Summary: The disconnect between a strong Dollar and stocks broke as both assets rose in choppy trade. The catalyst was a record monthly rebound in May US Retail Sales which suggested that the US economy could bounce back sooner than expected. It was a busy day on the news front. Concerns of a second wave of coronavirus remained elevated after Beijing upgraded its emergency response. US Federal Reserve Chair Jerome Powell maintained his cautious stance on the economy, telling US lawmakers that a full recovery will not occur until Americans are certain Covid-19 has been brought under control. Fresh geopolitical concerns rose following reports that North Korea blew up a South Korean liaison office, which was used as an embassy between the two nations. Tensions between China and India surged with the reported deaths of at least 20 Indian soldiers amid a dispute in the Kashmir region. Meantime the latest Commitment of Traders/CFTC report saw a total increase in US Dollar shorts during the week to June 9. The Euro fell 0.66% to 1.1265 from 1.1325 yesterday after hitting a fresh weekly high in European trade. Sterling dropped to 1.2572 from 1.2602 on a mixed UK Employment report. The Australian Dollar slumped to 0.6887 from 0.6930 against the backdrop of a broadly stronger US Dollar. Against the Yen, the Dollar was little changed at 107.32 (107.35) after the BOJ left rates unchanged as widely expected.
The USD/CAD pair climbed to 1.3560 from 1.3535. US treasury yields climbed. The key 10-year bond rate rose 3 basis points to 0.75%. Germany’s 10-Year Bund finished at -0.43% from -0.45% yesterday. Japanese 10-year JGB yields closed at -0.01% from 0.00% yesterday.
Data released yesterday saw UK Claimant Count Change (Jobless Claims) climb to 528,900 against expectations of 405,300. Britain’s Unemployment Rate beat forecasts at 3.9% against 4.1%. Average Weekly Earnings (Wages) rose to 1%, missing expectations of a 1.4% rise. Germany’s ZEW Economic Sentiment Index climbed to 63.4, beating forecasts at 60.0. US Retail Sales in May rose to 17.7% in May, a record monthly rebound. Core Retail Sales was up 12.4% beating expectations of 5.5%. Both sales reports saw upwards adjustments to April’s sales data. US Industrial Production was up 1.4% in May, lower than forecasts of 3.0%.
On the Lookout: Fresh coronavirus outbreaks amidst growing fears of a second wave and geopolitical tensions in the region will dominate Asian markets today. Today’s economic and events calendar is light compared to that of yesterday.
Data kicks off with New Zealand’s Current Account, just released, which showed the surplus at NZD 1.56 billion, in line with expectations of a surplus of NZD 1.59 billion. Japan’s Trade Balance follows. Australia’s Melbourne Institute’s Leading Index follows which ends Asia’s reports.
The UK sees its Headline and Core CPI was well as PPI Input and Output. The Eurozone reports its Headline and Core inflation numbers. Canada comes next with its Headline, Core, Trimmed, and Median CPI data. The US rounds up the day’s reports with its Building Permits and Housing Starts.
Trading Perspective: The Dollar’s rally amidst a mostly risk-on environment highlights the large net short positioning in the Greenback. The latest Saxo Bank Commitment of Traders/CFTC report for the week ended 9 June saw an increase in net Dollar shorts due to a big rise in EUR longs and more short covering in AUD, CAD, GBP, and NZD. This is becoming a bigger factor which will cushion any US Dollar declines.