The negative sentiment that permeated throughout Wall Street yesterday seeped through into the overnight Asian session, and with a lack of economic drivers, the pessimistic price action has been hard to shake in early European trade. The absence of any meaningful progress towards a deal between Greece and their creditors has kept stocks subdued ahead of the opening bell, but the abundance of draft proposals and the fact the majority of the month remains before the bundled payment to the IMF is due keeps market participants with a “glass-half-full” mentality. The short-covering witnessed yesterday in the euro has subsided for the time being, with the big dollar trying to stabilize itself ahead of the opening bell. The unwinding of the short EURUSD position post-NFP resulted in the DXY giving back all of its gains from Friday; however, the USD-linked index is holding firm heading into the North American open despite commodity prices generating strong bid tones.
The overnight Asian session was fairly subdued, though pressure for more lenient monetary policy in China is continuing to mount given inflationary pressures slipped more than expected for the month of May. The 1.2% annualized reading is the slowest progression of consumer prices since the January print of 0.8%, and was worse than the 1.3% that economists had anticipated. Combined with the trade balance figures released over the weekend, the concern that a slowdown in domestic demand will threaten the government’s 2015 growth target of 7.0% has market participants anticipating further accommodative monetary policy conditions will be undertaken by the government in order to smooth out the recent period of sub-par activity. While the government of China has wanted to back away from broad based credit fueled growth policies, there is potential if this recent string of disappointing data continues, the PBoC either reduces bank’s reserve requirement ratios or slashes the key lending rate to juice economic activity. While the Shanghai Comp closed just slightly in negative territory on its session, commodities in general have been supported so far this morning, with front-month WTI ramping above $59. The associated run higher in the hydrocarbon complex has enticed market participants to add exposure to the loonie, with USDCAD losing its grip and taking another leg lower after the weakness witnessed yesterday.
As we head into the North American open, equity futures are slightly in the red, though the momentum has slowed after yesterday’s grind lower. The economic calendar is devoid of tier-1 releases, though JOLTS data for the US in the month of April will be released in a few hours, and while not usually market moving, is an ancillary indicator for the health of the labour market. Continued improvement in job openings and the availability of employment will be looked upon favourably by the Fed as part of their overall assessment of the labour market, so a print that is back north of 5.0M is likely to support the fundamental position of the USD as the Fed becomes more comfortable with the notion of normalizing rates. The technical positioning in the euro and DXY to start the week could be just that, and today’s JOLTS data may give additional credence to the medium-term fundamentals likely to underpin the big dollar.
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