JAPAN DATA: PPI Slightly Below Forecasts, Import Prices Down Sharply Y/Y
The Japan June PPI saw the m/m outcome fall -0.2%, against a +0.1%m/m forecast. The prior outcome was revised a touch to -0.1% (originally reported as a 0.2% dip). In y/y terms, the PPI was 2.9% in line with market forecasts, but down from the revised 3.3% May pace.
- The chart below overlays the PPI against headline Japan CPI, both in y/y terms. At face value the PPI is suggesting some further loss of momentum in headline CPI pressures. The PPI, not surprisingly, has historically been more volatile than CPI outcomes.
- In terms of the PPI detail, manufacturing PPI was down 0.2%, the third straight monthly fall. Petroleum, coal was down 4.5% m/m, which was another monthly drag. This sub category and iron and steel were the weakest in y/y terms.
- Import prices continued to fall, down 1.7% m/m. In y/y terms we fell -12.3%. The second chart below overlays import prices versus USD/JPY y/y changes. The end July read for USD/JPY y/y assumes that the current spot levels (near 146.00) are maintained.
- This suggests the downside impetus to import prices (in y/y terms) may start to wane if USD/JPY holds the bulk of its recent correction higher.
Fig 1: Japan PPI and CPI, Y/Y
Source: Bloomberg Finance L.P./MNI
Fig 2: Japan Import Prices and USD/JPY, Y/Y
Source: Bloomberg Finance L.P./MNI
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FOREX: AUD Crosses - AUD Outperforms Challenging A Short Market
US stocks remain stubbornly bid, the better backdrop for risk has seen AUD outperform and a market that is short especially in the crosses eyes a retracement.
- EUR/AUD - Overnight range 1.7493 - 1.7544, Asia is trading around 1.7530. The pair found decent demand around 1.7500 overnight. After failing around 1.7700 last week a short AUD market will be hoping the support around the 1.7450 area holds, a break might see some of these positions unwound back signaling a move back towards the support around 1.7200.
- GBP/AUD - Overnight range 2.0768 - 2.0825, Asia is trading around 2.0800. Demand overnight found once more back below 2.0800, like EUR/AUD this pair needs this support to hold. A move sub 2.0700 cold signal a deeper retracement.
- AUD/JPY - Overnight range 93.92 - 94.34, Asia is trading around 94.15. Price broke the multiple tops around the 94.00 area over NFP’s. It has since managed to hold these gains, while this continues focus will turn to the high towards 96.00. Support should now be back towards the 93.00/50 area.
- AUD/NZD - Overnight range 1.0768 - 1.0790, the cross is dealing in Asia around 1.0765. A top looks in place now just above 1.0900, the cross topped out yesterday towards the 1.0800/25 sell area, the first target looks to be around 1.0650.
Fig 1: AUD/JPY spot Hourly Chart
Source: MNI - Market News/Bloomberg Finance L.P
US TSYS: Cash Open
TYU5 is trading 110-05, unchanged from its close.
- The US 2-year yield opens around 4.0075%, unchanged from its close.
- The US 10-year yield opens around 4.478%, unchanged from its close.
- MNI US-CHINA: Bloomberg reports: "US-China trade talks in London will continue tomorrow”, according to a person familiar with the talks. Talks to resume at 10am in London" [0500ET]. Today's meeting began just after 1pm local time (0800ET), though there were basically no headlines emerging from the talks themselves. Little market reaction to the news that talks would continue - an extension into Tuesday was seen as a distinct possibility.
- Bloomberg - “The $119 billion in Treasury refunding that starts Tuesday and concludes Thursday is another factor that can push 10-year yields above the 4.50% threshold as investors prepare for the coupon issuance.”
- The 10-year yield held its support around the 4.35% area last week. While this level holds focus will remain on potentially extending higher, CPI tomorrow will be a very important input.
- Data/Events: NFIB Small Business Optimism
US STOCKS: The Grind Higher Continues
The ESM5 Overnight range was 5995.25 - 6027.75, Asia is currently trading around 6013. US stocks continue to defy gravity and remain supported on any dips, they open slightly higher in early Asian trading.
- (Bloomberg) - “After a tentative start Monday morning, US stocks are continuing the rise toward an all-time high that Friday’s jobs data made possible. Even so, equity risk remains skewed to the downside because the details of that report demonstrated that the US economy is slowing more than investors seem to appreciate.”
- Bloomberg - “ The positive feedback loop stemming from falling volatility means a melt-up is likely into next Friday’s June option expiration, barring the outcome of a few notable risk events later this week.”
- Overnight decent demand saw the S&P close back above the 6000 area as it begins to eye the all time highs.
- Momentum type funds and share buybacks have kept the market well supported as an underweight market has been forced to reenter. Share buybacks are set to enter their blackout period in the middle of June, will this signal the potential for a pullback ?
In the short-term stocks look overbought, this however has not stopped the grind higher. The first buy-zone is back towards the 5600/5700 area where demand could be expected.
Fig 1: SPX Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
