June Hike Hopes Fall

The chance of a June hike is dwindling as mixed economic data continues. The yen was the top performer while the pound sterling lagged for a second day. Australian retail sales and trade balance are next. The  Premium trades closed the short GBPJPY with a 230-pip gain. 

فيديو الأسبوع العربي ما بين الين و الإسترليني

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The Beige Book is the latest indication that the Fed doesn't need to rush a hike. The good news was that a tighter labor market was widely cited but modest growth and only modest growth in consumer spending give the Fed plenty of time to wait.

Growth hopes for Q2 also took a hit as construction spending fell 1.8% in the month compared to +0.6% expected. That was contrasted by ISM manufacturing at 51.3 versus the 50.4 consensus, however, the number was skewed by deliveries while all three orders categories fell.

The market has soured on the probability of a June Fed hike with futures now pricing just a 22% chance compared to 32% at the end of the day on Friday. The battleground is June, which has also ticked down but remains at 53%. The FOMC speculation will be all about signals. Yellen has also scheduled her Humprey Hawkins testimony for the week before the July meeting.

Looking ahead, Australia is in focus after the extremely strong Q1 GDP numbers on Wednesday. At 0130 GMT, trade balance numbers are due and expected to show a 2.1B deficit, which is a fractional improvement from the month before.

The more important Aussie release will be April retail sales, which are expected to rise 0.3%. However, the chance of a cut has plummeted recently and the GDP improvement underscored why. The market sees just a 6% chance of a move next week and 18% in July. August ramps up to 50% but there will be plenty of data before then.

The bigger event will be the ECB press conference.  No action and a wait-and-see approach are overwhelmingly expected but the latest forecasts will be market movers. The current estimates are for 0.1% inflation in 2016, 1.3% in 2017 and 1.6% in 2018. Higher oil prices should boost the near-term numbers but may pull down longer term estimates because of the potential drag on growth.