Mixed open for central bank week

Fearing the lack of Fed dovishness

As told in our Asia week ahead, the biggest event this week for global equity and FX markets may be of little doubt the Fed meeting. As such, every trickle of US data can be seen playing into the expectations. This had also been why the latest surprise out of the US may have undermined some of the market’s confidence for the dovishness expected in the upcoming meeting.

May’s retail sales and industrial production were both seen surprising on the upside last Friday. This had included the retail sales’ control group, which feeds into the GDP accounting. Alongside upward revisions of prior data, it altogether had been telling a strong consumption story that may discount some of the urgency for a Fed cut to come through in support of economic growth. Separately, the preliminary June University of Michigan sentiment index had also arrived largely in line with consensus at a resilient 97.9 inviting the subsequent reaction within the market.

In particular, the US Dollar Basket strengthened following the release of the retail sales reading as with US treasury yields that likewise jolted up. The US dollar index, measured against the major currencies, had departed further from the uptrend support seemingly keeping the uptrend going. With the market pricing in more than one rate cut as early as July, one suspects that a disappointing outcome – wherein the Fed arrives less dovish than expected – could set off further reactions across the US dollar and equity markets alike. One to watch. The intuitive course of action, however, remains with going in the direction for further US dollar weakness into the meeting with the Fed expected to formally reflect their dovishness in the June meeting.

Source: IG Charts

Asia open

As told above, the string of data surprises casts doubts on the expected dovishness from the Fed in Wednesday’s FOMC meeting and thereby sets Asia markets on a poor start to the week. Early movers in the region ranging the ASX 200 to the Nikkei 225 have both pulled back 0.3% when last checked, awaiting most of the regional markets to partake the decline.

The attention at the start of the week would belong with the Hong Kong market following a second weekend where we have seen protests take on a bigger scale last Sunday. This was despite the Hong Kong administration suspending the controversial extradition bill, with the dissent evidently still strong. Immediate support was seen at the 27,000 figure ahead of the 26,658 strong support level. The local Singapore market’s May non-oil domestic exports arrived slightly above the market’s consensus but nevertheless remaining deep in year-on-year decline, seeing little SGD reactions.

Source: IG Charts

Friday: S&P 500 -0.16%; DJIA -0.07%; DAX -0.60%; FTSE -0.31%