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I. Market focus:
OPEC meeting and the Eurogroup’s decision on the conclusion of Greece's financial assistance program were the main topics in the global financial markets at the beginning of the final session of the current week.
The Organization of Petroleum Exporting Countries will meet in Vienna today. The OPEC/Non-OPEC Joint Ministerial Monitoring Committee (JMMC) decided yesterday to recommend the cartel and its allies to increase oil output by 1 million barrels per day from current levels. The JMMC’s recommendation will be considered at today's meeting, and the decision will be known closer to the end of the European session. The recommendation of the JMMC had a little impact on the dynamics of oil prices. The OPEC’s decision to increase daily oil production is not expected to be a big surprise for the markets as well, as it is already priced in (oil prices decreased by more than 8 percent over the month).
The markets also showed little reaction to the reports the finance ministers of the Eurogroup countries compromised on terms of Greece's exit from the financial assistance program. Several years ago, any information on this topic caused strong movements in euro. According to the reports, Athens will exit the bailout program in August, receiving the final tranche of 15 billion euros. In addition, Greek will also get a 10-year extension for the repayment of its European Financial Stability Facility (EFSF) loans and an additional grace period of 10 years on interest payments. The Eurogroup’s representatives noted that there will be no new aids to Greece, as the country “is leaving the financial assistance program with a stronger economy building on the fiscal and structural reforms implemented.”
Apart from the outcomes of the OPEC meeting, the main anticipated events of Friday will be preliminary data on the European business activity indexes from Markit, set to be released in the first half of the day, as well as Canadian data on inflation and retail sales, scheduled to be released at 12:30 GMT.
II. The market highlights are:
The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits unexpectedly fell last week, pointing to further tightening in labor market conditions. According to the report, the initial claims for unemployment benefits decreased 3,000 to 218,000 for the week ended June 16. Economists had expected 220,000 new claims last week. Claims for the prior week were revised upwardly to 221,000 from the initial estimate of 218,000. Meanwhile, the four-week moving average of claims dropped 4,000 to 221,000 last week.
The Federal Reserve Bank of Philadelphia announced on Thursday its index of current manufacturing activity in the region reduced to 19.9 in June from an unrevised reading of 34.4 in May. Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 17 percent reported decreases, the FRB of Philadelphia said. The details of the report were mostly lower. The indexes for new orders (-22.7 points m-o-m to 17.9 in June), unfilled orders (-18.0 points m-o-m to -2.7), the prices received (-3.2 points m-o-m to 33.2) and prices paid for inputs (-0.8 points m-o-m to 51.8), as well as the delivery times index (-8.9 points m-o-m to 9.6), all dropped. At the same time, the indicators for the shipments (+2.9 points m-o-m to 28.7), inventories (+2.1 points m-o-m to 10.2) and employment (+0.2 points m-o-m to 30.4) went up.
The Ministry of Internal Affairs and Communications reported on Thursday that Japan’s consumer prices rose 0.7 percent y-o-y in May, following a 0.6 percent y-o-y increase in the prior month. That was above economists’ forecast for a 0.3 percent gain. Individually, the fuel, light and water charges (+3.1 percent y-o-y) rose the most in May, followed by prices for medical care (+1.9 percent y-o-y), transportation and communication (+1.3 percent y-o-y) and food (+0.8 percent y-o-y). On the contrary, prices for furniture and household utensils (-1.5 percent y-o-y) fell the most. The nationwide core consumer price gauge, which excludes volatile fresh food prices, also rose 0.7 percent y-o-y last month, the same increase as in the previous month and in-line with economists’ expectations.
The preliminary data from IHS Markit revealed on Friday that growth of Japan’s manufacturing sector accelerated during June. The Nikkei Flash Manufacturing Purchasing Managers' Index (PMI) rose to 53.1 this month from 52.8 in May. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. According to the report, output and employment increased at a faster pace than the previous month, while new orders rose at a slower rate, as new export orders declined for the first time since August of 2016. Both input and output prices rose at a quicker rate compared to the previous month, pointing to intensifying inflationary pressures. Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said: “The sector has sustained a relatively solid upward trend across 2018. June data indicated continued growth in new orders, a faster rate of job creation, rising backlogs of work and increasing output prices. As such, there appear to be further legs in the manufacturing growth cycle.”
III. Market Situation
The currency pair EUR/USD traded little changed, as investors took a breather after the yesterday's rally in the pair, which was attributable to the broad weakening of the U.S. on the back of weak U.S. data and a fall in the yield on the U.S. Treasuries. Today, the euro could be supported by data on the Eurozone’s PMIs for June. Economists forecast the composite index, which measures activity in both the manufacturing and services sectors, rose to 54.0, pointing to a decent but not impressive growth in the Eurozone’s economy. Investors also will pay attention to the U.S. PMIs from Markit. According to the forecast, the manufacturing PMI edged up to 56.5 in June from 56.4 in May, while the services PMI dropped to 56.4 from 56.8. Resistance level - $1.1850 (high of June 14). Support level - $1.1508 (low of June 21).
The currency pair GBP/USD rose slightly, hitting its high of June 15. The pair continued to receive support from the "hawkish" outcomes of the Bank of England’s (BoE) meeting, as well as the broad decline of the U.S. dollar. Yesterday, the BoE expectedly decided to leave its key interest rate unchanged at 0.5 percent and said that it could start unwinding its bond-buying programme once interest rates have hit 1.5 percent, down from the previous guidance of 2.0 percent. Meanwhile, the minutes of the meeting revealed that three out of nine members of the Bank’s Monetary Policy Committee (MPC) voted for a rate hike, while only two members vote for a rise at the April meeting. The bank also said that "inflation is expected to pick up by slightly more than projected in May” and “domestic cost pressures will continue to firm gradually.” Traders are now pricing in a 66 percent chance of a rate rise in August, compared to a 45 percent probability before the release of the BoE statement. With an empty economic calendar in the UK ahead, market participants will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3446 (high of June 14). Support level - $1.3101 (low of June 21).
The currency pair AUD/USD demonstrated a slight increase, helped by the broad weakness in the U.S. dollar and higher prices of some commodities. However, many experts warn that the prospects of a trade war between the U.S. and China (Australia's major trading partner) could lead to a sharp slowdown of the Australian exports of iron ore and coal. In addition, the Reserve Bank of Australia (RBA) exempted from the minutes of its last meeting the "hawkish" statement that the next change in interest rates will likely be a rise. Resistance level - AUD0.7480 (high of June 15). Support level - AUD0.7326 (low of May 9, 2017).
The currency pair USD/JPY traded near the opening level, due to the lack of new catalysts that could cause strong movements in the pair. Japan’s inflationary data had little impact on the yen as well. The Ministry of Internal Affairs and Communications reported that Japan’s consumer prices rose 0.7 percent y-o-y in May, following a 0.6 percent y-o-y increase in the prior month. That was above economists’ forecast for a 0.3 percent gain. The nationwide core consumer price gauge, which excludes volatile fresh food prices, also rose 0.7 percent y-o-y last month, the same increase as in the previous month and in-line with economists’ expectations. Resistance level - Y110.89 (high of June 15). Support level - Y109.54 (low of June 19).
U.S. stock indexes closed lower on Thursday, dragged down by the stocks of Amazon (AMZN; -1.1%) and other online retailers, which dropped after the U.S. Supreme Court ruled that states could force these companies to collect sales tax. Investors also digested the Philadelphia Fed’s Survey, which revealed its index of current manufacturing activity in the region reduced to 19.9 in June from an unrevised reading of 34.4 in May. Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 17 percent reported decreases, the FRB of Philadelphia said. The details of the report were mostly lower.
Asian stock indexes closed mixed on Thursday, following weak Wall Street overnight performance. Investors continued to fret about the prospect of a trade war between China and the U.S. Japan’s equity benchmark, the Nikkei, fell after two straight sessions of gains, as the yen’s recent appreciation against the U.S. dollar put pressure on the Japanese large export-oriented companies.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 2.91% (+1 basis points)
Yields of German 10-year bonds hold at 0.34% (0 basis points)
Yields of UK 10-year gilts hold at 1.28% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in August settled at $66.30 (+1.16%). The crude oil prices rose as investors were awaiting a decision of the OPEC and its allies on a deal on oil output later today. In addition, attention will be paid to the weekly data on the U.S. oil rig count from Baker Hughes, set to be released at 17:00 GMT.
Gold traded at $1,268.70 (+0.15%). Gold prices rose slightly, as the U.S. currency weakened. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell by 0.05 percent to 94.70. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
BOE Quarterly Bulletin
Retail Sales ex Autos
Bank of Canada Consumer Price Index Core
Consumer Price Index
Baker Hughes Oil Rig Count
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