Morning Briefing 8211 June 9th 2016

0924 BST

• As we’ve seen pretty much all of this week, once Monday’s sterling fireworks were out of the way, the most interesting action has been in Asia, where the yen continues to look well bid. As I type this, the yen is setting new four-week highs around 106.40 against the dollar (according to Reuters prices).
• Traders appear to see no constraints ahead of the Bank of Japan meeting all the way at the end of July, with many juicy risk events before then which could attract safe-haven flows. Overnight, two further events played to yen strength: a surprise cut of the key interest rate to a record low 1.25% at the Bank of Korea, which will challenge the BoJ to maintain the regional differential sooner rather than later, and effectively; plus another beat of the drum for Japan’s weakening industrial cycle. This time, a worse than expected machinery orders reading, showing the biggest decline since May 2014.
• In fact, in the Asia-Pacific region overall, the kiwi was the fastest mover overnight, not the yen, surging 1.5% after the RBNZ joined the ranks of central banks saying they need more time to assess the effect of current policy changes, with an ever shortening time frame of visibility. New Zealand’s central bank said it would therefore be standing pat on rates. NZD against USD was still pumped at the time of writing, though slowing down in the European session after adding over 5% already in June.
• The latest China data out overnight showed deflationary pressures continued in May across the board, but particularly on the consumer side with a weaker than forecast reading, again doing nothing to suggest the People’s Bank of China has a great deal of alternatives but to keep on accommodating in one form or another. Watch the strengthening yuan though, taking forward rates to Q1 2015 highs (on the yuan side) and raising the probability of some sort of non-routine action by monetary authorities.
• Back in the West, the soft dollar is of course a big component of Asian currency rallies this week, after recent events in the labour market were acknowledged by Janet Yellen early in the week, setting up the June Fed meeting as almost a mere formality, with little material further guidance expected. Queue a euro rally too, to a one-month high well into the 1.14s overnight, ignoring the latest leg of ECB policy launched on Wednesday: buying corporate bonds.
• The pound also looks fairly resilient, unfettered by any major developments around potential Brexit late yesterday. However sterling against the dollar hasn’t made much progress above monthly highs marked this week, losing the $1.45 handle as London awoke. With this week’s range so large, we continue to see the rate as vulnerable to a further test of lows.
• Euro strength is no sop for European stocks and appropriately, they’ve struggled this week, with Germany’s DAX not too far from the week’s lows as I wrote this, down 0.9% struggling in a tight range as everyone sits on their hand till late June. Just like the FTSE 100. The benchmark was down 0.6%, giving back almost half of the rise from Monday’s weakest levels.
• Nikkei 225’s slide this morning confirmed yesterday’s jump as corrective following pretty much four-week lows recently, leaving N225 back in step with the rising yen at the close, giving up all of Wednesday’s 1% gain. The dollar pause is also the boon Wall St. needs to re-load. And this enabled S&P to approach all-time highs again yesterday, though the progress of US stocks doesn’t seem entirely convincing, in terms of momentum. Elsewhere, the dollar is naturally indirectly fuelling oil; both main contracts are toying with $52. For Brent which saw $52.86, it’s having its best prices since October 2015.
• UK stocks are fairly bereft of headline grabbing news, though Sky inked a deal with Vodafone in NZ, and Glencore sold another stake in its agri business for $625m (after selling a larger one for $2.5bn in April).

Please look out for our updates on the above market developments and others throughout the day.