Will The Fed Talk The Talk?

Overview: With the outcome of the FOMC meeting awaited, the dollar is narrowly mixed in quiet turnover. The Scandis are the weakest (~-0.3%) among the majors, while the Antipodeans are the strongest (~+0.25%). JP Morgan's Emerging Market Currency Index is snapping a three-day decline. Equity markets are mixed, with the MSCI Asia Pacific Index succumbing to profit-taking after a four-day rally. Europe's Dow Jones Stoxx 600 is edging higher for the ninth consecutive session, setting new record highs along the way.US futures indices are little changed. The US 10-year yield is hovering just below 1.50%, and European yields are slightly softer. Gold is straddling the $1860 area while trading inside yesterday's range, which was within Monday's range. A large drawdown of US inventories (~8.5 mln barrels) is keeping oil prices firm today. The July WTI contract is mostly trading between $72.20 and $72.80 a barrel. Industrial commodities are trading heavily, though the price of lumber rose yesterday for only the second time since May 21.  

Asia Pacific

Copper prices slumped by over 4% yesterday and are trying to steady today after falling to new two-month lows. Reports that China will tap its strategic reserves for copper, aluminum, and zinc, may have contributed to the sell-off. Reports also suggest weakness in the physical market in China. Import premiums paid have fallen.LME copper inventories in Asia are near the highest in a year. Speculators have cut their gross long copper position in the US futures market for the past five weeks through last Tuesday. Officials have ordered state-owned companies to report their overseas futures exposures. 

China's May economic reports missed expectations, but the data can hardly be called weak. Retail sales rose 12.4% year-over-year. The median forecast was for a 14% gain. Industrial output rose 8.8%, missing the 9.2% projection. Fixed investment rose 15.4% in the first five months of the year compared with the same period in 2020. The one report that did improve from April and beat forecasts was the unemployment rate, which slipped to 5% from 5.1%. The data were reported after mainland markets closed, but there do not appear to be any strong policy implications. The recovery remains intact.

As the seasonal pattern suggested, the Japanese trade balance deteriorated in May but will likely rebound in June, as it has consistently for 19 of the past 20 years. Japan reported its first trade deficit (~JPY187 bln) for the first time since January. It was more than twice as large as economists projected. Exports accelerated to 49.6% year-over-year from 38% in April, just missing expectations (~51%). Imports beat expectations with a nearly 28% increase from the depressed year-ago rate, more than doubling from the 12.8% increase reported in April. Separately, Japan's core machine orders disappointed with a 0.6% increase, about a quarter of what had been anticipated. The BOJ's two-day meeting begins tomorrow. New economic projections will be provided, but no fresh initiatives are expected. Unlike nearly every other country, Japan is still experiencing deflation. The May CPI reading will be released before the outcome of the BOJ meeting. The headline is expected to be -0.2% after -0.4% in April. The core rate, which excludes fresh food, is projected to be at zero to snap a nine-month run of negative prints.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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