Cryptocurrencies remained weak as BTCUSD couldn’t penetrate a key confluence zone we have highlighted on several occasions recently. This weakness possibly impacted the sentiment in the other markets too with equities trading without major advancements and the USD gaining ground on Friday. A mixed sentiment prevailed in Friday’s trading in US equities as the S&P 500 and Nasdaq Composite indices closed slightly lower on Friday (-0.1% and -0.5% respectively) while the DJIA (+0.4%) and Russell 2000 (+0.3%) closed up. Treasury yields remained flat with the 2-yr yield ended the day flat at 0.15%, while the 10-yr yield also remained unchanged at 1.63%. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Disappointing German Manufacturing PMI data drove the EURUSD lower in the European session on Friday. Analysts had expected to see the index at 66.0 but it was confirmed at 64.0, down from 66.2 the month before. Since the New York open on Friday USD has traded pretty much flat NZD (-0.37%) and AUD (-0.40%) once again losing the most ground. Gold (+0.16%) was kept in a relatively tight range while silver finished down by 0.75% and USOIL (3.15%) rallied on the back of doubts arising that the indirect talks to stop the US sanctions on Iranian crude exports might not continue. BTCUSD (-8.13%), ETHUSD (-18.52%) and LTCUSD (-14.63%) continued to slide after BTCUSD couldn’t trade above the resistance zone identified by us. See the latest Bullish & Bearish Markets video here.
The value and cyclical stocks were supported by the IHS that showed manufacturing and service-sector activity accelerating in May. The growth stocks declined steadily even though US Treasuries didn’t move much in this quiet trading session. The 2-yr yield ended the day flat at 0.15%, while the 10-yr yield also remained unchanged at 1.63%. The financials (+0.9%), industrials (+0.4%) and materials (+0.3%) sectors were the leaders while the information technology (-0.5%), consumer discretionary (-0.6%) lost the most. Relative to the S&P 500 the financials sector gained the most (+1.07%) in Friday’s trading. This suggests there is some bullishness among the investors. The weekly change in Utilities (+1.39%) relative to the benchmark index, however, suggests that overall investors were worried about the markets last week.
The US Manufacturing PMI came in at 61.5 (60 expected) while one of the key measures for inflation Existing Home Sales for April was confirmed at 5.85 million. This represented a 2.7% decrease compared to 6.01 million in March. As the supply of existing homes for sale remains at a record low levels we are likely to see price increases that leave the pace of income gains behind. Today traders will focus on speeches by the BOJ Gov Kuroda and the BOE Gov Bailey. For more information and details see the TIOmarkets economic calendar here.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The FED||The Fed has on several occasions repeated its commitment to ultra-accommodative monetary policy. The rates are likely to stay near zero while asset purchases continue.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus and the Biden administration has indicated it will seek to deliver another two trillion dollars in infrastructure spending.|
|Yields||After trending higher since the beginning of August 2020, the Treasury yields have been moving lower for about one month now. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Payrolls||The latest miss in payrolls was the biggest in the recorded history. Analysts expected to see one million new jobs in April but the actual number came in at 266K (down from 770K in March).|
|Inflation||As per CPI inflation is running at a 5% annual pace over the last 6 months, while PPI shows annual inflation pace at 7.4% over the same period.|
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Market News & Facts
- Biden’s new infrastructure proposal reduced to $1.7 trillion from $2.2 trillion
- Iron ore futures down almost 10%, AUD impacted
- Iran oil exports to “maximum capacity” within months?
- Australian April retail sales 1.1% (+0.5% expected)
- Japanese April headline CPI -0.4% (-0.5% expected)
- Fed’s Kaplan calls for discussions about taper in bond buying
- China State Council to stabilise commodity prices by supply and demand management
- Japan to radically increase defence spending
- BOJ Gov. Kuroda: no hesitation in stepping up easing efforts as uncertainty is high
- Australian April employment report: 30.6K fewer jobs, unemployment 5.5%
- The PBOC: digital tokens can not be used as a form of payment
- China bans financial institutions from offering cryptocurrency services
- Australian May consumer confidence: -4.8% (+6.2% previous)
- RBA to remain highly accommodative for some time
- US study: Pfizer and Moderna vaccines are effective against Indian variant
The Next Main Risk Events
- JPY – Speech by BOJ Gov Kuroda Speaks
- GBP – Speech by BOE Gov Bailey
- EUR – German IFO Business Climate
- USD – CB Consumer Confidence
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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