China’s PPI surged to 9% in May, the highest level since 2008

10 June 2021, 03:36

Market Focus

US equity market was mixed as investors brace for Thursday’s inflation report from the US. The S&P 500 and Dow Jones Industrial Average Index lost 0.18% and 0.44% respectively, while the tech-heavy Nasdaq up a little 0.03%. Industrials and Financials shares were dragging the S&P 500, erasing all the gains from tech shares. “Even if inflation comes out a little higher than Street expectations, the Fed isn’t going to change its path. There’s a lot of wait-and-see going on and just thinking it would take a lot to surprise markets,” said Esty Dwek from Natixis Investment Managers. We are already seeing some moves in the bond market, with the 10-year US Treasury yield declined as much as 6.3 basis points to 1.471%.

China’s PPI surged to 9% in May, the highest level since 2008. Soaring costs of imported commodities were driving the factory-gate inflation. However, consumer inflation only increased 1.3% on a year-over-year basis, missed a forecast of 1.6%. Companies are reluctant to pass the expensive input prices to their consumers due to intense competition amid a reopening. The situation will be eased as the Chinese government launched a campaign to curb commodity prices by cracking down on financial market speculation on commodities as well as hoarding.

SEC Chairman Gary Gensler is calling for a broad-based review of the rules that underpin trading in the US equity market. Gensler said he asked the agency’s staff to examine issues related to stock trading including the so-called best execution requirement. Market trading rules have come under scrutiny amid wild swings in meme stocks such as GameStop Corp. and AME Entertainment Holding Inc.

Main Pairs Movement

After several twists and turns, the dollar index again stepped up to the 90.00 level, but majors seemed little changed from the previous days. Before the highly expected US CPI data and the European Central Bank (ECB) monetary policy statement takes place, there are some interesting figures to look at. US Treasury yield reached its record low since March, while stocks barely moved.

The euro pair peaked at 1.2218, ended the day with little gains at around 1.2177. Europeans are likely to maintain their interest rate and their cautious approach to monetary policy. It is unlikely that ECB will mention tapering at this early stage of the economic recovery.

GBPUSD fell 0.27% yesterday, traded close to the 1.4100 level. The pair now faces headwinds from the renewed covid concerns. “There is a risk of a substantial third wave – we cannot be definitive about the scale of that, it could be substantially lower than the second wave, or it could be of the same order of magnitude”., UK epidemiologist Neil Ferguson said in his recent interview. The currently dominant Delta variant of COVID-19 is believed to be 60% more transmissible than the original one. The UK reported over 7,500 new cases in the past 24 hours, a record high since February.

Technical Analysis

USDCAD (Daily Chart)

USDCAD is still trapped between the 1.20 to 1.215 interval, but recently things got slightly different. Regardless of the climbing oil price and slumping Treasury yield, Loonie has been traded higher for three consecutive days, mostly due to the market’s consensus that the upcoming US CPI data will be reported higher than last month and forced Fed to reconsider tapering. Apart from that, the trading volume of the pair shrink to around 100k since last week, combined with an optimistic MACD histogram, also implies the investor’s positive attitude toward Fed’s future policies.

Resistance: 1.215, 1.225, 1.237

Support: 1.20, 1.192

EURSEK (Daily Chart)

EURSEK has fallen under a downward trajectory since the beginning of April. After the plummet on June 4th resulted from disappointing Europe Retail Sales data, the pair is now traded well below its SMA20, and the downside traction toward the 10.00 level will be reinforced if European Central Bank (ECB) decides to continue stimulus payments in their Monetary Policy Statement. The technical indicators seem to move in tandem with the fundamentals. The MACD histogram appears negative, while the RSI indicator hovered beneath 50.

Resistance: 10.10, 10.20, 10.30

Support: 10.00, 9.875, 9.75

GBPJPY (4-Hour Chart & Daily Chart)

The GBPJPY cross plunged 85 pips yesterday. The heavy selling pressure came from the UK’s failure to reach an agreement with the EU in the post-Brexit talks. Moreover, the spread of the Delta variant of coronavirus arose speculations that British policymakers may postpone lockdown lift on June 21, further driving the pair down. GBPJPY breached its 20-day SMA earlier today, the daily MACD histogram turned negative earlier this week, but the daily RSI indicator remains in the bullish territory. The mixed technicals imply that the buying power is still resilient, given the underlying uncertainties from the upcoming Tokyo Olympics.

Resistance: 155.30, 156.70

Support: 154.48 153.88