I. Market focus:
The U.S. president’s cancellation of the meeting with the leader of the DPRK, which was scheduled for June 12, remained the main topic in the financial markets at the beginning of Friday’s session. Donald Trump announced his decision yesterday. The U.S. side cited the North’s “tremendous anger and open hostility” displayed in recent statements and uncertainty over Pyongyang's willingness to give up its nuclear weapons as the specific reasons for canceling the summit. At the same time, the U.S. president signaled in his letter to the leader of the DPRK that the meeting is possible in future. In response to the U.S. president’s decision, Pyongyang said it is still willing to negotiate with Trump "at any time and in any way."
The cancellation of the U.S.-North Korea summit had a negative influence on the market sentiment, pressuring the stock indices and supporting the gold prices. But the assurances of both sides about the willingness to meet offset the negative sentiment. As a result, in the morning, the stock markets demonstrated recovery, and gold prices retreated after yesterday's growth.
On Friday, the main scheduled events will be the speeches of the governors of two central banks - the Bank of England (BoE) and the Federal Reserve, who will speak at a central banking conference in Stockholm, set to begin at 13:20 GMT. Other important events of the last session of the week will be the releases of revised data on the UK’s GDP for the first quarter (08:30 GMT), and the U.S. statistics on durable goods orders for April (12:30 GMT) and consumer sentiment index in May (14:00 GMT).
It should be noted that the financial markets of many countries will be closed on Monday and this may take its toll on the dynamics of today and tomorrow’s trading.
II. The market highlights are:
The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits rose more than expected last week while remaining consistent with a tight labor market. According to the report, the initial claims for unemployment benefits increased 11,000 to 234,000 for the week ended May 19. Economists had expected 220,000 new claims last week. Claims for the prior week were revised upwardly to 223,000 from the initial estimate of 222,000. Meanwhile, the four-week moving average of claims increased 6,250 to 219,750 last week. It was the 168th straight week that claims remained below the 300,000 threshold, the longest streak since 1969.
The National Association of Realtors (NAR) reported on Thursday that the U.S. existing home sales fell 2.5 percent m-o-m to an annual rate of 5.46 mln units in April from an unrevised 5.60 million in March. Economists had forecast home resales decreasing to a 5.57 million-unit pace last month. According to the report, single-family home sales declined 3.0 percent m-o-m to a seasonally adjusted annual rate of 4.84 million in April, while existing condominium and co-op sales rose 1.6 percent m-o-m to a seasonally adjusted annual rate of 620,000 units. With last month’s decline, sales were 1.4 percent below a year ago. The NAR’s chief economist Lawrence Yun said this spring’s staggeringly low inventory levels caused existing sales to slump in April. “The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home,” he said. “Realtors say the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates. However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.”
The Ministry of Internal Affairs and Communications reported on Thursday that consumer price index (CPI) the Tokyo region, available a month before the nationwide CPI data, increased 0.4 percent y-o-y in May after a 0.5 percent y-o-y gain in April. That was below economists’ estimate of an advance of 0.5 percent y-o-y. The growth was mainly attributable to the gains in fuel, light and water charges (+3.2 percent y-o-y), medical care (+2.1 percent y-o-y) and transportation and communication (+0.6 percent y-o-y). Food prices were up 0.3 percent y-o-y in May. At the same time, Tokyo core CPI, which excludes prices for fresh food rose 0.5 y-o-y in April, following a 0.6 percent y-o-y increase in the prior month. That was shy of economists’ forecast for a gain of 0.6 percent y-o-y.
III. Market Situation
The currency pair EUR/USD traded slightly lower, due to the resumed growth in the U.S. currency after yesterday's decline in response to a decline in the U.S. Treasury yields and news the U.S. president canceled the planned summit with North Korean leader Kim Jong-un. Donald Trump cited an increasingly hostile rhetoric from Pyongyang as the specific reason for canceling the summit but signaled that the meeting is possible in future. In response, North Korea said it is still willing to meet with Trump "at any time and in any way." Today, investors will focus on the Ifo’s business climate survey for Germany, as well as the U.S. statistics on durable goods orders for April and consumer sentiment index in May. Resistance level - $1.1829 (high of May 22). Support level - $1.1622 (low of November 10, 2017).
The currency pair GBP/USD traded slightly lower, near yesterday's low, due to a new wave of the broad strengthening of the U.S. currency. In addition, investors were cautious ahead of the comments by the Bank of England (BoE) governor Mark Carney and the release of the revised GDP estimates for the first quarter, which will help to identify the causes of the recent slowdown in country’s economic activity. Economists forecast GDP grew by 0.1 percent q-o-q and 1.2 y-o-y in the first quarter of 2018. In the fourth quarter of 2018, the UK’s economy expanded 0.4 percent q-o-q and 1.4 percent y-o-y. Resistance level - $1.3491 (high of May 22). Support level - $1.3304 (low of May 23).
The currency pair AUD/USD fell moderately, retreating from the high of May 23, due to the broad strengthening of the U.S. currency and falling commodity prices. However, experts expect that the pair will continue its increase due to easing tensions in the U.S.-China trade relations, as this development can positively affect the global economy. In addition, the Australian currency will receive support from Australia's strong economic data. Resistance level - AUD0.7605 (high of May 22). Support level - AUD0.7522 (low of May 23).
The currency pair USD/JPY rose noticeably, erasing most of the losses of the previous session, as the demand for safe-haven assets reduced in response to the cooling of geopolitical tensions, and the U.S. dollar firmed. The pair’s performance was also influenced by weaker-than-expected Japan’s inflation data. The Ministry of Internal Affairs and Communications reported that consumer price index (CPI) the Tokyo region, available a month before the nationwide CPI data, increased 0.4 percent y-o-y in May after a 0.5 percent y-o-y gain in April. That was below economists’ estimate of an advance of 0.5 percent y-o-y. At the same time, Tokyo core CPI, which excludes prices for fresh food rose 0.5 y-o-y in April, following a 0.6 percent y-o-y increase in the prior month. That was shy of economists’ forecast for a gain of 0.6 percent y-o-y. Resistance level - Y111.39 (high of May 21). Support level - Y108.95 (low of May 24).
U.S. stock indexes closed lower on Thursday, as investor sentiment was hurt by the U.S. president’s decision to cancel his June 12 summit with North Korean leader Kim Jong Un. He cited the North’s “tremendous anger and open hostility” displayed in recent statements as the specific reason for canceling the planned meeting. Focus also was on the U.S. weekly data jobless claims and the April existing home sales. The Labor Department reported the initial claims for unemployment benefits increased 11,000 to 234,000 for the week ended May 19. Economists had expected 220,000 new claims last week. Claims for the prior week were revised upwardly to 223,000 from the initial estimate of 222,000. It was the 168th straight week that claims remained below the 300,000 threshold, the longest streak since 1969. The National Association of Realtors (NAR) reported the U.S. existing home sales fell 2.5 percent m-o-m to an annual rate of 5.46 mln units in April from an unrevised 5.60 million in March. Economists had forecast home resales decreasing to a 5.57 million-unit pace last month. With last month’s decline, sales were 1.4 percent below a year ago. The NAR’s chief economist Lawrence Yun said this spring’s staggeringly low inventory levels caused existing sales to slump in April.
Asian stock indexes closed mixed on Thursday amid reports the U.S. President Donald Trump's administration is weighing a plan to impose a 25 tariff on imported vehicles on national security grounds. Adding to market jitters, Trump on Wednesday called for “a different structure” in any trade deal with China, rising uncertainty over the talks.
European stock indexes are expected to trade mixed in the morning trading session.
Yields of US 10-year notes hold at 2.99% (+1 basis points)
Yields of German 10-year bonds hold at 0.48% (0 basis points)
Yields of UK 10-year gilts hold at 1.40% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in July settled at $70.47 (-0.34%). The crude oil prices fell moderately, responding to the broad strengthening of the U.S. currency and the reports about a discussion of a potential relaxation of the global oil output cap by Russia and Saudi Arabia's energy ministers. Market participants await weekly data on the U.S. oil rig count from Baker Hughes, set to be released at 17:00 GMT.
Gold traded at $1,302.10 (-0.18%). Gold prices fell slightly, on the back of partial profit-taking after yesterday's rally, lower demand for safe-haven assets, and the positive dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.18 percent to 93.93. Since gold prices are tied to the dollar, a weaker dollar usually makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
IFO - Expectations
IFO - Current Assessment
IFO - Business Climate
BBA Mortgage Approvals
Durable Goods Orders ex Transportation
Durable Goods Orders
Durable goods orders ex defense
FOMC Member Bostic Speaks
BOE Gov Mark Carney Speaks
Reuters/Michigan Consumer Sentiment Index
FOMC Member Bostic Speaks
Baker Hughes Oil Rig Count
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