Daily Market Pulse

USD

The Dollar Index is inching higher this morning after losing ground yesterday in the aftermath of yesterday’s sluggish service sector data.  

May’s ISM Services PMI surprisingly fell to its lowest level in five months, accompanied by a decrease in price pressures to their lowest level in over three years. 

The services industry, which constitutes a significant portion of the US economy, demonstrates weakening demand and raises concerns about a slowing economy overall.

The data gives the Fed room to pause in June and possibly July.  Markets are now pricing in only a 20% chance of the Fed raising rates this month and around 50% for a July hike. 

EUR

The Euro is taking a step back today after disappointing Eurozone data released earlier this morning gave traders pause.  

Eurozone retail sales remained stagnant in April, missing market expectations of 0.2% growth, with declines observed in food, drinks, and fuel trade, while non-food trade, particularly online trade, experienced a slight increase.  From a year-on-year perspective, retail sales fell by 2.6%, continuing a seven-month streak of contraction.

Meanwhile, factory orders in Germany unexpectedly dropped by 0.4% in April, the second consecutive month of decline, while markets expected a 3% jump.  A significant factor in the miss stemmed from a 34% drop in new orders for miscellaneous vehicle construction.

GBP

The Pound is in the red heading into the US session as GBP/USD looks to retest the two-month lows seen on May 26.  The decline comes as markets evaluate recent UK retail sale data showings slowing growth.

UK like-for-like retail sales grew 3.7% year-on-year in May compared to April’s 5.2% growth rate, mainly due to higher food prices causing consumers to reduce spending on non-essential items.  While grocery spending increased, fuel expenditure declined for the third consecutive month.

In a separate release, UK Construction PMI for May showed the most substantial growth in construction activity since February.  Despite concerns about higher interest rates and weaknesses in the house-building sector, commercial building and civil engineering were the main drivers of this growth.

JPY

After rising over 0.2% against the Dollar yesterday, the Yen is flat this morning after Japanese household spending disappointed and wage growth slowed.

In April 2023, household spending in Japan recorded a significant 4.4% decline in real terms, marking the sharpest decrease since June 2021 due to inflationary pressures on consumer prices.  Various categories, such as housing, furniture, education, and clothing, experienced notable reductions in expenditures.

Meanwhile, average cash earnings increased by 1% year-on-year, although real wages adjusted for inflation fell by 3% for the 13th consecutive month.  Despite nominal wages improving for the 16th straight month, they have yet to catch up with inflation.

CAD

The Loonie is clinging to modest gains today as traders react to this morning’s disappointing building permits data while bracing for tomorrow’s BoC rate decision.

The total value of building permits in Canada experienced a significant decline of 18.8% in April, worse than the expected drop of 5% and its lowest level since December 2020.  This drop was primarily driven by a slump in the non-residential segment, with declines observed in the industrial, commercial, and institutional components.

Looking ahead to tomorrow, markets have the odds of a BoC hike at nearly 50-50, which could lead to significant volatility in USD/CAD in the leadup and initial aftermath of the decision.

MXN

The Mexican Peso is slightly higher against the Dollar this morning after rallying for three straight days dating back to Thursday.  While the economic calendar is quiet in Mexico until Thursday, there is plenty to digest on the political side.

In a landmark defeat, Mexico’s oldest party, the Institutional Revolutionary Party (PRI), has lost control of the country’s most populous state, marking a potential end to the long-standing dominance of a powerful political network that has held sway for nearly a century.  The incumbent PRI, which has governed the state of Mexico uninterruptedly since 1929, suffered defeat by a margin of eight points.  The victory went to Delfina Gómez, an ally of populist Mexican President López Obrador.  Many political analysts see the result as an early indicator of how the 2024 presidential election could play out.   

BRL

The Brazilian Real begins the day on the back foot following three straight days in the green as traders mull prospects of rate cuts on the horizon given the recently revised-higher 2023 growth forecasts.  

Brazil’s latest “Focus Survey” indicates analysts consulted by the Central Bank are now forecasting Brazil’s 2023 GDP to come in at 1.68% - up from the previous 1.26% after the recent Q1 print came in better than expected.  In addition, inflation forecasts were revised lower for the third straight week, dropping to 5.69% from the 5.71% expected last week. 

Finally, analysts surveyed see the potential for rate cuts coming by Q3. 

CNY

The Yuan remains under pressure today and is on the cusp of falling through fresh seven-month lows ahead of new trade data out of China later this evening, as markets anticipate a decline in exports from a year-on-year perspective for the first time since February.  

 

Although there has been significant chatter surrounding state-backed banks, in conjunction with the PBoC, stepping in to support the Yuan, they may not be as aggressive on this as initially thought. This is because a weaker Yuan could potentially stimulate a recovery in China's ailing exports.  In any case, it appears policymakers in China will have to maintain a delicate balancing act for the foreseeable future if these struggles persist.