US STOCKS: Rotation To Other Sectors Continues

The BBDXY range overnight was 1208.17 - 1214.16, Asia is currently trading around 1209. Asia opens near the overnight lows, with the BBDXY eyeing the 1200 area. The price action in the USD stands out and has the feel it could begin to pick up momentum.

• (Bloomberg) - “After a synchronized fall since the start of the year, the dollar has languished even as stocks have rebounded on signs of de-escalation in the trade war and progress with President Donald Trump’s tax bill. Their newly found positive correlation, however, suggests that either equities will fall to match the dollar, or resilience in the US economy will lift the greenback.”
• “The trade war has upended traditional macro relationships, including the one between stocks and the dollar, which are typically negatively correlated. However, the emergence of the “Sell America” trade means they’re now moving more in sync than before.”
• “The dollar will face its next big test Friday with the release of the May jobs report -- a hot report could slow its cyclical slide, but a weak one could pressure it further.”(BBG)
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. The US trade war has degraded the worlds view of the US and whether the USD is actually a safe haven any longer.
• The market is still clearly focused on the “sell America” trade. What last week’s price action highlighted is the short-term market is all the same way so the frequency of sharp pullbacks will increase.
• The BBDXY rejected the 1125 area pretty strongly, the USD should continue to be met with supply should this 1225/30 area cap price. 
• We are approaching some key Weekly support towards the 1200 area in the BBDXY. A break below here could signal the move is about to accelerate. The price action has been particularly dire for the USD and does allude to further losses.

• Data/Events : Factory Orders, Durable Goods Orders, JOLTS

  Fig 1: BBDXY Weekly Chart

  

  Source: MNI - Market News/Bloomberg

In Tokyo morning trade, JGB futures are weaker, -12 compared to settlement levels.

• Japan’s monetary base fell 3.4 per cent in May from a year ago.
• BoJ Governor Ueda is scheduled to appear in Parliament at 1000 JT.
• “The Bank of Japan will likely decide to stop reducing the amount of its government bond purchases in a plan for the next fiscal year. The bank has been reducing its buying of government bonds by ¥400 billion every quarter since last summer, but that process will come to a halt.” (per BBG)
• Cash US tsys are flat to 1bp richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s sell-off.
• Cash JGBs are 1bp cheaper to 2bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 0.4bps higher at 1.517% ahead of today’s supply.
• “The bond market is likely to stay weak following the rise in US Treasury yields and position adjustments ahead of the 10-year auction, said Ataru Okumura, a senior interest-rate strategist at SMBC Nikko Securities.” (per BBG)
• Swap rates are slightly mixed, with a flatter curve. Swap spreads are mixed.

The Fair Work Commission has announced that the hourly minimum wage will be increased 3.5% to $24.94 on July 1 after 3.75% in 2024, bringing it to 25.7% above the 2020 level. Q1 wages rose 3.4% y/y while headline CPI was 2.4% y/y and the trimmed mean 2.9%, thus the rise amounts to a real wage increase. The increase will directly impact about 0.7% of workers but with around 20% on award wages, the indirect effect could be larger. The decision will not concern the RBA as it will continue to monitor economy-wide wage growth relative to productivity, which has been lacklustre (Q4 -1.2% y/y). There will be an update on the latter and average compensation per employee in Wednesday’s Q1 national accounts.