US Open Note – Stocks keep modest advance, dollar mostly muted    



Stocks tick up, Retail Sales and PPI data mixed

US major indices are perky, with the S&P 500 index and the Nasdaq 100 tiptoeing to new highs and with the Dow Jones industrial index lagging slightly. Improved market mood and falling yields are not providing any assistance to the greenback. The US 10-year yield has pulled back to 1.44%. The dollar index is in the vicinity of its intra-day high of 90.60, and has recaptured minor strength across its forex peers. That said the USD/JPY pair stabilized marginally above 110, with the yen countering the recent pickup in dollar strength.

While uncertainty around the US infrastructure bill lingers, investors await tomorrow’s FOMC and expectations of taper talks. Nonetheless, today’s highlight is the US retail sales and PPI figures. US retail sales for May have disappointed hitting a figure of -1.3% from 0.9% for April as well as missing the forecast of -0.8% m/m. Consumer spending appears to have shifted to travel related services, moving away from American spending sprees. Furthermore, the core figure came in at -0.7% versus 0.2% estimation m/m.

Contrary, stronger producer price index data for May came in at 0.8% against the 0.6% forecast m/m, which mainly was driven by commodities and energy price increases. The y/y rate jumped to 6.6%, the largest rise since November 2010. Also industrial output data grew 0.8% in May compared to the estimate of 0.6% m/m. Overall rising costs in production signal the US recovery is strengthening and this may underpin the dollar by the end of the week, especially if the Fed also reiterates upbeat economic forecasts.

Gold has been hurt by recent rising yields and taper talk jitters but has managed to stabilize around with yields dipping again. Gold is around $1,862/oz and silver largely unchanged around $27.70/oz

Nonetheless, the highlight for the week remains the FOMC, with the Fed not likely to slow the pace of emergency asset purchases, for now at least.

EU and UK

The UK’s economy seems to be on the right track with its latest upbeat labour figures of 92.6K less jobless claims, and unemployment ticking a tad lower to 4.7% for the month of May. Tensions continue between the EU and the UK regarding customs checks between Northern Ireland and the UK, which may result in implementations of tariffs should the issue drag on. Furthermore, the government has tightened covid-related restrictions, delaying the full reopening of the UK economy due to spikes in infections. Nonetheless, the pound remains resilient around $1.4050 even with the dollar ticking slightly higher.

Europe on the other hand seems to be benefiting from travel reopening and improvements in vaccinations, currently considering adding the US to its travel whitelist. Regional inflation data just confirms that growing price pressures persist but the euro has managed to stand above the $1.2100 handle.

Black liquid and loonie

WTI futures maintain a gradual upwards trajectory currently at $71.55 per barrel. The outcome of short-term price pressures are being balanced against rising demand from loosened restrictions versus prolonged delays in the full functioning of economies - over worries of recent spikes in infections. The USD/CAD pair failed to breach the C$1.2200 key barrier as Canadian housing starts came in at 275.9K versus the 270.0K estimate. Nevertheless, negative pressures remain heavy within USD/CAD, limiting sustainable gains in the pair.

Later on at 23:50 GMT Japan Machinery orders m/m and trade balance data will be released.

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