Asian equities slightly higher, NZD leads the gains in G10

Summary:

  • Asian equities trade slightly higher at the beginning of a new week
  • NZ dollar leads the gains after a positive reading of the services PMI-like index
  • ECB’s de Guindos signals a need to act if inflation expectations continue de-anchoring

Risk sentiment improves

The start to the new trading week has been pretty successful for Asia-based investors due to some gains seen across equity indices there. The Hang Seng (CHNComp) has been the largest winner so far and it is rising as much as 0.6% at the time of preparing this analysis, the NIKKEI (JAP225) is climbing 0.2% while the Shanghai Composite is moving higher 0.15%. This performance has come despite the fact that Wall Street finished Friday’s trading slightly lower as investors played down a solid print of retail sales for May. Let us remind that the Federal Reserve meeting should be the most important event this week with market expectations suggesting the US central bank could give some clues with regard to a possible rate cut as soon as July (market odds are more than 80% for such a move). However, there is no doubt that the latest data, although a bit weaker than previous readings, have been consistent with the current state of the US economy, hence if a rate cut arrives in July it could be another sign that the US central bank is still a hostage of financial markets.

The Hang Seng (CHNComp) keeps trading between crucial technical levels as it failed to break below 10230 points. Thus, one may suppose that until the price remains within the consolidation, any larger moves are unlikely. Keep in mind that the Fed can set moods this week. Source: xStation5

NZ dollar leads the gains

Looking at the currency market we may notice that the kiwi is by far the best performing major currency being 0.25% up against the US dollar in early European trading. In terms of economic releases, we got the PMI-like reading for services for May which showed a rise to 53.6 from 52. It is worth noting that the index grew from its lowest level since 2012. On the other hand, the details revealed that a rise in inventories was the prime reason behind the overall improvement last month. At that stage of the business cycle it could mean that businesses became more cautious in May and demand may have weakened a bit. Apart from the NZ dollar it is also worth looking at the Turkish lira as it is losing against the greenback this morning (ca. -0.4%). The USDTRY has been trading higher in recent hours after the news delivered by Recep Erdogan on Sunday. He said that Turkish exporters would be exempt from paying a new tax (a 0.1% rate reintroduced in May) when purchasing foreign currencies. Let us recall that the CBRT left monetary policy settings unchanged at its meeting last week. On top of that, we will have the elections in Istanbul on this Sunday (June 23) after the Supreme Electoral Council cancelled the March elections result. Therefore, one may expect that the TRy could be under downside pressure until then.

The NZDUSD is rebounding from the interesting support area placed slightly below 0.65. The first more notable target for buyers could be found nearby 0.6680. Source: xStation5

In the other news:

  • ECB’s de Guindos said over the weekend that the ECB would act if inflation expectations kept de-anchoring

  • On Sunday, Boris Johnson skipped a televised debate with other 5 candidates for a PM post

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