Market Drivers for June 2 2014

Aussie Building Approvals sink sharply and lower iron ore add to woes

UK Mortgage approvals decline, PMI steady

Nikkei 2.07% Europe 0.09%

Oil $103/bbl

Gold $1243/oz.

Europe and Asia:

AUD Building Approvals -5.6% vs. 2.1%

AUD Company Profits 3.1% vs. 2.6%

GBP Manufacturing PMI 57 vs. 57.1
GBP Mortgage Approvals 63K vs. 64K

North America:

USD Final PMI 9:45 AM

USD ISM Manufacturing- 10:00 AM

The dollar has been up across the board on the first trading day of the week, with Aussie suffering particularly sharp selloff after the Building Approvals data disappointed traders in early Asian session dealing.

Australian Building approvals declined significantly dropping by -5.6% versus 2.1% eyed registering the third consecutive monthly contraction. The data suggests that despite low interest rates the housing sector remains in a deep funk and is likely to put a negative drag on Australian GDP in Q2 of this year. Although the markets do not anticipate any further easing from the RBA, today’s data certainly skews sentiment against the Aussie as it indicates that the RBA may be forced to reconsider its neutral stance if conditions continue to deteriorate.

This week the market will get a slew of economic data from Down Under including Retails Sales, Trade numbers and GDP readings. In addition the RBA will also issue its monthly statement and if the Australian policymakers hint that conditions have weakened. The Aussie could see further selling.

The AUD/USD fell through the 9300 level in reaction to the poor housing data and continued to drift lower throughout the night hitting a low of 9241. The pair is now back in the 9300-9200 range with 9200 remaining the key support for the time being. That level has held for the past month and a break below 9200 would signal a steeper correction in Aussie towards 9000 as traders lose faith in the recovery Down Under.

Elsewhere, in UK, the data was mixed with PMI Manufacturing printing at 57 just slightly below the expected value of 57.1. Activity in the manufacturing sector has remained relatively steady above the 55 mark, all year long confirming that UK economy continues to see some of the best growth in the G-7 universe.

More troubling however, was the decline in Mortgage approvals which sunk to 62,918 versus 64,750 eyed. This was the lowest reading in nearly a year indicating that UK housing sector is in a clear slowdown – a dynamic that could allow the BoE to delay any interest rate hikes until well into next year. Cable sunk to 1.6720 in reaction to the news, but then rebounded towards the 1.6750 level where its found its equilibrium for the time being.

In North America today the key focus will be on ISM Manufacturing data with consensus forecasting a slight bump to 55.7 from 54.9 the month prior. Given the sharp rises in Empire and Chicago numbers, the chances are good that the national number could surprise to the upside. USD/JPY has acted relatively well over the past several days as US yields appear to have stabilized at the 2.50% level and if today’s data does prove positive it may extend the rally in both US yields and greenback with the pair possibly testing the key 102.50 resistance level as the day progresses.

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