A QUICK LOOK AT GLOBAL FINANCIAL MARKETS
There will be several releases to help us gauge economic activity in emerging markets this week. May Nikkei manufacturing PMI will be announced for Taiwan, Thailand and Malaysia on Thursday and for Indonesia on Friday. There are no consensus estimate for the releases. Data are important as Thailand PMI as of April stays below critical threshold 50 at 49.8 while Taiwan is the strongest with 54.4. Malaysia and Indonesia PMI are 50.7 and 51.2 respectively and may create negative market reaction should index level, especially former, breach 50 on the downside. All countries need to stay above 50.0 for markets to see sustainable recovery in Asian economies.
China: Manufacturing PMI for May in China will be announced on Wednesday at 9:00 a.m. (GMT+8). Market consensus is an ease to 51.0 from previous realization of 51.2. There is no consensus for non-manufacturing but April reading in index was 54.0. A weak standing will be no good news for 2017 growth performance.
India: India GDP for 1Q17 will be announced this week on Wednesday at 5:30 p.m. local time (GMT+5:30). Market consensus is a rise from 7.0% in the previous quarter to 7.1%. It would considered positive as Indian GDP growth is already high among emerging market universe. Nikkei manufacturing PMI to be announced on Thursday at 10:30 a.m. is expected to pick up to 52.7 in May from 52.5 a month ago. Market reaction would be positive as it will be a confirmation of strong economic growth.
Indonesia: Inflation will be announced in Indonesia this week on Friday at 12:00 p.m. (GMT+8). There is no consensus estimate for May however April consumer inflation was 4.17% in April. Any pick up will not be considered good as April inflation was the highest rate since May 2016. Core inflation in the meantime stood at 3.28% y/y in April.
Brazil: In LatAm, Brazil interest rate decision, GDP growth, unemployment and PMI data will be important. There is no consensus for unemployment rate to be announced at 9:00 a.m. (GMT+8) but March unemployment rate was quite high at 13.7%. Interest rate decision to be announced at the same day at 6:00 p.m. will be more critical for the markets. Market consensus is a cut in the policy rate to 10.25% from 11.25% thanks to inflation coming down below 4.5% target. Yet, political turmoil and S&P’s warnings for a rate cut may weigh on the markets. Note that S&P placed Brazil's long-term foreign and local currency sovereign credit ratings on its negative credit-watch list, which indicates that Brazil could be downgraded in the next three months. Hence real may be negatively affected should rate cut combines with higher country risk premium.
Other releases in Brazil this week will be GDP growth for the first quarter of the year to be announced on Thursday at 9:00 a.m. (GMT-3). There is no consensus but weakness prevails in Brazil economy and it will likely to be another quarter of recession. Economy registered 2.5% contraction in the final quarter of the year. Data would have negative impact should no sign of recovery is seen in GDP statistics. PMI manufacturing will also be announced on Thursday and as data barely exceeds critical threshold 50 with 50.1 in April, market will follow whether the index will be able to stay above it. Industrial production is another important release in Brazil to be announced on Friday at 9:00 a.m. local time. Y/Y growth was 1.1% in March and market will seek a sigh for recovery in production numbers.
Russia: Russia will announce manufacturing PMI on Thursday at 9:00 a.m. There is no consensus for data however market will follow whether May numbers will exceed April realization of 50.8.
Turkey: Main events of the week will be April tourism and trade data in Turkey. There is no market consensus for tourism statistics to be announced on Tuesday however contraction in number of tourists have declined to 4.0% in March and it is most likely that recovery will continue in April as well. Trade balance to be announced on Wednesday at 10:00 (GMT+3) is expected to generate $4.9 bln deficit against previous year’s $4.2 bln. 12 month rolling deficit will rise from $56.5 in March to $57.2 bln in April should data come in line with expectations. TRY/USD would not react to data yet global valuation of dollar is likely to continue to weigh on lira movements this week as well.
US: Data agenda is quite heavy this week in US. ISM manufacturing and service, core PCE, ISM and labor data in US as well as several Fed Governors’ speeches will closely be followed this week. Though FOMC minutes revealed that Fed Governors consider balance sheet shrinking, no timing is mentioned and markets ignored the fact that such move would rebalance asset pricing in both developed and emerging markets.
Core PCE inflation will be announced on Tuesday at 8:30 and is expected to rise to 0.1% in April from -0.1% a month ago. Yet in y/y basis market consensus is a slight drop to 1.5% from 1.6% a month ago. ADP and ISM manufacturing in May will be announced on Thursday at 8:15 and 10:00 a.m. (GMT-4). The former is likely to rise to 185k in May from 177k a month ago. ISM manufacturing on the other hand is expected to slightly ease to 54.6 from 54.8 within the same period. A lower than expected ADP or ISM data would support the deceleration in dollar index.
Finally, non-farm payrolls to be announced on Friday at 8:30 a.m. is expected to decline to 185k from 211k a month ago and unemployment rate is expected to remain flat at 4.4% compared to a month ago. Any realization worse than market consensus will further drag down DXY and US bond yields which are already driven by heightened risk appetite in global financial markets. Average hourly earnings in the meantime is expected to be 0.3%, same as previous month.
Eurozone: In Eurozone, unemployment, inflation, PMI and retail sales will be the main releases of the week. Unemployment rate and inflation will be announced on Wednesday at 9:00 a.m. local time. Market expects unemployment rate to further decline to 9.4% from 9.5% a month ago. Flash inflation data is expected to show a drop in y-o-y terms to 1.5% in May from 1.9% in April. This may halt the rally in EUR/USD. Manufacturing PMI will be announced on Thursday at 8:00 a.m. local time and is expected to pick up to 57.0 in May from 56.7 a month ago according to preliminary numbers. Better than expected realizations may provide some support for EUR/USD parity.
UK: In UK, PMI manufacturing for May will be the only important release of the week. It will be announced on Thursday at 8:30 and is expected to ease to 56.5 from 57.3 a month ago. Any weakening in the index would be considered negative for British economy and hurt GBP/USD.
Japan: Data agenda is quite heavy in Japan as well this week. Industrial production and retail sales for April as well as unemployment rate and PMI manufacturing will be announced. Unemployment rate will be announced on Tuesday at 8:30 (GMT+9) and is expected to remain flat at 2.8% in April compared to a month ago. In line with or better than expected unemployment rate would encourage markets about further recovery in Japan economic activity.
Retails sales will also be announced on Tuesday at 8:50 a.m. local time. Retail sales growth is expected to accelerate to 2.3% from 2.1% y/y a month ago. Industrial production growth to be announced the next day at 8:50 is expected to grow 4.3% y/y, quite higher than the previous month’s 1.9% contraction. Contrary to industrial production, manufacturing PMI in Japan to be announced on Thursday at 9:30 local time (GMT+9) is expected to ease to 52.0 in May from 52.7 in April.
Weekly Technical Analysis
EURUSD - The EURUSD pair showed some fluctuation around the 1.1220 major level and closed last week below that level. If the price remains below that level on a daily basis, the porfit taking action may continue and we will watch 1.1160 and 1.1111 as support levels. On the other hand, if the price goes beyond 1.220 again, the next resistance level will be at 1.1295. Support: 1.1160-1.1111-1.1050 Resistance: 1.1220-1.1295-1.1365 GBPUSD - The GBPUSD currency showed a profit taking action and closed last week below the major support level of 1.2860. As long as the price sustains below that level on a daily basis, we think the downward move may continue and we will follow support levels at 1.2775 and 1.2685. Although, if the pair goes beyond 1.2860, the next resistance level will be at 1.2920. Support: 1.2775 –1.2685-1.2448 Resistance: 1.2860–1.2920-1.2985 USDJPY - Last week, the USDJPY pair tested the 111.90 daily resistance level but could not rise above that level. As long as the remains stable below that level on a daily basis, we expect the Yen may gain more value against the greenback and we will follow 110.50 and 109.75 as support level. On the other hand, if the pair goes beyond 111.90, the next resistance level will be at 112.75. Support: 110.50-109.75-108.90 Resistance: 111.90-112.75-113.60 GOLD - Gold price found buyers from the 1255 key support level and gained more value last week. As long as the price sustains above 1255, the bullish action may gain momentum. At this point, we will follow 1273 and 1286 as resistance levels. On the other hand, if the price drops below 1255, the next support level will be at 1236. Support:1255-1236-1226 Resistance: 1273-1286-1294 US OIL - After OPEC indicated 9-month extension to output cuts but keep them at the same level, U.S. Oil price dropped sharply last week. If the price remains stable below 50.15, we think the downward move may continue and we will face 49.80 and 49.30 as support levels. On the other hand, if the price rises above 50.15, the next resistance level will be at 50,45. Support: 49.80 – 49.30 - 48.70 Resistance : 50.15 – 50.45 – 50.75
06 Jul 18 (Fri)
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