European stocks and the U.S. dollar fell, after climbing to a two-month high, on Tuesday as relief that the U.S. government had averted a possible default gave way to concern that the deal could face a rocky path through Congress.
Longer-dated U.S. Treasuries rallied as traders welcomed the deal to suspend Washington’s borrowing limit until January 2025 in exchange for caps on spending and cuts in government programmes.
But the dollar and European stocks slipped, dented by uncertainty about whether Congress will approve the deal after a handful of hard-right Republican lawmakers said on Monday they would oppose the bill, though it is expected to pass.
Despite the initial risk-on sentiment on the deal announced on Saturday, investors also fear now that the agreement was a compromise that could have negative consequences.
JB Were analysts said there could be up to $600 billion worth of bill issuance in the next six to eight weeks.
The size of the Treasury issuance and the economic implications are now being considered, according to Invesco’s Asia Pacific global strategist David Chao.
“The announcement of a debt deal in the near term is a boost to market sentiment but it places pressure on growth due to the government spending cuts, the tighter liquidity conditions. But the flip side is the pressure on growth is doing the job for the Fed as it tries to cool the economy. It could place a dampening effect on inflation.”
The pan European STOXX 600 index fell 0.2% after recording on Friday its biggest weekly decline in two months.
U.S. futures were up 0.5% pointing to a start of the day in positive territory for U.S. stocks, which were closed on Monday for the Memorial Day holiday.
U.S. 10-year bond yields dropped 9.7 basis points to 3.72%, while 30-year yields fell 8 bps to 3.89%. Bond yields move inversely to price.
The dollar index, which measures the greenback against six peers, fell 0.26% at 104.03 after rising to a two-month high in earlier trading. It was also trading near a six-month peak against the Chinese yuan.
The yen rose 0.25% against the dollar to 140.08, bouncing back from a six-month low, after Japan’s top finance diplomat Masato Kanda said authorities were closely watching foreign exchange market moves and would “respond appropriately”.
The Nikkei stock index rose 0.4%, after the Japanese benchmark hit a 33-year high on Monday on optimism over the U.S debt deal and a weaker yen, which helps the country’s exporters.
CHINA POST LOCKDOWNS
Hong Kong’s Hang Seng Index lost around 6.5% in May while the CSI300 is off almost 5% as a result of China’s economy not recovering from its pandemic closures as fast as expected.
The two indexes closed slightly higher on the day after hitting November lows earlier with investors also remaining cautious ahead of China’s May manufacturing data due on Wednesday.
“Everyone is looking at the disappointment in the performance of China equities recently and that is now creating negative investor sentiment,” said Jack Siu, Credit Suisse’s greater China chief investment officer.
“Investors are now more muted towards the reopening story of China and are contemplating their positions.”
Elsewhere, euro zone bond yields fell after Spanish inflation data came in lower than expected, raising hopes that the European Central Bank may raise interest rates less than previously feared.
The Turkish lira slipped further to a fresh record low after President Tayyip Erdogan secured victory in the country’s presidential election on Sunday.
GBP/USD eyes additional gains towards the upper 1.24s in the short run – Scotiabank
Sterling is the top-performer on the session as shop price data shows further gain. Economists at Scotiabank expect the GBP/USD pair to test the upper 1.24s.
UK shop prices continue to surge
“The BRC’s survey of shop prices reached 9% in May (a record) suggesting no relenting from the upward push in prices and reinforcing expectations that the BoE has more – perhaps quite a bit more – work to do.”
“Strong intraday bidding for the Pound leaves a positive impression on the short-term chart.”
“Congestion/retracement resistance stands at 1.2450/1.2495.”
GBP/USD Price Analysis: Bulls move in to take control
- GBP/USD bulls are taking back control on a break of structure.
- The rally has taken out the bearish trendline resistance.
Sterling rose against a weaker dollar on Tuesday as British inflation remains in focus. This has forced the price higher and placed the bulls back in control as the following analysis will illustrate
GBP/USD: Support around the 1.2275/2300 area may hold temporarily – ING
Economists at ING discuss EUR/GBP and GBP/USD outlooks.
EUR/GBP can probably press support at 0.8650
“UK data is doing the most of the talking and it will probably be the jobs/wages data (13 June) or the May CPI data (21 June) which will be the key determinant on whether the market reins in aggressive tightening expectations.”
“Until then, EUR/GBP can probably press support at 0.8650, below which 0.8600/8610 is the next target. GBP/USD can better resist the stronger Dollar. Support around the 1.2275/2300 area may hold temporarily.”
GBP/USD climbs to fresh daily high, around 1.2375 area amid subdued USD demand
- GBP/USD gains some positive traction for the third straight day, though lacks follow-through.
- Hawkish BoE expectations underpin the GBP and lend support amid subdued USD price action.
- Bets for more Fed rate hikes to limit the USD losses and cap any meaningful gains for the major.
The GBP/USD pair attracts some dip-buying near the 1.2325 region on Tuesday and turns positive for the third straight day, though remains confined well within a familiar trading band held over the past week or so. The pair currently placed near the top end of its daily range, around the 1.2375 region and is supported by a combination of factors.
Investors remain anxious over the possibility of further monetary policy tightening by the UK central bank, bolstered by stronger-than-expected consumer inflation figures released last week. This, in turn, is seen underpinning the British Pound (GBP) and acting as a tailwind for the GBP/USD pair amid subdued US Dollar (USD) price action. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, enters a bullish consolidation phase following an early uptick to its highest level since mid-March.
The latest optimism over raising the US debt ceiling boosts investors’ confidence, which is evident from a generally positive tone around the equity markets and undermines the safe-haven buck. The downside for the USD, meanwhile, seems limited amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer. In fact, the current market pricing indicates a greater chance of another 25 bps lift-off at the June FOMC meeting. The expectations were lifted by the recent hawkish remarks by several policymakers.
Adding to this, the Core PCE Price Index – the Fed’s preferred inflation gauge – released on Friday indicated stick inflation and reaffirmed hawkish Fed expectations. This makes it prudent to wait for strong follow-through buying before confirming that the recent pullback from over a one-year high touched earlier this month has run its course and placing fresh bullish bets around the GBP/USD pair. Traders now look to the Conference Board’s US Consumer Confidence Index for a fresh impetus later during the early North American session.
Market Update: European Stocks and US Dollar Fall
Relief Turns to Concern
European stocks and the US dollar fell on Tuesday, following a climb to a two-month high. The initial relief that the US government had averted a possible default gave way to concern that the deal could face a rocky path through Congress.
Treasuries Rally
Longer-dated US Treasuries rallied as traders welcomed the deal to suspend Washington’s borrowing limit until January 2025. However, uncertainties remain about whether Congress will approve the deal, as a handful of hard-right Republican lawmakers expressed opposition to the bill, although it is still expected to pass.
Potential Bill Issuance
JB Were analysts predict that there could be up to $600 billion worth of bill issuance in the next six to eight weeks, as a result of the recent deal.
Economic Implications
The size of the Treasury issuance and its economic implications are now being considered by market analysts. Invesco’s Asia Pacific global strategist David Chao notes that while the debt deal boosts market sentiment, it also puts pressure on growth due to government spending cuts and tighter liquidity conditions. However, this pressure on growth may help the Federal Reserve’s efforts to cool down the economy and potentially have a dampening effect on inflation.
European Stocks Decline
The pan-European STOXX 600 index fell 0.2% after recording its biggest weekly decline in two months on Friday.
US Futures Up
US futures were up 0.5%, pointing to a positive start for US stocks after the Memorial Day holiday.
Bond Yields Drop
US 10-year bond yields dropped 9.7 basis points to 3.72%, while 30-year yields fell 8 basis points to 3.89%. This drop in yields indicates a shift towards lower interest rates.
Dollar Weakens
The dollar index, which measures the greenback against six peers, fell 0.26% to 104.03 after rising to a two-month high earlier. It was also trading near a six-month peak against the Chinese yuan. The yen, on the other hand, rose 0.25% against the dollar to 140.08, bouncing back from a six-month low.
Asia Markets
The Nikkei stock index in Japan rose 0.4% after hitting a 33-year high on Monday, boosted by optimism over the US debt deal and a weaker yen, which benefits the country’s exporters. In China, however, Hong Kong’s Hang Seng Index lost around 6.5% in May, and the CSI300 is off almost 5% due to slower-than-expected recovery from pandemic closures.
Euro Zone Bonds
Euro zone bond yields fell after Spanish inflation data came in lower than expected. This raised hopes that the European Central Bank may raise interest rates less than previously feared.
Turkish Lira
The Turkish lira slipped further to a fresh record low after President Tayyip Erdogan secured victory in the country’s presidential election on Sunday.
Market Update: European Stocks and US Dollar Fall
- Relief Turns to Concern: European stocks and the US dollar fell after reaching a two-month high. Investors worry that the deal to suspend Washington’s borrowing limit could face challenges in Congress.
- Treasuries Rally: Longer-dated US Treasuries rallied as traders welcomed the deal but uncertainties remain about its approval in Congress.
- Potential Bill Issuance: JB Were analysts predict up to $600 billion worth of bill issuance in the next six to eight weeks.
- Economic Implications: The size of the Treasury issuance and its economic implications are being considered, as government spending cuts and tighter liquidity conditions may impact growth and inflation.
- European Stocks Decline: The pan-European STOXX 600 index fell 0.2% after its biggest weekly decline in two months.
- US Futures Up: US futures were up 0.5%, indicating a positive start for US stocks after the Memorial Day holiday.
- Bond Yields Drop: US 10-year and 30-year bond yields dropped, signaling lower interest rates.
- Dollar Weakens: The dollar index fell 0.26% against six peers, while the yen rose against the dollar, and the Chinese yuan weakened against the dollar.
- Asia Markets: The Nikkei stock index rose 0.4%, and Hong Kong’s Hang Seng Index and the CSI300 closed slightly higher after hitting November lows.
- China’s Economy: China’s economy shows slower recovery than expected, impacting investor sentiment.
- Euro Zone Bonds: Euro zone bond yields fell after lower-than-expected Spanish inflation data, potentially impacting European Central Bank interest rate decisions.
- Turkish Lira: The Turkish lira reached a fresh record low following President Tayyip Erdogan’s election victory.
Stay tuned for more updates on the global financial market.
[Opening music]
Host: Welcome to the Market Update Podcast, where we bring you the latest news and analysis on global financial markets. I’m your host, and today we’ll be discussing the recent developments in European stocks and the U.S. dollar.
Host: So, European stocks and the U.S. dollar have experienced some significant movements in the past few days. On Tuesday, both took a tumble after reaching a two-month high. The initial relief that the U.S. government had averted a possible default quickly turned into concern about the deal’s path through Congress.
Host: We saw longer-dated U.S. Treasuries rallying as traders welcomed the deal to suspend Washington’s borrowing limit until January 2025. However, there’s uncertainty looming over whether Congress will approve the deal, as some hard-right Republican lawmakers expressed opposition. Despite expectations of the bill passing, this uncertainty has caused the dollar and European stocks to slip.
Host: Investors are now worried that the agreement, although seen as a positive step, could have negative consequences due to being a compromise. Analysts from JB Were predict a potential issuance of up to $600 billion worth of bills in the next six to eight weeks. The size of the Treasury issuance and its economic implications are being closely considered by experts, including Invesco’s Asia Pacific global strategist, David Chao.
Host: Chao emphasizes that while the debt deal announcement brings a boost to market sentiment, it also puts pressure on growth due to government spending cuts and tighter liquidity conditions. However, he also mentions that this pressure on growth could be advantageous for the Federal Reserve’s efforts to cool down the economy and potentially mitigate inflationary pressures.
Host: The pan-European STOXX 600 index experienced a 0.2% decline after recording its largest weekly decline in two months. On the other hand, U.S. futures were up 0.5%, suggesting a positive start for U.S. stocks after the Memorial Day holiday.
Host: Bond yields also witnessed a drop, with U.S. 10-year yields falling 9.7 basis points to 3.72% and 30-year yields declining 8 basis points to 3.89%. This inverse relationship between yields and prices is an important factor to consider in understanding market movements.
Host: Moving on to the currency market, the dollar index, which measures the greenback against six peers, fell 0.26% to 104.03 after reaching a two-month high in earlier trading. Additionally, the Japanese yen rose 0.25% against the dollar to 140.08, bouncing back from a six-month low. These currency fluctuations can have significant implications for global trade and investment.
Host: Shifting our focus to Asia, the Nikkei stock index rose 0.4%, hitting a 33-year high on optimism over the U.S. debt deal and a weaker yen. However, in China, both the Hang Seng Index and the CSI300 closed slightly higher after hitting November lows earlier. Investor sentiment remains cautious ahead of China’s May manufacturing data, which is expected to provide further insights into the country’s economic recovery.
Host: In other news, eurozone bond yields fell following lower-than-expected Spanish inflation data, raising hopes that the European Central Bank may adopt a less aggressive stance on interest rate increases. Meanwhile, the Turkish lira slipped further to a fresh record low following President Tayyip Erdogan’s victory in the country’s presidential election.
Host: And that’s a wrap for today’s market update. Stay tuned for more in-depth analysis and expert insights. Thank you for joining us on the Market Update Podcast. Until next time!
[Closing music]
