Durable goods orders cast doubts on business investment

Durable goods orders for the month of May disappointed, delivering a blow to the greenback this morning. Down 1.1% from a month prior, it was the second consecutive monthly decline and the biggest drop in six months.

Durable goods orders are important because they track demand for goods that will last 3+ years, such as motor vehicles and appliances. These products often require more sizeable investments and are thus more sensitive to economic outlook.

Core capital-goods orders – a widely used indicator of business investment – fell 0.2%, the first decline of 2017. As the economic outlook remains uncertain and we’ve seen little headway on policies such as tax cuts, businesses may be reticent to take action until the forecast is a little less cloudy.

Central bank speak

Central banks in the limelight once again this week. Although we saw an unusually slow session Monday morning with many countries observing Eid or local bank holidays, we’re expecting a fair amount of volatility as the week progresses. Read more about what to expect in our Weekly Updates on the blog.

Fed Chair Janet Yellen will appear Tuesday, speaking in London about global economic issues. The ECB Forum – Europe’s equivalent of the Jackson Hole summit – begins today in Sintra, Portugal. ECB President Mario Draghi will give an introductory speech at the event, but we are focusing on a panel Wednesday with four central bank heads – Mario Draghi, the Bank of England Governor Mark Carney, Kuroda-san of the Bank of Japan, and Canada’s Stephen Poloz. These heavy-hitters will be closely watched, but also look out for other policymakers for any deviation from the usual grind.

New alliances

UK Prime Minister Theresa May has secured a deal that will give her authority in Parliament. May has aligned her Conservative Party with the Democratic Unionist Party (DUP) of Northern Ireland. In exchange for the DUP’s support on key votes, Northern Ireland will receive 1.5 billion pounds over the next two years.

This alliance was crucial for the Prime Minister, who lost an outright majority in Parliament in the general election. Together, the two parties will have a two-seat majority in the House of Commons, giving them the ability to pass legislation.

The DUP is expected to support the Prime Minister a few key votes: The Queen’s Speech, the budget, Brexit, and national security.

EURUSD: Euro higher after an agreement to rescue two insolvent Italian banks.

GBPUSD: Sterling made a strong recovery after news broke that Theresa May had formalized an agreement to align her party with Northern Ireland’s DUP – and it only costs £1.5 billion.

AUDUSD: Aussie dollar significantly higher as commodity prices recover and risk-appetite bubbles to the surface.

USDCAD: Canadian dollar moves higher with oil prices as the USD remains bid after disappointing durable goods orders in May.

USDJPY: This is one of the few currencies against which the dollar has been able to sustain gains. Higher risk appetite is driving money out of the yen, pushing USDJPY into the mid-115s.