Today's Key Points

Daily Forex Fundamentals | Written by Danske Bank | Jun 27 08 07:12 GMT |
Danske Daily

Today's Key Points

* US stocks tumble and the Dow Jones fell to the lowest level this year, making it the worst June for the index since the Great Depression. Asian equity markets are also down this morning.
* The oil price reached a new record-high at USD 140 per barrel yesterday, but has retreated slightly overnight.
* Focus today will be on more German CPI and Euroland consumer confidence. In the US, inflation data takes centre stage along with the revised University of Michigan consumer confidence.

Markets Overnight

US stocks tumbled in yesterday's trade and the Dow Jones fell to the lowest level this year, making it the worst June for the index since the Great Depression. Following a weak European close US markets had opened at a lower level and losses were only extended during the day causing an even greater decline in prices than on the European markets. The S&P500 lost 2.9%, while the Dow Jones and Nasdaq indices both shed more than 3%. The decline in the S&P500 was led by financials, info tech, and industrials, but almost nine in ten stocks fell on the New York Stock Exchange.


Yesterday also saw the release of a series of US data. Final Q1 GDP was revised up to an annualized 1% q/q and also the core PCE deflator was revised up. Claims data were soft, as continuing claims revised the entire decline from last week, jumping back to its previous upward trend. In total this data is consistent with continued - but moderate - declines in non-farm payrolls. Finally, existing home sales came out slightly better than expected, but the housing market is generally still bleeding.

US Treasuries are little changed overnight, after rallying yesterday as stocks fell. 2-year notes dropped 15bp yesterday, while 10-year notes went 6bp lower. However, it is worth noting that 2-year notes are still more than one percentage points higher than the low in mid-March.

The oil price retreated somewhat overnight from yesterday's record-high of USD 140 per barrel, as the US House of Representatives approved a bill aimed to restrain energy market speculation.

In Asia, equity markets came under renewed pressure and were not helped by somewhat weak Japanese macroeconomic data released overnight. The Nikkei225 index is currently down by more than 2 percent.

On the FX market, EUR/USD has drifted slightly lower overnight following a decent rise yesterday. The pair is currently trading in the 1.570 - 1.575 range. USD/JPY is trading slightly higher after falling close to 1% yesterday and is now just above 107. The Scandies have been broadly flat overnight, while NZD/USD has gained this morning, trading above 0.76, despite the GDP report released overnight showing that the New Zealand economy actually backpedalled in Q1.
Global Daily

Focus today should continue to be on the financial jitters. Hence equity and credit market performance is once again becoming a key driver in the bond market. Worryingly, oil prices stay high and keep the inflation scare in the game as well - not a nice cocktail. We see some scope for further declines in yields in the short term as growth fears are rising and risk appetite falling. But watch closely the inflation expectations released with the University of Michigan consumer confidence at 16.00 CET (see below)

On the agenda in Europe today is more German CPI. Länder CPI has been in line with consensus pointing to a rise from 3.0% in May to 3.3% in June for overall German inflation. This will likely push up the overall Euroland CPI (Flash CPI released Monday) to 3.9% adding to the inflation concern. The high oil price could push up CPI even higher in coming months. Also watch the consumer confidence numbers today which include the very important inflation expectations measure for consumers (price expectations next 12 months). It has been going sideways for some time and hence not pointed to rising inflation expectations like in many other countries, but the risk is that we will start to see it come through in Euroland as well.

We also have US inflation data out today as well as the revised University of Michigan consumer confidence which includes one of the most important measures of inflation expectations - the expectation for inflation 5 years ahead. This was unchanged at 3.4% in the preliminary release from June 13 - the highest level in almost 15 years. It shall be interesting to see if there is any upward revision in the final number. This would clearly worry the Fed. On the inflation front we also have the PCE deflator. The core deflator is important to gauge if inflation pressures are broadening,but the headline is also attracting more interest as it has stayed elevated for so long now.

The EUR seems to mainly draw its strength from relative interest rate movements at present, although the high oil price is indirectly having an effect. EUR/USD should be able to go up further in the coming week and a potential break of 1.585 would give rise to promises of a new record-igh around 1.63.
Scandi Daily

Today we receive retail sales data and the National Debt Office's forecast in Sweden. On retail sales we expect a recoil after last month's very weak reading, but apparently we are more optimistic on this issue than market consensus suggests. Bearing in mind that this is indeed a rather volatile series our advise is however to refrain from taking any major bets on this particular outcome. The SNDO data shall be interesting since the actual outcomes point toward an excess fiscal balance surplus of SEK 20bn compared to the SNDO's latest forecast. In spite of this we do not expect any major revisions, since this would also entail making a forecast on possible privatisation flows in conjunction to TeliaSonera and France Telecom.

Danske Bank
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