Daily Market Pulse

USD

The Greenback is back in the red this morning and continues its up-and-down ride since the debt ceiling deal was reached last week.  The Dollar Index is now trading near the day's low heading into the US session after the release of this morning's MBA Mortgage applications and trade data.

The US trade deficit reached a six-month high of $74.6B in April, with exports declining by 3.6% and imports increasing by 1.5%.  The decline in exports was driven by various sectors, including crude oil and fuel, while imports rose mainly due to upticks in passenger cars, industrial supplies, and household goods.

Meanwhile, mortgage rates decreased slightly, but demand for home purchases and refinancing remained low, resulting in a fourth straight week of declining applications.

Joel Kan, MBA's deputy chief economist, clarified that the US housing market continues to face persistent challenges resulting from tighter financial conditions, including higher interest rates, limited supply hampering purchase activity, and the absence of rate incentives impacting refinancing options.  Additionally, the expectation of elevated US rates in the future further compounds these difficulties. 

EUR

The Euro is up around 0.2% this morning, erasing yesterday’s losses against the Dollar as EUR/USD remains rangebound ahead of next week’s Fed and ECB decisions.

Earlier this morning, ECB Governing Council member Isabelle Schnabel stated that the impact of the ECB’s policy on inflation is expected to peak in 2024. 

Still, there remains uncertainty about the strength and speed of this process.  The remarks come as the ECB is about to enter their “quiet” period ahead of next week’s meeting, where they are pricing in another 0.25% hike.

On the data front, Italy experienced a slight increase in retail sales in April, driven by higher sales of food items, while sales of non-food items declined. 

Meanwhile, Germany saw a modest rebound in industrial production in April, led by growth in construction and pharmaceutical and consumer goods manufacturing.  Yet, declines in sectors such as motor vehicles and engineering partially offset it.

GBP

The Pound is up around 0.3% this morning as it looks for its first winning day against the Dollar in nearly a week.  The move comes amidst broad weakness in the Dollar this morning and some minor data points out of the UK.

House prices in the UK declined year-on-year in May for the first time in 11 years, with the Halifax house price index falling by 1%.  The slowdown in the housing market can be attributed to an increase in mortgage rates from the country’s largest provider.

Meanwhile, the latest UK construction PMI showed modest growth in total construction activity in May, driven by increased commercial building and civil engineering. 

Although there were concerns about the impact of higher interest rates and a dip in business confidence, employment in the sector rose for the fourth straight month.

JPY

The Yen is pushing higher this morning as the Greenback loses favor in an overall quiet session as JPY traders turn attention to Japan GDP data set for release this evening.  

Earlier today, Japan’s Leading Economic Index rose to its highest level since November 2022, signaling a further recovery in the Japanese economy driven by improvements in the service and manufacturing sectors.  Additionally, the Coincident Index hit its highest point since September 2022.

Meanwhile, Japan’s reserve assets slightly declined in May due to a decrease in foreign currency reserves following last year’s foreign exchange intervention operations by Japanese authorities to support the faltering Yen.

CAD

The Loonie will be the most watched currency amongst its G7 counterparts today as markets brace for the highly anticipated BoC interest rate decision set for 10:00 AM EST.  USD/CAD is flipping between gains and losses this morning in the lead-up to the announcement as traders brace for volatility.    Markets are currently pricing in a 0.45% chance of a BoC hike, which has helped boost the Loonie this week.

Earlier, Canadian trade data showed exports grew by 2.5% to $64.9B in April, mainly due to higher exports of crude, gold, and other mineral products. This resulted in Canada’s overall trade surplus exceeding expectations.

MXN

The Mexican Peso continues to flex its muscles this week, breaking through to a seven-year high against the Greenback as carry traders rejoice about Baxico’s recent remarks indicating rate cuts are not yet on the horizon for Mexico amidst resilient economic data.

The latest upbeat data release came from the auto sector – a significant contributor to Mexico’s total exports. 

Auto production in Mexico experienced a significant increase of 25.1% in May from a year-on-year perspective, marking the 13th consecutive month of growth and the highest level for May since 2019.    Major automakers such as General Motors, Nissan, Ford Motor, and Stellantis saw production growth as demand continued to show signs of recovery.

Meanwhile, President López Obrador has begun setting the stage for next year’s election, stating a key priority for his government in 2024 will be to improve public sector salaries.   

BRL

The Brazilian Real is trading sideways this morning, heading into the US session after posting its fourth consecutive winning day yesterday.  

Earlier this morning, May’s IPCA Inflation report showed Brazil’s annual inflation rate dropped to 3.94%, the lowest in nearly two years, thanks in part to the aggressive monetary policy stance of Brazil’s Central Bank.  Lower transportation prices, especially gasoline, contributed to the decline, while rises in food and non-alcoholic beverage prices slowed down.  Housing and utilities costs saw a slight increase.

The report will be welcomed with open arms by Brazilian President Lula da Sila as the potential for rate cuts on the horizon becomes more and more likely. 

CNY

The Yuan is slightly higher this morning as overall Dollar weakness support from state-owned banks is helping CNY stave off the negative impact of yet another batch of gloomy economic data out of China.

China experienced a significant decline in exports by 7.5% year-on-year in May, reaching a three-month low.    The drop was even worse than expected, driven by faltering global demand and marked the first decline since February. 

 

China’s trade surplus also shrank to its smallest level since February, as exports fell more than imports, which fell just 4.5%

The disappointing trade figures have, once again, raised speculation about potential interest rate cuts by the PBoC.  Meanwhile, local authorities have reportedly asked state-owned banks to lower rates on USD deposits in an attempt to prop up the faltering Yuan.