Yen Surges on Safe Haven Flow; Stocks, Yields, Oil and Metals Fall

Market overviews

Markets start the first day of the second half dumping risk assets, from stocks to oil to gold and copper. Safe haven flow into treasury has indeed started overnight, pushing US 10-year yield back below 3% handle. In the currency markets, Yen rides on the negative sentiment and rises broadly. Aussie leads other commodity currencies and Sterling lower. Dollar and Euro are relatively resilient, together with Swiss Franc.

Technically, AUD/JPY is now trying to extend the correction from 96.86 through 91.95 support. If that happens, AUD/JPY should be in correction to whole rise from 78.77, target 38.2% retracement of 78.77 to 96.86 at 89.94, and even further to 87.28 support. Such development could be accompanied by deeper declines in EUR/JPY through 137.83 support to 132.63, and in GBP/JPY through 159.97 support to 155.57.

In Asia, Nikkei dropped -1.73%. 10-year JGB yield dropped -0.0090 to 0.222. Hong Kong is on holiday. China Shanghai SSE dropped -0.35%. Singapore Strait Times is down -0.32%. Overnight, DOW dropped -0.82%. S&P 500 dropped -0.88%. NASDAQ dropped -1.33%. 10-year yield dropped -0.121 to 2.972, back below 3% handle.

Japan Tankan large manufacturing index dropped to 9 in Q2

Japan Tankan survey showed that large manufacturer sentiment dropped to lowest in more than a year. But note improvement was seen in the non-manufacturing sector. Also, the strong capital expenditure plan was a big surprise, showing that corporate spending was still robust despite increasing uncertainty.

Large manufacturing index dropped from 14 to 9 in Q2, below expectation of 13. That’s the lowest level since Q1 2021. Large manufacturing outlook improved from 9 to 10, below expectation of 14.

Non-manufacturing index rose from 9 to 13, below expectation of 14. Non-manufacturing outlook rose from 7 to 13, below expectation of 17.

Capex plans for big firms seen rising 18.6% yoy in fiscal 2022, well above expectation of 8.9%.

Consumer inflation expectations rose from 1.8% to 2.4%. Three years ahead, consumer prices are expected to rise 2%, up from 1.6%.

Japan PMI manufacturing finalized at 52.7, optimism improved

Japan PMI Manufacturing was finalized at 52.7 in June, down from May’s 53.3. S&P Global said output growth slowed amid near-stagnation in new orders. Prices charged for goods rose at sharpest pace on record. Business optimism improved to three-month high.

Usamah Bhatti, Economist at S&P Global Market Intelligence, said: “June PMI data pointed to a softer expansion of the Japanese manufacturing sector… Panel members often commented that rising price and supply pressures amid sustained disruption and delays had held back activity in the sector… That said, the degree of optimism regarding the 12-month outlook for output strengthened to a three-month high in June… This is broadly in line with the estimate for industrial production to grow just 2% in 2022 before an acceleration in 2023.”

China Caixin PMI manufacturing rose to 51.7, restoration in the post-pandemic era

China Caixin PMI Manufacturing rose from 48.1 to 51.7 in June, above expectation of 50.2. Caixin said production increased at quickest rate for 19 months, as total new work and export sales returned to growth. Supplier performance stabilized.

Wang Zhe, Senior Economist at Caixin Insight Group said: “Restoration in the post-pandemic era remained the focus of the current economy, yet its base was far from strong. Deteriorating household income and expectations caused by a weak labor market dampened the demand recovery. Correspondingly, supportive policies should target employees, gig workers and low-income groups impacted by the outbreaks.”

Australia AiG manufacturing rose to 54, exports jumped but domestic sales fell

Australia AiG Performance of Manufacturing rose 1.6 pts to 54.0 in June. Looking at some details, production rose 2.4 to 54.7. Employment rose 0.8 to 51.0. New orders rose 0.7 to 55.7. Exports jumped 10.1 to 53.0. Sales dropped -2.6 to 45.0. Input prices rose 2.1 to 89.3. Selling prices rose 2.1 to 67.8. Average wages dropped -5.5 to 69.3.

Innes Willox, Chief Executive of Ai Group said: “Although input price pressures continued to accumulate, Australia’s manufacturing sector expanded again in June with solid increases in production and new orders and a slight lift in employment. While export sales were up, domestic sales fell reflecting the decline in consumer and business confidence in the face of concerns about inflation, interest rates and asset values. Selling prices were higher in June but by a smaller amount than input costs as less robust demand inhibited the ability of manufacturers to fully recover their higher costs in the market.”

Looking ahead

Swiss PMI, Eurozone PMI manufacturing final and UK PMI manufacturing final will be released in European session. But focus will be on Eurozone CPI flash. Later in the day, US ISM manufacturing will take center stage.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 142.13; (P) 142.99; (R1) 143.50; More….

Intraday bias in in EUR/JPY is back on the downside with break of 141.39 minor support. Deeper fall would be seen back to 137.83 support next. Sustained break there will raise the chance of rejection by 144.06 long term projection level and target 132.63 support. On the upside, above 142.42 minor resistance will bring retest of 144.26 high instead.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Such rise is seen as the third leg of the pattern from 109.30 (2016 low). Sustained trading above 100% projection of 114.42 to 134.11 from 124.37 at 144.06 will indicate upside acceleration and target 149.76 long term resistance (2014 high). In any case, outlook will now remain bullish as long as 132.63 support holds, in case of deep pull back.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 AUD AiG Performance of Mfg Index Jun 54 52.4
22:45 NZD Building Permits M/M May -0.50% -8.50% -8.60%
23:30 JPY Tokyo CPI Core Y/Y Jun 2.10% 2.10% 0.90% 1.90%
23:30 JPY Unemployment Rate May 2.60% 2.50% 2.50%
23:50 JPY Tankan Large Manufacturing Index Q2 9 13 14
23:50 JPY Tankan Large Manufacturing Outlook Q2 10 14 9
23:50 JPY Tankan Non – Manufacturing Index Q2 13 14 9
23:50 JPY Tankan Non – Manufacturing Outlook Q2 13 17 7
23:50 JPY Tankan Large All Industry Capex Q2 18.60% 8.90% 2.20%
00:30 JPY Manufacturing PMI Jun F 52.7 52.7 52.7
01:45 CNY Caixin Manufacturing PMI Jun 51.7 50.2 48.1
07:30 CHF SVME PMI Jun 57.3 60
07:45 EUR Italy Manufacturing PMI Jun 50.7 51.9
07:50 EUR France Manufacturing PMI Jun F 51 51
07:55 EUR Germany Manufacturing PMI Jun F 52 52
08:00 EUR Eurozone Manufacturing PMI Jun F 52 52
08:30 GBP Manufacturing PMI Jun F 53.4 53.4
08:30 GBP Mortgage Approvals May 64K 66K
08:30 GBP M4 Money Supply M/M May 0.40% 0%
09:00 EUR Eurozone CPI Y/Y Jun P 8.30% 8.10%
09:00 EUR Eurozone CPI Core Y/Y Jun P 3.90% 3.80%
13:45 USD Manufacturing PMI Jun F 52.4 52.4
14:00 USD ISM Manufacturing PMI Jun 55 56.1
14:00 USD ISM Manufacturing Prices Paid Jun 80 82.2
14:00 USD ISM Manufacturing Employment Index Jun 49.6
14:00 USD Construction Spending M/M May 0.40% 0.20%

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