Marking Time Ahead Of The Week's Big Events

America

The US reports the April trade balance and the JOLTS report on job openings. The preliminary figures suggest April's trade deficit may have narrowed from the record March level. The JOLTS report is expected to show a high level of job openings. Fed officials are entering their quiet period ahead of next week's meeting. As the government-sponsored enterprises (GSE) make principal and interest payments and banks begin trimming their balance sheets ahead of quarter-end, there is a lot of cash looking for a home. Yesterday's reverse repo operation saw a new record to take up of $486 bln from 46 counterparties. The anticipation that the Fed may adjust interest on reserves or reverse repo rate has begun impacting the yield at the bills sales, where crept up at yesterday's 3- and 6-month auctions. On Thursday, the 4-week and 8-week bills will be sold. Today's the Treasury will sell $58 bln 3-year notes, and tomorrow will sell $38 bln 10-year notes. 

Canada reports April trade figures today ahead of the central bank meeting tomorrow. A decision to take another step toward tapering is bond purchases which is not expected until July. Canada has shed jobs for the past two months and how officials frame it in the context of their April view that the output gap will close in H2 22 is the key to tomorrow's meeting. Mexico reports monthly CPI figures for May tomorrow. While the rate is expected to moderate, it will remain high (just below 6%), and the market is pricing in nearly 100 bp of hikes over the next year. Meanwhile, Peru's election remains on a knife's edge, and investor anxiety over Castillo edging ahead saw local stocks sell off sharply yesterday (~7%) and the sol sell-off by 1.1% after falling almost 3.6% over the two weeks leading up to the election.

The Canadian dollar continues to trade sideways, near its best level in four years. The US dollar is holding above the key CAD1.20 level but has not been able to overcome resistance in the CAD1.2135-CAD1.2145 area since mid-May. Speculators in the futures market have, as of June 1, extended the gross long position for eight consecutive weeks and, with about 89.5k contracts, have amassed the largest position since 2017. The US dollar traded as high as MXN20.2130 before the US employment report and was sold through MXN19.91 ahead of the weekend. Yesterday's follow-through dollar selling, encouraged by the fact that the governing coalition may have to temper some of their bolder ambitions, seen as unfriendly to investors, saw the greenback slide to MXN19.7365. It is consolidating around MXN19.80 now. The intraday technicals and soft US rates suggest a test on yesterday's lows is possible. The four-month low set in May was near MXN19.72.

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Read more by Marc on his site Marc to Market.

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