Market Drivers July 1, 2019
Dollar up on G-20 news
EUR final manufacturing lower
Nikkei 2.13% Dax 1.38%
UST 10Y 2.02%
Europe and Asia:
EUR EZ Final PMI 47.6 vs. 47.8
GBP UK PMI Manufactutinng 48 vs. 49.2
USD ISM Manufacturing 10:00
The dollar was bid across the board in post-G-20 meeting relief after President’s Trump and Xi agreed to a trade truce at the summit avoiding further tariffs for now.
USDJPY gapped higher touching a high of 108.53 in late Asian trade but has backed off a bit the highs going into the NY open. Although some consolidation is due, the pair looks t have made a near term panic bottom last week near the 106.50 level and will likely now grind higher as risk aversion flows begin to unwind.
One key consideration going forward will the focus back on US data. This week we get a plethora of data points including both the ISMs and the NFP reports. The key question for the market will be the extent of the slowdown in business spending and its impact on jobs and more importantly wage growth. The Fed is sure to be paying attention to the data points and any further deterioration will send the rates curve even lower as markets price in a string of cuts beyond the near certainty of the July move.
Tellingly the 10-year yield has not budged much with US benchmark rates only up 2 basis points on a relief rally move as bond traders clearly remain skeptical of US growth and continue to put downward pressure on rates. If that dynamic persists it will be difficult for the buck to get much traction over the next few weeks as the downward pressure of rate will keep any rally in check.
For now, the buck bounce remains in play but US data will need to be supportive for the rally to last.
To that end, today’s ISM Manufacturing report will kick off the calendar which is somewhat misshapen by US holiday midweek. The ISM is projected to print of 51.3 versus 52.1 but if the data misses the mark and comes dangerously close to the 50 boom/bust mark, much of the USDJPY rally could disappear by day’s end.