The Greenback Starts H2 on a Firm Note
<div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4eQYulDOmAer3ExcKR-pr74f6xxqewQwV6iIEgbgNCTJteHqfZ9RTDiec2nFwr8xZikk6gJIWkZH9eZBq2Svyy1s6-FoKg_qn32ajuYB1gW1FrUw-6jr6abkZ016qks8Q8ezrKlBoVO8zhVdfu3CmLjGFb0P5bMiWnnTL_0j_9hBq5FHDj0XLuEZddE4n/s447/brexit%202.jpg"><img alt="" border="0" data-original-height="405" data-original-width="447" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4eQYulDOmAer3ExcKR-pr74f6xxqewQwV6iIEgbgNCTJteHqfZ9RTDiec2nFwr8xZikk6gJIWkZH9eZBq2Svyy1s6-FoKg_qn32ajuYB1gW1FrUw-6jr6abkZ016qks8Q8ezrKlBoVO8zhVdfu3CmLjGFb0P5bMiWnnTL_0j_9hBq5FHDj0XLuEZddE4n/s400/brexit%202.jpg" width="400" /></a></div><p><b><span>Overview: </span></b><span>The dollar is recovering from the
month-end losses seen at the end of last week. Only the New Zealand dollar
among the G10 currencies is holding its own. Japanese reports indicate that Tokyo
is in contact with the US Treasury about intervention, which is injecting a
note of caution as the greenback holds below JPY145.00. Chinese officials also
appear to be stepping up their efforts to stabilize the yuan. Among emerging
market currencies, central European currencies are among the worst performers
today. The South Korean won, and Thai baht lead the advancers. Similarly, gold
which traded higher at the end of last week to reach almost $1923 before the
weekend, is trading lower today, and found support near $1910. August WTI is
extending the recovery from the middle of last week's low near $67 and is above
$71.50, its best level in about eight sessions. <o:p></o:p></span></p><p><span>Global equity markets have
begun the second half on firm footing. Japanese, Chinese, Hong Kong, South Korea,
and Taiwan rallied more than 1%. The MSCI Asia Pacific Index gained more than
3% last month. Europe's Stoxx 600 is extending its advance for a fifth
consecutive session. It gained 2.25% last month. US index futures are firmer. The
S&P 500 and NASDAQ gained around 6.5% in June. Benchmark 10-year yields are
little changed so far today. The US 10-year Treasury yield is near 3.85%. There
seems to be little market impact from the unrest in France. <o:p></o:p></span></p><p><b><span>Asia Pacific</span></b><span></span><o:p></o:p></p><p><span>China's Caixin manufacturing
PMI slipped from 50.9 to 50.5, a bit better than expected. It averaged 50.3 in
H1, the same as the average of the "official" PMI. The services and
composite Caixin reading will be released tomorrow. China's composite PMI has
averaged 54.3 in the Jan-June period. Through May, the Caixin composite has
averaged 53.8. Beijing is using a combination of verbal intervention (PBOC
pledge to stabilize the yuan) and the daily fix to moderate the pace of the
yuan's decline. Meanwhile, Pan Gongsheng, a deputy governor of the PBOC and
former head of SAFE (State Administration of Foreign Exchange) was named as the
PBOC's communist party head. This is understood to be part of the transition
from PBOC Governor Yi Gang who retired from his party post due to the mandatory
retirement age. Pan, a PhD economist, is seen likely to become the new governor
of the central bank. <o:p></o:p></span></p><p><b><span>Japan's Q2 Tankan survey
picked up a slight improvement in sentiment and outlook. </span></b><span>It was the first improvement for large
manufacturers since Q3 21. Plans for capex rose to 13.4% from 3.2% in Q1.
The inflation expectations were notable. The one-year expectation eased to 2.6%
from 2.8%. The three-year expectation slipped to 2.2% from 2.3%, while the
five-year was unchanged at 2.1%. Also, Japan's businesses have a favorable
outlook for the yen, seeing the dollar average JPY132.43 and the euro JPY140.11
during the current fiscal year. So far, the dollar has averaged almost
JPY137.55 and the euro has averaged JPY142.,55. Separately, the final
manufacturing PMI confirmed the preliminary estimate of 49.8 in June from 50.6
in May. It has averaged 49.3 in H1 23 after averaging 50.5 in H2 22. The
services and composite PMI will be reported Wednesday. The composite has
averaged 52.4 in the first half and 50.2 in H2 22. The highlight of the week
will be the May labor earnings and household spending figures due Friday. <o:p></o:p></span></p><p><b><span>Australia's final
manufacturing June manufacturing PMI stands at 48.2. </span></b><span>The preliminary reading was 48.6 after
48.4. It has not been above 50 since February and has averaged 49.0 in the
first half. The final services and composite PMI will be reported Wednesday.
Separately, CoreLogic reported median urban house prices rose for the fourth
consecutive month after falling from May 22 through February 23. Home loan
values appear are stabilizing and building approvals surged 20.6% in May,
blowing away expectations. The RBA meets tomorrow. The futures market has
around a 17% chance of a hike discounted, down from about 28% before the
weekend. It is nearly fully priced in by the end of Q3. The RBA hiked by a
quarter-point in May and June after pausing in April. The overnight cash rate
target is 4.10% and the swaps market see the peak near 4.50% by the end of the
year.<o:p></o:p></span></p><p><b><span>The dollar is firm against
the yen but is holding below JPY145 that was briefly breached before the
weekend.</span></b><span> The market
is somewhat cautious ahead of the tomorrow's US holiday and amid Nikkei reports
that the US Treasury is discussing the Japanese officials the advantages and
disadvantages of intervention. <b>The Australian dollar forged a base near
$0.6600 last week and recovered to around $0.6670 at the end of the week. </b>It
made a marginal new high today near $0.6675. Nearby resistance is seen near the
$0.6690-$0.6700 area. Initial support is seen at $0.6640 and then
$0.6620. <b>The dollar is consolidating against the Chinese yuan. </b>It
fell to a three-day low near CNY7.2250 before rebounded to CNY7.2550. The PBOC
set the dollar's reference rate lower than expected (CNY7.2157 vs CNY7.2467). There
were reports that Chinese banks, including state-owned banks were dollar
sellers near the reference rate. <o:p></o:p></span></p><p><b><span>Europe</span></b><span></span><o:p></o:p></p><p><b><span>The eurozone's final
manufacturing PMI stands at 43.4 from the 43.6 flash reading and 44.8 in May. </span></b><span>It averaged 46.4 in the first half and
spent H2 22 below the 50 boom/bust level as well, averaging 48.2. Germany's
stands at 40.6 rather than the 41.0 flash estimate, a three-year low. The slump
in German manufacturing, however, has not prevented the trade surplus from
recovering smartly. The May trade surplus will be reported tomorrow. It has
averaged 16.1 bln a month in the Jan-Apr period, more than twice as high as the
surplus in the same year ago period. We already know that Germany's non-EU
exports slipped about 2.3% year-over-year, with exports to the US off 7.1%
year-over-year ad exports to China 4.3% lower than a year ago. From a small
base, exports to Turkey, Mexico, and India are up 16%-18% year-over-year.
Exports to Russia were off by nearly 37% from a year ago to 700 mln euros.
Factory orders (Thursday) are expected to have risen for the first time in
three months.<o:p></o:p></span></p><p><b><span>France has been hit with a
wave of violent social unrest and it has been sufficient for President Macron
to cancel the scheduled trip to Germany today. </span></b><span>The French economy expanded by 0.2% in Q1
23 after stagnating in Q4 22. The median forecast in Bloomberg's survey expects
the economy to have expanded by 0.2% in Q2 and again in Q3. The final
manufacturing PMI stands at 46.0 compared with the preliminary estimate of
45.5. It averaged 47.1 in H1 23 after averaging 48.8 in H2 22. In addition to
the final services and composite PMI on Wednesday, France will also report May
industrial and manufacturing production. While industrial output may have
risen, manufacturing is seen softer. Separately, Italy's manufacturing PMI fell
to 43.8 in June from 45.9. It was below 50 throughout H2 22 but rebounded in Q1
back above the boom/bust level. However, the deteriorate in Q2 has been
dramatic the drying up of the pipeline (new orders) warns of further weakness.
Similarly, Spain's manufacturing PMI fell for the third consecutive month in
June to stand at 48.0. Spain reports May industrial output figures on Wednesday
around the same time as the services and composite PMI. After falling a sharp
1.8% in April, Spanish industrial production is seen rising by 0.2%.<o:p></o:p></span></p><p><b><span>The UK's final June
manufacturing PMI stands at 46.5, a bit better than that the 46.2 preliminary
estimate. </span></b><span>It is
fourth consecutive decline, and it has not been above 50 since last July. It
averaged 47.6 in H1 23, the same as in H2 22. Last June, it stood at 52.8. The
final services and composite PMI will be reported Wednesday. The Bank of
England does not meet until August 3, but the swaps market is pricing in about
an 85% chance of a 50 bp hike.<o:p></o:p></span></p><p><b><span>The euro is consolidating
within the pre-weekend range with a softer bias.</span></b><span> It reached slightly above $1.0930
last Friday but has not been above $1.0920 today. It is the fourth session of
lower highs. On the downside, the euro fell to $1.0835 before the weekend and
today's low is about $1.0870. A close below the 20-day moving average
(~$1.0865) would be the first since June 9. <b>Similarly, sterling is also not
seeing any follow-through buying after trading higher before the weekend, on
what appears to have been quarter-end adjustments. </b>It is about a
half-a-cent range above $1.2660. The five-day moving average looks poised to
slip below the 20-day moving average for the first time in nearly a month,
illustrating the loss of momentum. Support was found slightly below $1.2600
last week. <o:p></o:p></span></p><p><b><span>America</span></b><span></span><o:p></o:p></p><p><b><span>Although participation will
be light today ahead of tomorrow US holiday and Canadian markets are closed
today, the economic calendar is busy. </span></b><span>The final manufacturing PMI may not draw much attention but
May construction spending (median forecast in Bloomberg's survey is for a 0.5%
after a 1.2% increase in April) and the ISM may attract more notice. Also,
through the session the automakers will report June sales. A modest increase
from the 15.05 mln unit pace (SAAR) is expected. In June 2022, US recorded 13.0
mln vehicle sales. The average pace this year through May has been 15.28 mln,
more than 10% above the average for the same period in 2022. The US Treasury
will sell $173 bln in bills today and more Thursday. Use of the Fed's reverse
repo facility fell by a little more $200 bln in June. US Treasury has sold $340
bln of bills since the debt ceiling agreement was struck on June 2. That means
that other accounts have absorbed the rest of the T-bill supply, which is
understood as a drain on deposits and ultimately a tightening of financial
conditions. <o:p></o:p></span></p><p><b><span>Canada's manufacturing PMI
tomorrow. </span></b><span>It stood
at 49.0 in May. On Thursday, it reports May's trade figures, but the highlight
of the week is the employment data on Friday. The median forecast in
Bloomberg's survey sees a 20k increase in jobs after a 17.3 loss in May. The
unemployment rate may tick up to 5.3% from 5.2%, while hourly wages for
permanent employees slows. The Bank of Canada meets next week (July 12), and
swaps market has it as about a 50/50 proposition.<o:p></o:p></span></p><p><b><span>Mexico's June manufacturing
PMI is on tap today. </span></b><span>It
stood at 50.5 in May, which is what it has averaged this year. In the first
five months last year, it averaged 48.6. Mexico will also report the June IMEF
survey results as well. Meanwhile, worker remittances remain strong. Through
April, they have averaged $4.74 bln a month. In the Jan-Apr 2022 period, the
average was $4.30 bln. The median forecast in Bloomberg's survey is for $5.43
bln. Worker remittances are an important part of Mexico's constructive external
balance story that has helped underpin the peso. Still, the highlight for the
week is Friday's CPI report. The takeaway for the second half of June and the
entire month is that price pressure continues to moderate, and barring a
reversal, could see Banxico cut rates in Q4. Chile will also report June CPI
figures on Friday. It peaked last August at 14.1%. It has fallen consistently
since, but for last November. It is expected to have slipped below 8% last
month, and the central bank is expected to begin an easing cycle here in Q3.<o:p></o:p></span></p><p>
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</o:p></o:p></o:p></p><p><b><span>Canada's markets are closed
today. </span></b><span>It is trading
softly within the pre-weekend range (~CAD1.3205-CAD1.3285). Corrective forces
are still playing out after the greenback fell from CAD1.3650 on May 31 to
nearly CAD1.3115 on June 27. It has not closed above the 20-day moving average
in a month but could today. It is around CAD1.3260, and it would set up for a
crossing of the five- and 20-day moving averages in the coming days. The
initial target is the CAD1.3300-20 area and potential back toward
CAD1.3380-CAD1.3400. <b>Meanwhile, the dollar is continuing to trade in narrow
ranges in the trough its forged after setting the multi-year low in mid-June
around MXN17.0250</b>. Given the carry, one is still paid to be long the peso
even without spot gains. The recent range has been MXN17.0450-MXN17.2650. The
20-day moving average, which the greenback has not closed above since May 25,
is near MXN17.1845 today. <o:p></o:p></span></p><p><span><br /></span></p><p>
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