Intraday Market Thoughts

China Cuts Rates for 1st time in 4 yrs, Markets Await Bernanke

by Patrik Urban
Jun 7, 2012 13:08

PBOC cut lending/deposit rates for the 1st time since 2008, joining the rest of BRICs into easing cycle. BoE keeps rates and QE steady; Australian employment improves but unemployment rises; UK services PMI unchanged; Swiss CPI eases m/m; Spanish auction. Jobless claims, Canadian PMI and Bernanke testimony is next. All but 1 of last nights Intermarket Insights are in progress. See below for detail

Commodity currencies leading the way higher after Chinas 25-bp rate cut and Australian data bested expectations for the second day in a row. Australian employment rose by 38.9K in May from previous 7K which is the best result since January. However, the unemployment rate ticked up to 5.1% from 5.0%. AUDUSD trades around 0.9970.

London traders sold the buck initially but the trend reversed and the greenback regained ground. It trades near opening levels. European equities are higher by about 0.6%.

The MPC left the official bank rate unchanged at 0.5% and the asset purchase facility remained at GBP 325 bln. GBPUSD trades higher around 1.5550.

UK service sector continues to expand at a solid pace as services PMI remained at 53.3 in May which was above market expectations of a decline to 52.6. Business confidence declined to a five month low but employment rose and new business accelerated to a four month high. Halifax HPI rose 0.5% in May after falling 2.3% in April.

In other news, Swiss CPI eased in May to 0.0% from previous +0.1% m/m but remained steady at -1% y/y. The unemployment rate declined to 3% from 3.1%.

Spain was able to sell EUR 2.074 bln worth of various bonds which is above its 1-2 bln target range. The average yields rose but bid to cover improved on all. According to MNI calculation, Spain has completed 58% of its gross funding needs. France nearly reached a full take up as it sold bonds totaling EUR 7.84 bln out of EUR 7-8 bln target.

The NY session starts at 8:30 am with jobless claims that are seen marginally lower at 381K from 383K followed by Canadian Ivey PMI at 10:00 am ET that is expected to rise in May to 53.5 from 52.7.

The key event that also starts at 10:00 am is the FED chairman Bernanke's testimony before the Joint Economic Committee in Washington DC. While any signs of additional stimulus would send the USD lower, remarks of the "wait and see" approach could support the buck as yesterday's beige book was not as gloomy as expected.

All of our longs in EURUSD, AUDUSD, GBPUSD are in progress, so is our USDCAD short (40 pips away from final target). One gold short in progress, the other unfilled. Both US crude positions are in progress. We're using CL_N (July contract). Click here for direct access to these Premium trades & charts: For a 1-WEEK TRIAL, click here: Click here for direct access to todays edition:


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