Investors learned last week that the US created 1.38 mln net new jobs in H1, the most for a six-month period since 2006. They learned that US vehicle sales in June also reached an 8-year high. For its part, the ECB emphasized that the TLTRO facility could inject around 1 trillion euros into the banking system for loans to businesses and households. It also announced that the rules of engagement will allow banks that already work closely together to tap the TLTRO facility collectively.
In Japan, the Tankan was mixed as sentiment among large businesses deteriorated a little more than expected, but capex plans increased. Separately, data showed that overall household consumption collapsed in May, warning that the impact of sales tax increase, coupled with base wages and return on savings not keeping pace with inflation, may have compress demand longer than Japanese officials may appreciate.
These developments were not game changers. The dollar remains within the two yen range (JPY101-JPY103) that has largely confined the price action since early April. It recovered into the middle of that range with the help a 10 bp net increase in US Treasury yields. At 207 bp, the US premium is at its 200-day moving average. The dollar managed to resurface above its 200-day moving average against the yen (~JPY101.80) and finish the week above it.
The euro has been confined to a two cent range ($1.35-$1.37) for the past six weeks. The decline from near $1.40 appears to have be participants anticipating the June rate cuts. The euro was actually stronger against the dollar before the ECB’s July meeting than it was at the June meeting.
If last week’s developments were not able to break the dollar out of its ranges, the events in the week ahead are unlikely to either. The May industrial production reports from the largest euro area countries will likely confirm the general impression that investors already have. Germany has lost some momentum. Spain is performing well. France and Italy are struggling.
