Daily Market Digest: Markets look to Yellen, GBP sinks on opinion polls

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The Sterling started on a weak footing today with nearly three opinion polls putting the Brexit ‘Leave’ camp ahead of ‘Remain,’ underlining the risks of the uncertain outcome. The markets look ahead to Janet Yellen’s speech due in Philadelphia today.

Today’s Economic events

  • Australia MI inflation gauge m/m -0.20% vs. 0.10% previously
  • ANZ job advertisements m/m 2.40% vs. -0.60% previously
  • German factory orders m/m -2.0% vs. -0.40%
  • Eurozone retail PMI 50.6 vs. 47.9 previously
  • Eurozone Sentix investor confidence 9.9 vs. 7.10

Coming up

  • Fed Chair Yellen speech

Saudi Arabia cuts oil prices for European customers

Saudi Aramco, the state-owned Oil Company reportedly sent an email to its customers in the northwest Europe and the Mediterranean, offering discounts of 35 cents and 10 cents respectively for July delivery of light crude oil. The move comes after OPEC leaders at the bi-annual meeting in Vienna last week failed to reach an agreement on production ceiling. Furthermore, with Iran continuing to ramp up production, the move by Saudi Arabia was being seen by some as a tactical decision. However, pricing for Asian customers was hiked to 60 cents a barrel, an increase of 35 cents.

Iran currently supplies over 400,000 barrels of Oil to Europe and is expected to increase production to 700,000 after it clinched deals with oil refineries in Greece, France, and Italy, according to reports from Iranian officials.

WTI Crude Oil prices for July delivery (CLN16) was seen trading at $49 a barrel on early Monday.

Robin Mills, Chief executive officer at consultant Qamar Energy in Qatar said, “This shows that they’re getting more bullish on demand. India is showing a lot of strength, and we’re still seeing very robust demand from China.”

BoJ officials back to jawboning yen

The weak May jobs report sent the dollar weaker across the board with USDJPY trading just above the 106 levels. Earlier on Monday, Chief Cabinet Secretary Yoshihide Suga was back to jawboning the yen’s rally. He said, “firm action [will] be taken to stem speculative movements in currency markets when necessary, stability in the foreign exchange market was extremely important.” Suga’s comments come after it was reported that the vice-finance minister Masatsugu Asakawa said that his office was watching the currency moves.

The yen managed to ease back briefly, but the comments failed to make any significant impact on the yen. A senior Japanese bank dealer said, “What we’ve found is jawboning is coming from officials when the dollar comes closer to Y105.” Commenting on Friday’s jobs report and the weakening of the US dollar, FPG Securities’ Koji Fukaya said “tight labor markets were widely noted in most districts. I don’t think the labor market has quickly slowed after the report came out.”

USDJPY erased the past three weeks of gains on Friday, closing at 106.58.

Sterling gaps lower on new opinion polls

The Pound Sterling opened Monday with a gap, falling nearly 46 pips on the open at 1.4473 after closing Friday at 1.4519. Latest opinion polls conducted by YouGov for ITV showed that the campaign to leave the EU gained a strong lead with more than three-quarters of the voters participating in the polls said that they don’t trust the Prime Minister David Cameron. The polls were conducted last week via online and telephone surveys. The YouGov poll shed light on the voters noting that despite the UK Treasury stating the stress related to the direct cost to households in case of a Brexit vote, many were prepared to take a financial blow to secure a Brexit. Over 45% choose to ‘Leave’ at the June 23 referendum compared to 41% choosing to ‘Remain’. Another independent poll from TNS showed 43% for leaving the EU while 41% voted in favor to remain in the EU.

Bookmaker, Betfair cited that the probability for a Brexit increased to 28%. It was 19% previously.

Ktb Securities’ Udomrachtavanich says, “I advise clients to take profit on local stocks and hold cash because Britain’s exit from the EU may create turmoil in global equity markets. Most investors had too much optimism that Britain would continue their stay in the EU. The chance of an exit is rising.”

German factory orders fall 2 percent in April

Manufacturing orders in Germany plunged 2.0% on a month over month basis in April, data from the German economics ministry showed earlier today. Analysts were expecting to see a more moderate contraction of 0.50% for the month. On a year over year basis, factory orders are down 0.50%. Previous month’s data was revised higher with March being revised to 2.60% from 1.90% on a month over month basis, while factory orders on a year over year basis, revised higher to 2.40% in March, up from previous estimates of 1.70%. “March’s orders, however, are revised up to show a monthly gain of 2.6%. April’s disappointing outcome is mostly the result of “extremely unsteady” orders for capital goods from non-eurozone customers, as bulk orders are once again slightly above average” the ministry said in the release.

The declines in factory orders came as foreign demand from fell 4.30% with demand from non-eurozone countries falling 8.30%. Domestic orders remained on the upside, rising for the third month at a pace of 1.30%.

The German Bundesbank on Friday released its semi-annual report. The central bank said that although economic growth momentum in Germany remains robust, the economy is expected to rise at a slower pace than previously projected. The Bundesbank lowered its growth and inflation forecasts for Germany noting a 1.70% growth rate for this year, down from previous estimates of 1.80%. Inflation forecasts were cut down to 0.20% this year from 1.10% previously. The Bundesbank said that the main driver of growth was domestic demand.

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