Market Drivers for June 11 2014

UK/MP labor data confirms strength cable rallies to 6780

AU Westpac sentiment turns positive

Nikkei .50% Europe .29%

Oil $104/bbl

Gold $1261/oz.

Europe and Asia:

AUD Westpac Confidence 0.2% vs. -6.8%

GBP Claimant Count -27.4K vs. -25.0K

GBP Unemployment rate 6.6% vs. 6.7%

GBP Average Earnings 0.7% vs. 1.2%

North America:

No Data today

Currencies went their own way in Asian and early European trade today with Aussie and sterling performing well while euro and USD/JPY drifted lower as the night progressed. The Aussie continued to demonstrate relative strength with the pair rising to 9400 level as the global hunt for yield continued and Australian economic data proved supportive.

Earlier in the Asian session the Westpac consumer sentiment survey printed at 0.2% versus -6.8% the month prior showing marked improvement. This was only the second time out of the past 7 months that Westpac data has show positive sentiment and it suggests that conditions on the ground are likely stabilizing after a long period of deterioration.

The Aussie now stands at a critical level as the pair has rallied into major resistance in the 9400-9500 corridor. The 9500 level is also the Maginot line for the RBA which is likely to increase its jawboning markedly should Aussie approach that level. Australian policymakers may even threaten to lower rates should the rally in Aussie continue unabated as they are greatly concerned with the impact of currency appreciation on the Australia’s terms of trade.

Meanwhile in UK the data continued to show strong and steady growth with the latest labor statistics beating forecasts. The UK unemployment rate declined to 6.6% from 6.7% eyed and well below the BoE’s initial target of 7%. The claimant count also improved declining to -27.4K from -25K anticipated.

The only data point that was disappointing was the average earnings index which rose a paltry 0.7% versus 1.2% eyed. The slowdown in wage growth will provide wiggle room for BoE to maintain its ultra accommodative policy longer, but unless economic conditions slow significantly in H2 of this year UK remains the lead candidate amongst the G-3 economies to be the first to raise rates since the 2008 credit crisis. Cable continued to hover just below the 1.6800 level in mid-morning London trade but could once again be lifted above that figure once the North American markets opened for trade.

The euro on the other hand was weak throughout the night drifting towards the 1.3520 level after ECB council member Hansson noted that the central bank should explore the QE option. ECB members continue to look for ways to stimulate credit expansion in the region and are clearly entertaining other policy options besides rate cuts to help expand the EZ economy.

The euro continues to find support ahead of the 1.3500 level but the downward pressure on the pair persists. There is little economic data this week from the region so the level may hold for the time being, but if growth in the EZ does not show a modicum of improvement, the euro is likely to give way and head towards deeper support at 1.3300 over the next several weeks.

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