Eurozone, Italy Balance of Payments; Germany PPI; U.K. Retail
Sales, BOE/Kantar Inflation Attitudes Survey, CBI Economic
Forecast, BOE statistics on UK banks' external claims; ECOFIN
meeting of EU finance ministers; update from Iberdrola, Tesco
Cautious post-Fed action will continue to weigh on European
shares on Friday. In Asia, stocks mostly drifted, the dollar,
Treasury yields and gold steadied, while oil extended its
European stocks may struggle for momentum on Friday as investors
continue to digest the Federal Reserve's new rate outlook.
On Wall Street on Thursday, major stock benchmarks put in a
mixed performance, with technology and other growth-oriented shares
rallying, but the Dow falling for a fourth day.
"Just as recent data should enable the Fed to be patient as
additional economic developments unfold, we believe that interest
rates within the current range, should allow investors to also be
patient as they evaluate what's next for the economy and financial
markets," wrote analysts at Janus Henderson, on Thursday.
"The stage is set for what I feel is a period of somewhat higher
volatility as the narrative changes and traders adjust to a future
reduction in liquidity conditions," said Chris Weston, head of
research at Pepperstone, in a note. "Powell et al will make it
clear that any changes will be glacial and will be communicated
well in advance and there is no reason to believe we'll see a
collapse in risk sentiment."
The dollar eased back slightly in Asia after its solid push
higher on Thursday, with further gains likely as the Fed's hawkish
shift continues to affect financial markets, said analysts.
The impulsive nature of the ICE Dollar Index's gains, even as
Treasury yields decline, suggests a major washout in dollar shorts
is playing out, said Westpac, adding that the index has room to
test the March 2021 highs in coming weeks.
Cambridge Global Payments' Karl Schamotta said: "The dollar is
smiling once again: In a more-muted echo of the 2013 'taper
tantrum', traders and investors are suddenly grappling with the
possibility of tighter U.S. monetary policy--something that could
lift the greenback out of the belly of the dollar smile. If so,
markets could be in for some unexpected summer turbulence."
Saxo Bank said the euro could weaken further against the dollar
following the latest Fed projections. "EUR/USD broke down through
1.2000 without much afterthought and the ease with which it did so
suggests there may be enough momentum here for more downside still,
as the European Central Bank is undergoing no such shift in its
A break below 1.1920 in EUR/USD could see it drop to 1.1750
next, and if EUR/USD drops below 1.1750, that could bring 1.1500
Nomura said it continues to expect sterling to appreciate
against the dollar, though it takes profit on long positions that
bet on the exchange rate rising.
Following the Fed's hawkish shift, the market will be expecting
more of the same from the Bank of England at its June 24 meeting,
said Nomura forex strategist Jordan Rochester. GBP/USD will still
strengthen but mostly for "non-BOE reasons" such as the U.K.'s
improving social mobility, which will be reflected in upcoming
economic data, he said. Nomura expects GBP/USD to rise to 1.51 by
year-end from 1.3954 at present.
Yields on U.S. government debt firmed slightly in Asia after
they whipped around on Thursday with long-dated Treasurys seeing
the biggest slump in weeks in turbulent post-Fed action.
There weren't a lot of clear reasons for the moves, but traders
and strategists attributed the gyrations partly to short
positioning, bets on bonds being unwound and the view that
government bond yields may have gotten out of whack with inflation
expectations, which were pared on Thursday. The yield curve,
reflecting the difference between long-dated and short-dated debt,
The Fed "signaling the intent to take a foot off the accelerator
and hovering it over the brake is an effective way to communicate
cool reflationary ambitions," said BMO's Ian Lyngen.
PIMCO reckons the Fed will probably lay out its plan to pull
back on bond buying at its September policy meeting.
"When the Fed does taper the monthly pace of purchases, it will
likely follow a pre-planned, gradual path that takes roughly two to
three quarters," wrote bond fund economists, Tiffany Wilding and
Allison Boxer, adding they believe the Fed will at some point,
amend its current guidance to say it believes it will meet the
"substantial further progress" marker "soon."
A day after the Fed pushed up its reverse-repo rate from zero to
0.05%, already high demand has exploded upward. The reserve-repo
facility took in a record $756 billion on Thursday, up from $520
billion on Wednesday and near-zero levels only a few months
Some analysts had warned of this outcome amid forecasts the
facility could soon be taking in as much as a trillion dollars.
Oil prices continued to retreat in Asia after they fell almost
2% on Thursday, as the dollar strengthened in the wake of the
hawkish shift in tone by the Fed.
The rise in the dollar was certainly "a renewed headwind for oil
and all commodities," prompting some "cross-asset funds to lighten
up on oil positions," said Tyler Richey, co-editor at Sevens Report
Research. "Looking across commodities, it does seem like some
cracks are emerging in the broader bull run."
OANDA also highlighted concerns over a surge in Covid-19 cases
in the U.K. It said that despite mass vaccinations, the surge will
likely raise alarm bells over how quickly the rest of Europe will
Meanwhile, Brent crude may be ripe for further profit-taking if
there are more positive developments coming out of the U.S.-Iran
nuclear deal talks. "Brent crude might not find much support at the
$70 level, but a major pullback seems unlikely," OANDA said.
Gold futures steadied in Asian trade in a likely technical
upward correction, after they suffered their biggest one-day
percentage drop of the year on Thursday, sliding almost 5%.
Pepperstone said the precious metal is in a grossly oversold
condition, based on the daily chart, adding gold might recover
toward the $1,800 level.
Copper extended its recent losses, with the Fed's hawkish tone
continuing to weigh. Copper's weakness was also exacerbated by
China's plan to release base metals onto the market from its
strategic reserves, said ANZ. The three-month LME copper contract
was last down 0.6% at $9,262.00 a metric ton.
For investors wagering on mining, companies that rely on iron
ore are still likely to be the best bet in the near term due to
expectations of very large capital returns come earnings season
this August, said Jefferies. There's also "the fact that China is
not selling iron-ore inventories to drive prices lower," it said,
which make the likes of Vale, Rio Tinto and BHP a good defensive
play in the short run.
Looking out six months and beyond, it will be time to bet on
copper, Jefferies reckons. "Freeport, First Quantum and Glencore
are best for 2022."
Citi reckons pockets of weakness in Chinese metals demand won't
derail the commodity bull run and more important, will be its
supply cuts to domestic steel, aluminum and coal operations, which
leave those commodities at risk of price spikes.
"The past month saw more administrative shutdowns of aluminum
smelters in Inner Mongolia and Guizhou, as well as curtailments in
Yunnan due to power shortages," while local governments elsewhere
drew up steel-output reduction plans tied to decarbonization and
coal miners faced stringent safety checks after recent mine
accidents. Citi said investors should "stay tuned and buy
TODAY'S TOP HEADLINES
Fed Reverse Repos Surge to Record of $756 Billion After Rate
A day after the Federal Reserve boosted the return on a key part
of its interest rate control tool kit, a record $756 billion flowed
into the central bank's reverse repo facility on Thursday.
The reverse repo facility takes in cash primarily from
money-market funds, as well as government-sponsored companies and
banks. Until Wednesday, this facility offered a return of zero
percent to eligible users, which the Fed moved up to 0.05%, while
at the same time lifting another rate, called the interest on
excess reserves rate, to 0.15% from 0.10%.
Bipartisan $1 Trillion Infrastructure Package Gains Steam
WASHINGTON-A growing bipartisan group of lawmakers and the White
House haggled over how to finance a roughly $1 trillion
infrastructure proposal, awaiting feedback from President Biden as
Democrats began discussions on a separate economic package that
could cost up to $6 trillion.
Since negotiations between Mr. Biden and a group of Senate
Republicans collapsed last week, an alternative set of Republican
and Democratic senators have held talks on a infrastructure plan
that would spend $973 billion over five years, with $579 billion of
that funding above expected baseline levels. Initially a group of
five Democrats and five Republicans, the group expanded to include
11 Republicans and 10 members of the Democratic caucus on
Supreme Court Rules Cargill, Nestle Can't Be Sued in Child-Labor
WASHINGTON-The Supreme Court ruled Thursday that Nestlé USA and
Cargill Inc. can't be sued in U.S. courts for abuses allegedly
committed in Ivory Coast, where plaintiffs accused the
food-processing giants of obtaining cocoa from plantations that
relied on the forced labor of children.
The court, in a decision by Justice Clarence Thomas, said the
plaintiffs' case didn't have enough of a connection to the U.S. to
Canada Vaccine Panel Recommends Against AstraZeneca for Second
OTTAWA--A Canadian vaccine panel said Thursday that people who
received a first dose of AstraZeneca PLC's vaccine against Covid-19
should get a different vaccine for their second dose.
Canada's national advisory panel on immunization said earlier
this month that authorized Covid-19 vaccines could be mixed, and
noted some people might prefer to get a messenger RNA vaccine for
their second shot. The panel has previously said mRNA vaccines,
such as the ones produced by Pfizer Inc. in partnership with
BioNTech SE, as well as Moderna Inc., are preferable to viral
vector vaccines, such as those developed by AstraZeneca and Johnson
Turkey Commits to Securing Afghan Airport After Americans Leave,
WASHINGTON-The U.S. and Turkey have agreed to a plan for the
Turks to continue providing security at the airport in Kabul, U.S.
officials said, ensuring the U.S. and other nations can maintain a
diplomatic presence in Afghanistan following the withdrawal of
troops, expected by next month.
Jake Sullivan, President Biden's national security adviser, told
reporters Thursday that both sides had made a "clear commitment" on
the security of Hamid Karzai International Airport in Kabul.
Israel Strikes Militant Targets in Gaza After More Arson
JERUSALEM-The Israeli military hit the Gaza Strip with a series
of airstrikes Thursday night, rattling a shaky month-old cease-fire
between the two sides that mediators are trying to keep from
Soon after, for the first time in nearly a month, air raid
sirens sounded the alarm in southern Israel when Gaza militants
used heavy machine guns to fire across the border, the Israeli
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Expected Major Events for Friday
06:00/GER: May PPI
06:00/UK: May UK monthly retail sales figures
06:00/ROM: 1Q Employment and unemployment
08:00/POL: May Average gross wages
08:00/EU: Apr Euro area balance of payments
08:30/UK: May Bank of England/Kantar Inflation Attitudes
08:30/UK: 1Q Bank of England statistics on UK banks' external
09:00/ITA: Apr Balance of Payments
10:00/POR: May PPI
15:59/GRE: Apr Balance of Payments
17:59/UK: CBI Economic Forecast
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(END) Dow Jones Newswires
June 18, 2021 00:26 ET (04:26 GMT)
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