Oil pushing back above $40 on a draw in inventories, China in focus this week
Risky assets finished last week on a bullish note at the US close, and Asia has followed suit this morning with risk still being on the bid. FX markets are seeing further appreciation of the JPY across the board – USDJPY has this morning printed new 2016 lows at 107.62 and there have been rumors that the Bank of Japan have no plans of intervening before the pair gets close to the 105-level. In commodities, oil enjoyed a decent rally last week, following two weeks of decline, on back of a significant draw in inventories, pushing the black gold above $40/barrel this morning. Natural Gas took a beating on back of an increase in inventories and has gapped lower on the opening today. In fixed income markets, the benchmark US yields rose slightly whereas the benchmark EU rates were flat to lower.
Overnight, Chinese CPI came out a tad lower than expected, but the market reaction was balanced by better than expected PPI. This week China will take focus in Asia as we have key releases from the Chinese economy. Wednesday will show us the Trade Balance figures and on Friday we have the GDP figures for Q1. As China has been the main driver for the global economy, Asia in particular, markets will pay extra attention to the figures and we could see stock markets being cautious ahead of the figures. We could see gold finding bids ahead of the figures on back of speculation that the metal will be a safe haven during high risk events. S&P
From the Euro zone, Italian Industrial Production figures came out mixed this morning and the EUR has been suffering this morning. Especially EURGBP (down 0.5% in time of writing) seems to have formed a temporary top at 0.8120-area and the pair has turned round with classical oscillators showing overbought levels, so we believe a correction towards the 0.7920-40 area could take place before new bids will re-enter. The Sterling is naturally a cause for high speculation at the moment due to the upcoming referendum on the EU membership on June 23rd. Despite weak figures from Industrial and Manufacturing production last week, we saw better than expected House Prices. This week, inflation data on Tuesday will be important as well as Thursday’s interest rate decision from the BOE (expecting unchanged rates and QE levels).
From North America, US PPI and Retail Sales will attract attention on Wednesday, while CPI will be the main figure on Thursday. Friday, we have the data for the US Industrial Production as well as the preliminary confidence data from the U. of Michigan. Canada will also be in focus with the BoC announcing interest rates on Wednesday. USDCAD has been on the offer following the bullish oil figures, but is struggling to find additional offers below the 1.30-figure. We continue to be bearish on the pair and remain in a “sell-on-rallies” mode.
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