US Open Preview – Sterling heads up despite a miss in wage numbers; Brexit vote in Parliament eyed

C. Parthenidou & M. Deltas, XM Investment Research Desk

Here are the latest developments in global markets:

  • FOREX: The greenback moved higher to a new three-week high of 110.49 versus the Japanese yen on Tuesday (+0.22%) after a successful meeting between the US President Donald Trump and the North Korean leader Kim Jong Un during the Asia session. They agreed to achieve a complete denuclearization of the Korean peninsula while Washington committed to provide security guarantees to North Korea but kept sanctions against its old enemy in place for now. Later in the day, the two-day FOMC policy meeting will start, with analysts expecting policymakers to raise rates for the second time this year, while ahead of the event the dollar could face volatility from US CPI readings. Sterling reached an intra-day high of 1.3417 against the greenback before it fell back to 1.3378 (+0.04%) despite weaker-than-expected average earnings which posted a growth of 2.5%  instead of 2.6% as analysts projected. The unemployment rate remained steady at 4.2%, while employment beat expectations, rising by 146k in the three months to April. Euro/dollar gained 0.08% despite the German ZEW economic sentiment dropping by 7.9 points to -16.1 in June, below market expectations of -14. It was the lowest reading since September 2012. Turning to the antipodean currencies, aussie/dollar was standing near its opening level and kiwi/dollar traded higher at 0.7029 (+0.07%). Dollar/loonie edged up to 1.2994 (+0.22) after two consecutive negative days.
  • STOCKS: European stocks were mixed at 1120 GMT on Tuesday. The pan-European STOXX 600 was slightly up by 0.06%, while the blue-chip Euro STOXX 50 was lacking direction. The German DAX 30 inched up 0.04%. The French CAC 40 lost 0.19%, while the Italian FTSE MIB climbed by 0.45%. The British FTSE 100, was in negative territory, losing 0.26%. Futures tracking US stock indices were flashing red, pointing to a negative open.
  • COMMODITIES: Oil prices headed lower during the European afternoon after Saudi Arabia told OPEC its output was higher in May but still below OPEC’s target. Venezuela also reported a rise in supply in May. WTI crude oil lost ground, falling to $65.93/barrel (-0.26%) ,while Brent retreated by 0.54% to $76.05/barrel. Still, the main event for the oil market remains the OPEC meeting next week. In precious metals, gold edged down by 0.20%, to trade at $1,297.17/ounce.

Day ahead: US delivers CPI figures; Brexit vote in House of Commons eyed

The symbolic face-to-face meeting between the US President Donald Trump and the North Korean leader, Kim Jong Un in Singapore today seemed to have done its magic with both leaders pledging to build peaceful relations in the Korean peninsula and continue negotiations to complete the denuclearization of the region. Still, despite Trump saying that the denuclearization proceedings will “start very quickly”, the document signed by the two leaders is said to be missing details on how the two leaders will achieve their promises, a question that will probably keep investors focused during potential upcoming talks between the US and North Korean negotiating teams.

Meanwhile in the US, attention will switch from geopolitics to monetary policy as the Federal Open Market Committee is scheduled to gather today to decide on interest rates, with the announcement coming on Wednesday at 1800 GMT. Since markets are highly anticipating policymakers to put up rates for the second time this year, investors will take a look at the rate decision statement and listen carefully to the Fed chairman, Jerome Powell at his press conference speech for any hawkish signals on the path of future rate rises.

However, before the FOMC meeting kicks off later today, US consumer price data will provide evidence on inflation. Although the CPI inflation measure is not the Fed’s favorite gauge, the numbers could give direction on where the Fed’s preferred core PCE index is heading. According to forecasts, the headline CPI is expected to gain 0.2 percentage points on a yearly basis in May to rise from 2.5% in April to 2.7%, while in monthly terms the measure is anticipated to remain unchanged at 0.2%. Excluding volatile items, the core equivalent is projected to inch up to 2.2% y/y compared to 2.1% seen in the previous month. That would be the highest level reached since March 2017.

In the UK, Brexit developments are back on the forefront to move the pound, with the withdrawal bill heading to the House of Commons for a two-day debate on amendments proposed by the House of Lords where the bill suffered several defeats. Yesterday at the Parliament, the UK Prime Minister managed to bring some Conservatives rebels to her side and gain support from ten Democratic Unionist Party ministers, raising speculation that the Brexit bill could get the green light at in the House of Commons. Yet, a resignation by the Conservative Justice Minister, Philip Lee, ahead of the vote today over his opposition to the way Brexit is being managed, signaled that there are still risks in the background.

In oil markets, the American Petroleum Institute will report on US crude oil inventories for the week ending June 8 at 2030 GMT.