below expectations

            By
            ActionForex
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            US initial jobless claims rose 2k to 232k in the week ending May 27, slightly below expectation of 236k. Four-week moving average of initial claims dropped -2.5k to 229.5k.

            Continuing claims dropped -6k to 1795k in the week ending May 20. Four-week moving average of continuing claims dropped -1.5k to 1789k.

            Full US jobless claims release here.

            US ADP jobs grew 278k, pay growth slowing substantially

              By
              ActionForex
              -

              US ADP private employment grew 278k in May, well above expectation of 167k. By sector, goods-producing jobs grew 110k while service-providing jobs grew 168k. By establishment size, small companies added 235k jobs, medium companies added 140k, large companies cut -106k.

              Job changers saw a gain of 12.1% yoy, down a full percentage point from April. For job stayers, the increase was 6.5% yoy in May, down from 6.7% yoy.

              “This is the second month we’ve seen a full percentage point decline in pay growth for job changers. Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.” Nela Richardson, Chief Economist, ADP said.

              Full US ADP release here.

              Eurozone CPI slowed to 6.1% yoy in May, core CPI down to 5.3% yoy

                By
                ActionForex
                -

                Eurozone CPI slowed from 7.0% yoy to 6.1% yoy in May, below expectation of 6.3% yoy. CPI core (ex-energy, food, alcohol & tobacco) slowed from 5.6% yoy to 5.3% yoy, below expectation of 5.3% yoy.

                Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in May (12.5%, compared with 13.5% in April), followed by non-energy industrial goods (5.8%, compared with 6.2% in April), services (5.0%, compared with 5.2% in April) and energy (-1.7%, compared with 2.4% in April).

                Full Eurozone CPI release here.

                UK PMI manufacturing finalized at 47.1, downturn deepened

                  By
                  ActionForex
                  -

                  UK PMI Manufacturing was finalized at 47.1 in May, down from April’s 47.8, hitting the lowest level in four-months. S&P Global noted the output contracted in investment and intermediate goods sectors. Input costs fell and supply chain pressured subsided.

                  Rob Dobson, Director at S&P Global Market Intelligence, said:

                  “The UK manufacturing downturn deepened in May, with output, new orders and employment all falling at increased rates. Manufacturers are finding that any potential boost to production from improving supply chains is being completely negated by weak demand, client destocking and a general shift in spending in the UK away from goods to services.

                  ” These factors are also driving a broad decrease in demand from overseas amid reports of lost orders from the US and mainland Europe. The retrenchment in export demand is also being exacerbated by some EU clients switching to more local sourcing to avoid post-Brexit trade complications.”

                  Full UK PMI manufacturing release here.

                  Eurozone PMI manufacturing finalized at 44.8, weakness in demand increasingly evident

                    By
                    ActionForex
                    -

                    Eurozone PMI Manufacturing was finalized at 44.8 in May, down from April’s 45.8, hitting the worst level in 36 months. PMI Manufacturing output dropped from 58.5 to 46.4, a 6-month low. Factor gate prices declined fro the first time since September 2020.

                    Looking at some member states, Ireland (47.5), Italy (45.9), the Netherlands (44.2) and Germany (43.2) were all at 36-month low. Austria hit 37-month low at 39.7. France recovered to 2-month high at 45.7.

                    Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “The weakness in demand in the manufacturing sector, which has become increasingly evidence since the beginning of the year in falling PMI readings, has now led the surveyed companies to reduce their production for the second month in a row”.

                    Full Eurozone PMI manufacturing release here.

                    China Caixin PMI manufacturing rose to 50.9, activity improved

                      By
                      ActionForex
                      -

                      China Caixin PMI Manufacturing rose from 49.5 to 50.9 in May, signaling the first improvement in the health of the sector since February. Caixin noted stronger increase in output as firms saw fresh upturn in new business. Input costs fell solidly. Employment, however, continued to decline as business confidence softened.

                      Wang Zhe, Senior Economist at Caixin Insight Group said: “In a nutshell, manufacturing activity improved in May. Both supply and demand expanded, but employment sank to a three-year low. Businesses stepped up purchasing, inventories of raw materials grew marginally, logistics picked up, prices continued to slump, and manufacturers’ optimism wavered.”

                      Full China Caixin PMI Manufacturing release here.

                      Japan PMI manufacturing finalized at 50.6, a decisive turnaround

                        By
                        ActionForex
                        -

                        Japan PMI Manufacturing was finalized at 50.6 in May, up from April’s 49.5. That’s the first expansionary reading since October 2022, signalling a modest overall improvement in operating conditions. Also, business optimism reached highest level since January 2022, while supplier performance stabilized.

                        Tim Moore, Economics Director at S&P Global Market Intelligence, said: “The latest au Jibun Bank PMI survey highlights a decisive turnaround in manufacturing sector performance during May and brings to an end a six-month period of weakening business conditions.”

                        Full Japan PMI manufacturing release here.

                        IMF sees opportunity for Japan to re-anchoring Inflation Expectations

                          By
                          ActionForex
                          -

                          IMF chief economist, Pierre-Olivier Gourinchas, suggested that a unique opportunity may be presenting itself in Japan to re-anchor inflation expectations to BoJ’s target. However, he cautioned that the process won’t be instantaneous.

                          “There’s an opportunity right now,” Gourinchas said, “but it will take time. It won’t happen overnight.” Achieving this re-anchoring requires convincing the public that Japan won’t slide back into deflation – a challenge given the country’s prolonged struggle with price stagnation. Gourinchas believes it’s “too early” for the BoJ to tighten policy, stressing the need for careful handling of the situation.

                          Pointing to the global trend of persistent inflation despite initial expectations of transitory dynamics, Gourinchas warned, “Obviously, the history of the last two years is one where inflation that was supposed to be transitory, turned out to be not transitory. We could have similar dynamics in Japan.” Given this possibility, he underscored the need for vigilance and readiness to tighten monetary policy if inflation remains too high.

                          Regarding potential strategies for policy tightening, Gourinchas suggested a cautious approach. “It’s probably safer to first move away from the control of long-term yields. And then, if the need arises to tighten monetary policy, it can do so as part of the usual tightening of the policy rate,” he proposed. However, he acknowledged that executing this transition would be technically complex.

                          Fed Jefferson: A pause in June doesn’t mean rates have peaked

                            By
                            ActionForex
                            -

                            Comments from top officials from Fed suggested a pause in interest rate hikes in June while possible, shouldn’t be misinterpreted as a sign that peak rates for the cycle have been reached.

                            Fed Governor, Philip Jefferson, clarified, “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle.”

                            Jefferson, suggested that skipping a rate hike at an upcoming meeting would provide an opportunity for the committee to review more data before deciding on the extent of any further policy tightening.

                            Philadelphia Fed President, Patrick Harker, echoed this sentiment, albeit with a more forceful argument for the need to ‘skip’ rather than ‘pause’. “I am in a camp increasingly coming into this meeting of thinking that we really should skip, not pause,” he remarked.

                            Harker believes the current policy is nearing, if not already at, a restrictive level and suggests a period of careful reflection before further action is taken.

                            Harker added, “I think we have to be ready that we might have to do more and I’m fully aware we have to do that and willing to do that, but I want to give it a little bit of time.”

                            BoE Mann: Inflation gap in the UK more persistent than others

                              By
                              ActionForex
                              -

                              BoE policymaker, Catherine Mann, has highlighted the unique and mounting inflation problem that Britain is facing in comparison to the United States and the Eurozone.

                              Mann pointed to both large-scale price increases and the rising persistence of these underlying pressures as causes for concern. She emphasized, “The gap (between headline and core CPI) that I have in my country is more persistent than the gaps that we see in either of my neighbours, the U.S. or the euro area.”

                              The gap she refers to is the disparity between headline inflation (which includes volatile commodities like food and energy) and core inflation (which excludes these commodities).

                              Notably, Mann underscored the role of British businesses and increased wages in maintaining high core inflation. She explains that businesses in the UK have been successful in passing on price rises, contributing to this persistent inflation gap. This, coupled with increased wages, suggests that headline inflation has been slower to recede towards the core rate than it has in other regions.

                              “There is a gap between the headline, which is incorporating energy which went up really high and now has come down, and core where we do start to see the implications coming through pricing channels, through wage negotiations, into something that is persistent,” Mann explained.

                              SNB Jordan: We don’t see a big risk in over-tightening monetary policy

                                By
                                ActionForex
                                -

                                SNB Chairman Thomas Jordan recently warned yesterday that the more inflation is entrenched in the perception of companies and households, the harder it is to bring it down. He highlighted the urgency of the situation, stating, “We have to bring it back below 2% as soon as possible.”

                                Discussing the bank’s approach towards interest rates, Jordan assured that Switzerland’s are “still very low”. “We don’t see a big risk in over-tightening monetary policy. It is not something that will damage financial stability in general in Switzerland,” he affirmed.

                                Regarding the financial stability issues surrounding Credit Suisse, Jordan clarified that it was an individual case where the problem was not interest rates, but rather a “lack of trust of market participants in an institution.”

                                Looking ahead, market expectations suggest a 25bps rise from the current 1.5% level when the central bank delivers its next assessment in June.

                                Canada GDP flat in Mar, up 0.8% qoq in Q1

                                  By
                                  ActionForex
                                  -

                                  Canada GDP was flat at 0.0% mom in March, slightly above expectation of -0.1% mom. Services-producing industries was flat while goods-producing industries contracted -0.1% mom. Overall, 12 of 20 industrial sectors posted increases in March.

                                  In Q1, GDP grew 0.8% qoq, after posting no change in the previous quarter. That’s the fastest pace since Q2 of 2022. Goods-producing industries edged up 0.1%, partially offsetting the decline observed in the final quarter of 2022. Service-producing industries were up 0.9%, rising for a seventh consecutive quarter. Overall, 16 of 20 sectors recorded gains.

                                  Full Canada GDP release here.

                                  ECB’s Villeroy foresees declining inflation in France, highlights monetary policy impact”

                                    By
                                    ActionForex
                                    -

                                    Francois Villeroy de Galhau, a member of ECB Governing Council, has offered an outlook on inflation in France, stating, “We’re very likely there. It’s even likely that we’ve passed the peak and so inflation will come down in France, as we said, between now and the end of the year, even if it won’t be sufficient.”

                                    Villeroy shed light on the apparent decrease in what’s known as ‘underlying’ inflation. The ECB official posited, “Part of this can doubtless be attributed to the first effects of monetary policy transmission.” However, he expressed this viewpoint cautiously, adding, “But I say this with caution.”

                                    He further stressed the importance of the duration of current interest rates, stating, “I think this morning’s figure is a further sign that, rather than the level of the terminal rate, on which a lot of attention is focused, it’s how long we remain there that is essential.”

                                    Villeroy’s commentary arrived following the release of data indicating that the CPI in France dipped from a 6.9% year-on-year increase to 6.0% in May, a figure that came in below the expected 6.4% rise.

                                    China’s manufacturing PMI slides to five-month low as economic recovery stumbles

                                      By
                                      ActionForex
                                      -

                                      China NBS PMI Manufacturing dropped from 49.2 to 48.8 in May, below expectation of 49.4. That’s the lowest level in five months. New orders sub-index followed suit, slipping from 48.8 in April to 48.3 in May, while the new export orders sub-index descended from 47.6 to 47.2.

                                      PMI Non-Manufacturing dropped from 56.4 to 54.5, below expectation of 54.9, lowest growth in four months. The official composite PMI, encapsulating both manufacturing and services activity, fell from 54.4 in April to 52.9 in May.

                                      “China’s economic-prosperity level has receded, and the foundation for recovery and development still needs to be consolidated,” said NBS senior statistician Zhao Qinghe.

                                      Japan industrial production down -0.4% mom in Apr, retail sales disappoint

                                        By
                                        ActionForex
                                        -

                                        Japan’s industrial production experienced a contraction of -0.4% mom in April, a significantly worse result than expectation of 1.4% mom growth.

                                        According to survey by the Ministry of Economy, Trade and Industry, manufacturers are forecasting an output increase of 1.9% in May and 1.2% in June. This rise is expected to be driven by an easing in parts shortages, which should lift production in transportation and production machinery.

                                        Despite these projections, a METI official struck a more cautious note, stating, “The current production sentiment is still bearish due to ongoing concerns about the downturn in overseas economies.”

                                        Meanwhile, the country’s retail sales also delivered disappointing results. They rose 5.0% yoy, falling short of the anticipated 7.1% yoy increase. On a month-on-month basis, retail sales contracted by -1.2% in April, reversing the 0.3% gain recorded in March.

                                        Australia CPI jumped back to 6.8% yoy in Apr, ex-volatile items down to 6.5% yoy

                                          By
                                          ActionForex
                                          -

                                          Australia monthly CPI jumped from 6.3% yoy to 6.8% yoy in April, well above expectation of 6.4% yoy. Excluding volatile items of automotive fuel, fruit and vegetables and holiday travel, CPI slowed from 6.9% yoy to 6.5% yoy.

                                          Michelle Marquardt, ABS head of prices statistics, said: “It’s important to note that a significant contributor to the increase in the annual movement in April was automotive fuel. The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual movement for April 2023.”

                                          Full Australia monthly CPI release here.

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