MORNING BID-PBOC strikes back. Yuan shrugs his shoulders
A look at the day ahead from Sujata Rao.
China’s central bank, the PBOC, struck a blow against the yuan’s run to three-year highs by increasing banks’ reserve ratios for the first time since 2007. The move, which only pulled out $ 20 billion dollars in system liquidity, does not have much of an impact but could prevent traders from pushing the currency higher at this time.
Also on the central bank front, the Reserve Bank of Australia reiterated its mantra of not raising rates until at least 2024, but more interestingly, tweaked its language, appearing to signal a reduction in buying of ‘active after the current quantitative easing program ends.
The Australian dollar rose as much as 0.5% at one point, but the main tailwind for currencies other than the United States is the dollar index which is close to recent 4 1/2 month lows. .
The belief that the Fed will examine the current set of robust data has verified the yields of the greenback and the Treasury, boosting its rivals. The pound, on the other hand, hit three-year highs following a hawkish political message last week.
Now for inflation. German price growth in May to an annual level of 2.5%, a decade high, could be followed by an impression of more than 2% for the euro area, although ECB policymakers, like their Fed counterparts are keen to point out that the upsurge stems from one-off factors, notably energy.
Still, there are signs of lingering problems on the supply side. South Korean exports, a sort of barometer of world trade, rose 45.6% year-on-year in May, a 33-year high, but the surge in input costs was noticeable.
Standard Chartered believes markets are underestimating Chinese factory inflation; it almost doubled the 2021 forecast to 6.8%.
We might have a clue as to how oil prices might behave at the start of an OPEC + meeting. The group decided in April to add 2.1 million barrels per day of supply from May to July and is expected to stay the course. Brent meanwhile exceeded $ 70 a barrel.
Key developments that should give more direction to the markets on Tuesday:
-The Chinese factory’s activity grew at its fastest this year in May
– Private equity firms KKR & Co and Clayton Dubilier & Rice LLC (CD&R) close to closing deal to privatize Cloudera Inc for a valuation of $ 4.7 billion
-German / unemployed retail sales
– Eurozone flash HICP
-Sales of houses throughout the UK
-Bank of England Governor Andrew Bailey speaks at 3:00 p.m. GMT
– Auctions: British gilts aged 10 and 25; Germany 5-year banknotes
– OPEC and non-OPEC ministerial meeting
-American results: Hewlett packard
(Reporting by Sujata Rao)