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Dollar Regaining Momentum While Risk Appetite Stays Strong, NASDAQ Hit Record High

The markets are rather calm today as supported by relatively positive investor sentiments. NASDAQ surged to new record high at 7825.67 before having a strong close at 7823.92, up 1.39%. DOW ended up 0.91% at 24924.89 while S&P 500 rose 0.87% to 2798.29. In Asia, Nikkei is having a strong rally and is up 2.0% at the time of writing. Hong Kong HSI is up 0.58% while Singapore Strait Times is up 0.26%. China Shanghai SSE lags behind though and is down -0.12%. The SSE is finding it a bit difficult to breakthrough 2848.37 near term resistance. In other markets, Gold is lifted above 1240 but struggle to regain 1250 handle. WTI crude oil spiked lower to 69.23 briefly overnight but regained 70, which is the level to defend for now.

In the currency markets, Dollar is regaining some upside momentum and stays as the strongest for the week. With the help of risk appetite, Australian Dollar is trading as the second strongest for the week. The development limits downside of AUD/USD despite a decline attempt this week. Swiss Franc recovers mildly after yesterday’s selloff but stays the second weakest, next to Yen. Sterling is under some pressure today as Prime Minister Theresa May’s Brexit seems not too welcomed by the markets.

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Technically, 1.0056 in USD/CHF is now a focus for today after yesterday’s break out. Firm break of this resistance will resume this year’s up trend from 0.9186 low. As Aussie is lifted by rebound in stocks while Euro stays soft, EUR/AUD could have 1.5696 minor support in sight. And break will be a sign of near term reversal.

Fed Powell: Wage should reflect inflation plus productivity

Jerome Powell had his first ever broadcast interview as Fed chair with the Marketplace. On wages, he acknowledged that annual wage growth has moved up from “low twos” five years ago, to close to three” now. And there’s been “very gradual move up”. He noted that wages should “reflect inflation plus productivity”. A “big part” of the slow wage growth is “certainly that inflation has been low and productivity has been low”. Yet, he didn’t have the answer to the question on why employers are not paying higher wages while the labor markets appear to be very tight.

Though, he also noted that “the economy’s in a really good shape” with unemployment at 4%, the lowest in 20 years. And, people are “coming back into the labor force or not leaving it” in the past five years. Fed’s target of PCE, which is “a little bit lower than the CPI” has been below 2% for some time. But it finally hit the 2% core PCE level last month.

Regarding trade policy, Powell noted Trump’s administration “said” it’s trying to lower tariffs. And, “if it works out that way, then that’ll be a good thing for our economy.” However, “if it works our other ways” and there will be high tariffs on a lot of products for a sustained period of tie, “that could be a negative for our economy”. But it’s “hard to sit here today and say which way that’s going”.

But Powell also emphasized that when Fed doesn’t make the policy, “we don’t praise it, we don’t criticize it”. And, “part of the independence that we have is to stick to our lane, stick to our knitting, so really wouldn’t want to comment on fiscal policy really, or trade policy.”

Philadelphia Fed Harker: No compelling reason for a fourth hike but he’s open

Philadelphia Fed President Patrick Harker said there is “no compelling reason right now” for having a total of four rate hikes this year, “unless we see inflation start to accelerate rapidly. But he is “open” to that. He added that “if we see inflation starting to go past 2.5%, we have to act.” But “absent that” he believed there are “lots of good reasons to hold off”.

In particular, he pointed out that further rate hike could push 2-year treasury yields above that of 10-year debt. And, he warned that “if there is a risk of inverting the yield curve then we should try to avoid that.”

Trump said May’s Brexit plan would probably end a major trade relationship with US

Trump blasted UK Prime Minister Theresa May’s “business-friendly” Brexit plan, which was formally published yesterday, in The Sun newspaper interview. That came just hours ahead of their dinner at the Blenheim Palace. He criticized that “if they do a deal like that, we would be dealing with the European Union instead of dealing with the UK, so it will probably kill the deal.” And he warned that the “soft” approach of May would “definitely affect trade with the United States, unfortunately in a negative way”. And, “if they do that I would say that that would probably end a major trade relationship with the United States.”

Trump also disclosed that he tried to interfere with the relationship between UK and EU. “I would have done it much differently,” Trump told The Sun. “I actually told Theresa May how to do it but she didn’t agree, she didn’t listen to me. . . . I think what is going on is very unfortunate.”

New Zealand BusinessNZ PMI dropped to 52.8 and production dipped again

New Zealand BusinessNZ Performance of Manufacturing Index dropped to 52.8 in June, down from 54.4. BusinessNZ’s executive director for manufacturing Catherine Beard said that the slow-down in expansion was mainly due to ongoing drops in a key sub-index. She pointed out that “production (51.8) experienced another decrease in expansion levels for June, which meant it was down to its lowest point since January 2017.” Nonetheless, “on a positive note, the other key sub-index of New Orders (57.1) remained in healthy territory, which at least should feed through to production levels in the coming months.”

China overall trade surplus shrank -24.5% in first half, surplus with US rose 13.9%

In USD term, China trade surplus widened to USD 41.6B in June, up from May’s USD 24.9B and beat expectation of USD 27.2B. Exports jumped 11.3% yoy to USD 216.7B while import rose 14.1% to USD 175.1B.

In CNY term, trade surplus widened to CNY 261.9B, up from May’s CNY 156.5B and beat expectation of CNY 187.0B. Exports rose 3.1% yoy to CNY 1377.7B while imports rose 6.0% yoy to CNY 1115.8B

From January to June:

Total trade rose 16% to USD 2205.8B. Exports rose 12.8% to USD 1172.7B. Imports rose 19.9% to USD 1033.1B. Trade surplus dropped -24.5% to USD 139.6B.

Total trade with EU rose 13.0% to USD 322.6B. Export to EU rose 11.7% to USD 191.8B. Imports from EU rose 15.0% to USD 130.8B. Trade surplus with EU grew 3.8% to USD 61.0B

Total trade with US rose 13.1% to USD 301B. Export to US rose 13.6% to USD 217.8B. Imports from US rose 11.8% to USD 84.0B. Trade surplus with US rose 13.9% to USD 133.8B.

Total trade with Australia rose 11..5% to USD 74.1B. Export to Australia rose 17.3% to USD 21.7B. Import from Australia rose 9.3% to USD 52.4B. Trade deficit with Australia rose 3.7% to USD -30.7B.

Looking ahead

The economic calendar is rather light today. Swiss PPI, US import price index and U of Michigan consumer sentiment will be featured.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9967; (P) 0.9997; (R1) 1.0055; More…

USD/CHF rally accelerated to as high as 1.0033 so far intraday bias remains on the upside. Decisive break of 1.0056 high will resume whole up trend from 0.9186. Next target will be 61.8% projection of 0.9186 to 1.0056 from 0.9787 at 1.0325, which is close to 1.0342 key resistance. On the downside, though, break of 0.9961 will dampen this bullish case and bring more sideway trading below 1.0056 first.

In the bigger picture, rise from 0.9186 is seen as a leg inside the long term range pattern. For now, further rise is expected as long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds. Above 1.0056 will target 1.0342 (2016 high). In that case, we’d be cautious on strong resistance from 1.0342 to limit upside. However, sustained break of 0.9724 will dampen this bullish view and would at least bring deeper fall to 61.8% retracement at 0.9518.

Economic Indicators Update

22:30NZDBusinessNZ Manufacturing PMI Jun52.854.554.4
3:01CNYTrade Balance (USD) Jun41.6B27.5B24.9B
3:01CNYTrade Balance (CNY) Jun262B165B156B
4:30JPYIndustrial Production M/M May F-0.20%-0.20%
7:15CHFProducer & Import Prices M/M Jun0.10%0.20%
7:15CHFProducer & Import Prices Y/Y Jun3.20%3.20%
12:30USDImport Price Index M/M Jun0.10%0.60%
14:00USDU. of Mich. Sentiment Jul P98.298.2
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