Opening Comment 05.31
A closed US market for Memorial Day, and a UK Spring Bank holiday, are expected to keep market relatively light on Monday, the final day of the month for May. However, this does not mean that we can’t expect to see some volatility, with plenty going on in the markets to warrant some aggressive moves in either direction. For now, despite the latest recovery in the Euro, which opens the door to a potential short-term upside reversal for most major currencies against the buck, the single currency still remains well offered on rallies and still faces some tremendous challenges.
China’s SAFE has attempted to infuse some appetite for the beleaguered currency after saying that the Eurozone is “one of the most important investment markets.” However, Fitch’s downgrade of Spain on Friday and a report from a London-based consultant that the only way out for Greece is to exit the single currency, default on its debt, and restructure, have easily offset the China comments. On the official circuit, we have been hearing from various Fed officials over the past several hours. Fed Plosser comments have not proved to be too enlightening after the central banker attributes the recent USD surge to a flight to safety. Plosser goes on to say that although the Eurozone crisis has raised some concerns with regard to the US recovery, he does not see it as having any real impact on monetary policy decisions. Fed Evans has also been out with similar rhetoric, while adding that the current monetary policy is appropriate.
Finally, a Fed Chair Bernanke has been on the wires following his video taped remarks at a Bank of Korea conference on emerging markets. Bernanke says that it is important for developing economies to maintain strong domestic growth as well as economic and financial stability. ECB President Trichet is the only non-US central banker of note on the wires, with Trichet also appearing in a video taped recording in front of the Bank of Korea emerging market conference. Trichet says that emerging countries have remained a source of strength for the global economy, with the recent crisis even adding to the recognition, potential and importance of these economies.
On the data front, Japanese manufacturing activity was higher in April, while industrial production came in weaker than expected, and wage earningsbput in their biggest gain since December 2005. In the UK, house prices rose by the same M/M margin as the previous print, and improved Y/Y. Meanwhile in Australia, TS Securities inflation nudged up from the previous month, while new home sales also improved. Private sector credit was softer, and the current account was wider than forecast. Company profits managed to come in on the stronger side of estimates, and new home sales recovered into positive territory in April. In New Zealand, business confidence slipped back from its April readings.
Looking ahead, Eurozone M3 (-0.2% expected) is due at 8:00GMT, followed by the Eurozone business climate (0.20 expected), industrial confidence (-7 expected), consumer confidence (-18 expected), and economic confidence (100.6 expected), and service confidence (6 expected) readings, all due at 9:00GMT. Also out at 9:00GMT is the Eurozone CPI estimate (1.7% expected). In North America, the calendar is entirely focused on Canada, with industrial product prices (-0.3% expected), GDP (0.5% expected), and raw materials prices (1.0% expected) all due at 12:30GMT. US equity futures are tracking higher, although they are less relevant in light of the closed markets, while oil is also higher, and gold slightly lower. We do not recommend that traders look to take any positions on Monday, and instead would advise waiting until a fuller Tuesday session.
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