Weekly Recap
US
Consumer prices fall for a third month
According to the US Department of Labor, the nation’s consumer price index (CPI) dipped 1% last month after falling 0.8% in April, which was the biggest drop since 2008.
The reading also marks a third straight month of decline as demand remained subdued amid the economy downturn caused by the COVID-19 outbreak. The core CPI also dropped 0.1% in May after a 0.4% decrease in April.
These figures could potentially raise concerns about the effects of deflation on the US economy, as well as increasing prices following the recovery in demand for goods and services as states continuing reopening.
Fed pledges to maintain zero rate through 2022
After a two-day FOMC meeting, the Federal Reserve pledged to keep purchasing bonds and revealed it expects the interest rate to remain near zero through 2022.
Fed Chairman Jerome Powell also promised to help with the economy’s recovery from the COVID-19 crisis by using all possible tools at his disposal.
The bank also set a minimum for its asset purchasing scheme, promising to take in at least $80b of Treasury bonds and $40bn of mortgage-backed securities monthly.
Another 1.5m Americans file for jobless claims
On Thursday, the latest data from the Labor Department showed that around 1.54 million Americans filed new state unemployment claims in the week ending June 6, down from 1.9 million in the prior week. This rate was the lowest such number since the COVID-19 crisis began, but still well above the normal level.
The number of applications have dropped consistently each week since peaking at the end of March, but is currently still more than double the worst week experienced during the Great Recession.
Although states’ economies have been gradually reopened, companies continue to face low demand and many are laying off employees to cope with the financial difficulties.
US producer prices jump more than expected
According to the Labor Department, US the producer price index (PPI) rebounded 0.4% last month after decreasing 1.3% in April, which was a better result than the forecasted gain of 0.1%.
The main factor for this increased PPI is the surge in mean prices, which saw a 40.4% boost last month. On a year-on-year basis, however, the PPI decreased 0.8%.
Excluding the volatile food, energy and trade services components, the core PPI increased by 0.1% in May overall after plunging 0.9% in April.
Eurozone, Australian, and Asia
German industry experiences ‘worst month’
Germany’s industrial production dropped sharply in April due to the country’s coronavirus lockdown, falling by 17.9% from the previous month, compared to the expected -16%.
Germany’s statistics office described the drop as the ‘largest decline since the beginning of the time series in January 1991’.
The government had originally eased the restrictions tentatively on 20th April by allowing smaller retailers and car dealerships to reopen, while further lockdowns are set to be lifted from 15th June, including the relaxing of a travel ban between European countries.
Economists are confident that the lifting of these lockdowns is likely to help with the economy recovery.
Bank of Spain expects economic contraction up to 15% during 2020
According to the Bank of Spain (BoS), the nation’s economy could shrink by as much as 15% in 2020 in a worst-case scenario, which could be the steepest such contraction of any Eurozone country.
Spain has implemented one of the strictest coronavirus restrictions despite being heavily dependent on tourism; it was therefore particularly vulnerable to being financially impacted by the global pandemic.
Furthermore, there is a significant presence of small businesses across Spain, which renders it especially susceptible to damage in such economic crises. The BoS also predicted the unemployment rate may jump to between 18.1% to 23.6% this year, and it is likely to remain higher than 15% through 2022.
Australia’s NAB business confidence rises to -20 in May
According to NAB’s monthly business survey, Australian business confidence recovered to a net balance of -20 points in May, up from -45 in April. Business conditions also increased to -24 from -34 in April.
NAB suggested that business activities remained weak in May, while forward indicators like capital expenditure, capacity utilisation also remained depressed. Additionally, ANZ job advertisements went up by 0.5% to a total of 63,428.
New Zealand ANZ business confidence improves in June
New Zealand business confidence recovered slightly to -33 in June from -41.8 in May, a preliminary reading of an ANZ Bank survey showed.
This improvement reflected New Zealand’s newly eased lockdown measures. However, the hardest-hit sectors — such as accommodation, hospitality and retail — are still not yet properly recovered, which has left the country’s unemployment rate high for the time being.
Chinese factory deflation deepened in May while consumer price growth slowed
China’s producer price index (PPI) dropped 3.7% last month from April’s 3.1% — higher than the preliminary May expectation of 3.2% — the National Bureau of Statistics said on Wednesday.
The CPI increased by 2.4% in May followed by a 3.3% gain in April, but ultimately missed the expectation of a 2.7% increase.
These depressed figures indicate that demand across the world’s second-largest economy remains weak, although the Chinese Government has recently greater encouraged consumption and exports to stimulate growth.
Japan average cash earnings falls 0.6 % in April, the first decline in months
The latest data, released on Tuesday, showed that average cash earned in Japan fell 0.6% in April from a year earlier, beating expectations of a negative 1% reading.
In addition, the number of extra hours worked reduced 18.9% with restaurant and services sectors being hit the hardest; overtime payments were also recorded as being down 46.1%. This is likely because Japan declared a state of emergency, forcing businesses to close and putting many Japanese personnel out of work.
With more than half of Japan’s economy dependent on domestic consumption, some economists expect the GDP could shrink by more than 20% during the current quarter.
Major Asset Intraday Analysis
USDX
Resistance: 97.6, 98.2
Support: 96.7, 96.0
The USDX recovered last week; after falling for two consecutive weeks and dropping to the lowest level in four months, USDX finally got a chance to rebound.
Although the current rebound is still weak and has already begun to enter the consolidation phase, it has at least protected the USDX from continued decline.
The focus this week should be on how much the USDX will rise — if there is a renewed surge of market participation from long traders, it is likely to return to prices above 98.
EUR/USD
Resistance: 1.1346, 1.1400
Support: 1.1232, 1.1178
The Euro’s trend was more conservative last week than in the previous two weeks; its momentum has weakened and there has been a certain degree of shock.
If the shared currency falls below the support level 1.1232 this week and jumps out of the shock range, there is the potential for a lot of market shorts.
Conversely, if the Euro can return to the rallying activity seen in early June, the resistance around 1.1346 will be quickly broken through, helping the Euro to reach a new high.
GBP/USD
Resistance: 1.2773, 1.2881
Support: 1.2502, 1.2400
The pound was severely affected by the USDX last week; after a sharp fall, it rebounded and began to rise, aiming for a peak of 1.2773.
However, with the continued recovery seen within the USDX, the resistance boundary remains strong, and it will be difficult to return to the high price experienced during the USDX’s decline.
Speculators will likely need to pay more attention to the pound’s decline than any potential appreciation in the near term — the hourly level of the lower line is currently slightly weaker.
Judging by its recent behaviour, a wave of declines over the next few days is looking inevitable.
Gold
Resistance: 1750, 1765
Support:1715, 1681
Last week, gold experienced its longest upswing of recent times, and then began to fluctuate upwards to the highest price level seen so far in June.
Against a backdrop of a rebounding USDX, other currencies have declined to varying degrees as of late. As a result, the rise in demand for gold has led to price increases.
The slight observable fluctuations on the daily line should not affect its status of remaining at its highest level in three months — as such, this week’s focus is still on the impact of the new high of 1765.
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