Daily FX Update, 5 June 2015

OVERNIGHT MARKET UPDATE:

·         US initial jobless claims fell 8,000 to 276,000 in the final week of May and remain around 15-year lows, helping buoy optimism over a reasonable payrolls report (consensus +226,000). Following the downward revision to Q1 real GDP (-0.7%), US non-farm productivity was revised down to -3.1% vs -1.9% and unit labour costs spiked higher to 6.7% vs 5.0%.      

·         Fed Governor and FOMC voter Daniel Tarullo noted that Q1 GDP weakness can’t all be put down to weather, port strikes and seasonality, and that he is waiting to see signs of wage growth. These comments echo those made the previous day by fellow FOMC voter Brainard, who said that while there was “no doubt” that “bad weather, port disruptions, and statistical issues are responsible for some of the softness in first-quarter indicators of aggregate spending”, it may not fully explain the weakness.

·         Greek talks remain at an impasse, and German Chancellor Angela Merkel has said that “we’re still far from reaching a conclusion”. Greece has said it will defer a EUR301 million payment due to the IMF today (Friday), requesting instead to bundle all four payments due this month (totaling EUR1.7 billion) into a single payment on 30 June.

·         In the currency markets, the EUR wild ride continued with EUR/USD traversing a 300 pip range to end marginally lower. The USD shrugged off a pessimistic IMF Article IV assessment with mild strength, as markets await payrolls.               

·         Bond yields ended the session on lows in the major markets (US, Germany, UK), masking what had been a day of extreme volatility.        

·         Equity markets were weaker across the board in Europe and US.  

·         Energy markets were weaker. Renewed discussion around export levels from various OPEC members once again dominated oil markets. Prices came under pressure as Iraq joined the chorus, with its oil minister warning that its infrastructure was sound and oil facilities untouched from recent conflict with IS.                 

Gold prices sank to a five-week low after IMF slashed its forecast for US growth and warned that inflation remains elusive.