G7 FX moves look to central banks for direction

Monday July 30: five things the markets are talking about

Stocks begin a new week under pressure, as investors mull over some lofty corporate earnings and a number of key policy meetings.

A host of G10 central banks are on tap to offer their monetary policy decisions – the Bank of Japan (BoJ), Reserve Bank of India (RBI), Bank of England (BoE) and the Federal Open Market Committee (FOMC).

Up until last week, capital markets were not expecting any changes to the BoJ’s policy. Nonetheless, Japanese policy committee are supposedly mulling over some adjustments to policy to help their banking sector – 10-year JGB yields have backed up from +0.035% to +0.10% in anticipation of tomorrow’s announcement.

Elsewhere, the BoE is expected to increase its policy rate by +25 bps even amid Brexit gloom, while the RBI is 50/50 on higher rates. The Fed is expected to leave its fed funds rate unchanged. However, look for any indications that U.S policy makers are shying away from two-more interest-rate hikes before the end of this year.

In currencies, the onshore yuan extended last week’s slump, while the ‘big’ dollar ticked higher alongside U.S Treasury yields as metals decline while crude oil prices advance.

On the fundamental front, it’s a heavy week for economic data with the week ending with Friday’s U.S non-farm payrolls (NFP).

On tap: BoJ monetary policy (July 30/31), CAD GDP, U.S consumer confidence & NZD employment (July 31), Fed monetary policy, GBP manufacturing PMI & AUD Trade balance (Aug 1), BoE monetary policy, U.K inflation report & AUD retail sales (Aug 2), CAD Trade balance & U.S non-farm payroll (NFP) (Aug 3)

1. Stocks see ‘red’

In Japan, stocks closed lower overnight as possible changes this week in the BoJ’s monetary policy weighed on sentiment, while quarterly earnings were also in focus. Japan’s Nikkei share average closed down -0.74%, while the broader Topix fell -0.43%.

Down-under, Australia’s S&P/ASX 200 closed down -0.4% following Friday’s 11-year closing high, with health care down -1.1%. In S. Korea, the Kospi stock index and the won weakened overnight ahead of key central bank meetings and U.S inflation and payrolls data. At close, the index was down -0.06%.

In Hong Kong and China, stock indexes closed weaker overnight, pressured by a slump in healthcare shares. In Hong Kong, the Hang Seng index ended down -0.25%, while the Hang Seng China Enterprises index was unchanged. In China, the blue-chip CSI300 index fell -0.2%, while the Shanghai Composite Index slipped -0.1%.

In Europe, regional bourses trade a tad lower, tracking their Asian counterparts as bond yields rise.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.2% at 391.2, FTSE -0.2% at 7683 DAX – 0.2% at 12831, CAC-40 -0.40% at 5492, IBEX-35 flat at 9870, FTSE MIB -0.1% at 21,932, SMI +0.1% at 9183, S&P 500 Futures -0.1%

2. Oil prices edge higher but trade row caps gains, gold lower

Oil prices are better bid with the U.S benchmark WTI moving higher after a month of declines, but gains remain capped as the fallout from trade tensions weigh on markets.

Brent crude futures rose +13c, or +0.2% to +$74.42 – it rose +1.7% last week, the first gain in four. U.S West Texas Intermediate (WTI) crude futures are up +31c, or +0.5%, at +$69 a barrel. WTI fell -1.3% on Friday.

The U.S economy grew at its fastest pace in nearly four-years in Q2, but trade tensions remain high between U.S and China despite an easing between the U.S and the E.U.

Last Thursday, Saudi Arabia said that it was “temporarily halting” all oil shipments through the strategic Red Sea shipping lane of Bab al-Mandeb after an attack on two oil tankers by Yemen’s Iran-aligned Houthi movement.

Note: An estimated +4.8M bpd of crude oil and refined petroleum products flow through this waterway towards Europe, the U.S and Asia.

According to Baker-Hughes data last week, U.S. energy companies added three oilrigs in the week to July 27, the first time in the past three weeks that drillers have increased activity.

Ahead of the U.S open, gold prices have eased a tad on a former U.S dollar ahead of key central bank meetings and U.S inflation and payrolls data this week. Spot gold is down about -0.3% at +$1,219.70 an ounce. U.S. gold futures are also -0.3% lower at +$1,219 an ounce.

3. Yields back up

Japanese government bond prices fell overnight, with the benchmark 10-year yield touching its highest level in 18-months as the market tries to test the BoJ’s intention ahead tomorrow’s decision.

Higher yields has forced the BoJ to conduct a “special bond buying operation” to stem rising bond yields amid growing expectations that Japanese policy makers could adjust its policy. On Friday the BoJ lowered the yield to +0.10% – still, the 10-year JGB yield rose to as high as +0.11% earlier this morning, in defiance of the BoJ’s apparent defence line.

Note: Some believe that the BoJ could possibly announce it would allow larger moves in the JGB market by loosening its interpretation of its policy target of “around zero percent” in the 10-year yield.

Elsewhere, the yield on 10-year Treasuries rallied +1 bps to +2.96%. In Germany, the 10-year yield decreased -1 bps to +0.40%. In the U.K, the 10-year yield fell -1 bps to +1.282%, the biggest fall in more than a week.

4. Dollar in control

Major currency pairs are trading in a tight range as the markets focus turns to central bank meetings this week.

EUR/USD (€1.1663) is steady as a plethora of German States reports their July CPI data, which for the most part saw the year-over-year above the consensus for the national reading. The ‘single’ unit could not find much traction, despite the 10-year Bund hitting a six-week high near +0.43%.

USD/JPY (¥111.10), again its steady and holding above the psychological ¥111 handle ahead of tomorrow’s BoJ rate decision. Overnight, the BoJ conducted a fixed-rate JGB Bond Purchase operation – an unlimited amount of 5 to 10-year JGB’s at +0.10% (its third operation within the past week).

Elsewhere, the EUR/SEK (€10.2419) fell by -0.6% as Sweden Q2 preliminary GDP beat expectations and kept the timeframe intact for the Riksbank to hike rates around year-end.

5. U.K consumer lending stable in June

U.K data this morning showed that the British consumer borrowing remained broadly stable last month, which would suggest another month of steady growth in household spending.

Bank of England (BoE) data showed banks lent £5.4B to consumers in June, net of repayments, a touch higher than the £5.3B in May.

Borrowing on credit cards and other unsecured forms of lending was flat at £1.6B, while mortgage lending inched higher.

Digging deeper, the number of new home loans approved by lenders in June also rose compared with May, to +65,619.

Note: An uptick in mortgage lending offer signs that potential homeowners may be seeking to finalize their purchases before further hikes in borrowing costs this week.

The BoE is expected to lift its benchmark interest rate to +0.75% (Aug 2).

Forex heatmap

Dollar marks time in Asia as traders consider a busy data week

Traders scale back activity ahead of data/event rush

A busy data week culminating in the monthly US jobs report and approaching month-end all conspired to keep traders in Asia sidelined and currencies range-bound at the start of the week. Traders were also mulling the aftermath of US GDP data release on Friday which showed the US economy growing 4.1% on an annualized basis in Q2. The US dollar struggled to get any kind of lift from the strong data as analysts and commentators immediately looked towards Q3 numbers, which are expected to be nowhere near as buoyant. That didn’t stop US Treasury Secretary Mnuchin from saying that he believed the US economy could sustain growth of at least 3% for the next 4-5 years.

Dollar Mixed Ahead of Busy Week in the Market

Japan retail spending ticks up as BOJ meets

The only data releases in Asia were second-tier. Retail trade in Japan rose 1.8% y/y, above economists’ forecasts of a 1.6% gain while large retailers’ sales posted positive growth for the first time in three months. USD/JPY was mostly steady, rising 0.09% while EUR/JPY gained 0.04%. AUD/USD was mostly sidelined, holding close to the 0.74 handle with a slide of 0.13% to 0.7391.

Gold continues to hover near one-year lows as latest data from Chicago shows speculative investors reduced their net long gold positions in the week to July 24. Oil prices extended Friday’s slide, easing down to $69.50

See the MarketPulse data calendar here: https://www.marketpulse.com/economic-events/

Markets on Central Bank watch

The Bank of Japan starts its two-day meeting today, the first of many to follow during the week. There is mounting speculation that the BOJ will discuss an adjustment to its JGB target rates and possibly scaling back its investments in ETFs that track the Nikkei. When it comes to old-fashioned monetary policy, analysts are unanimous in their view that there will be no change in rates, with the possibility of allowing the 10-year JGB yield to move above zero percent, which is its current target level. The 10-year yield is trading at 0.11% today and notably has held above 0% since September last year.

The Bank of England is seen hiking rates by 25 bps to 0.75% even though inflation appears to be on a downward tack and data fails to be convincing while the FOMC is not expected to result in any rate changes, more a confirmation that a September hike is still very much on the cards. The Reserve Bank of India is also expected to increase its benchmark rate while Brazil’s central bank is seen standing pat.

Japan 10-Year JGB Yield Chart

Source: Bloomberg (https://www.bloomberg.com/quote/GJGB10:IND)

Dollar Mixed Ahead of Busy Week in the Market

The US dollar is mixed on Friday against major pairs. The US economy grew at a 4.1 percent pace on the second quarter according to the first estimate. The number came in right on the forecast which had no positive effect for the USD, but it did validate the U.S. Federal Reserve decision to keep a tighter monetary policy with two more rate hikes in the horizon this year. The week from July 30 to August 30 will be full to the brim featuring monetary policy announcement from the Bank of Japan (BOJ) the Fed, the Bank of England (BoE) and the release of jobs data in the United States.

  • US Fed forecasted to stand pat on Wednesday
  • Bank of England (BoE) expected to hike by 25 bps
  • US could have added close to 200,000 jobs in July

EUR Falls on Dovish ECB and Political Tension

The EUR/USD lost 0.51 percent in the past five days. The single currency is trading at 1.1659 after the European Central Bank (ECB) did not provide any additional information at the end of its monetary policy meeting in July. The statement was almost a word for word recreation of the June document offering no insights for investors on when the central bank is willing to start lifting rates. The growing gap between US interest rates and European rates and an impressive growth rate in the second quarter in America gave the edge to the US dollar.



US President Trump said on Friday that the US will beat the current pace of growth going forward. The strong fundamental data will be vital for Republicans as they face midterm elections in the fall. Politics in Europe continue to add uncertainty as Italy’s Five Star founder once again is seeking a referendum on euro membership.

The U.S. Federal Reserve is not expected to announce any changes on Wednesday when it wrap up its August meeting. The next rate move is expected in September, which a more than 90 percent probability of a hike if inflation and growth continue in their current trends.

Loonie Rises on NAFTA Optimism

The USD/CAD lost 0.64 percent in the last week. The currency pair is trading at 1.3058 in a week that saw trade war concerns ease. The NAFTA and EU-US trade conversation both had positive sound bites this week. Incoming Mexican President was eager for a quick NAFTA renegotiation and he was echoed by the Trump administration. Canada and Mexico made sure to be clear that a trilateral negotiation is needed as the US has been pushing for two bilateral sit downs.


Canadian dollar weekly graph July 23, 2018

The loonie reached its higher level in six weeks on Wednesday amidst rising oil prices despite multiple evidence of ample supply. Disruptions in Saudi Arabia and the ongoing uncertainty with Iranian crude continue to push prices higher.

The main Canadian economic events during the week will be the release of the monthly GDP report on Tuesday and the Trade balance on Friday.

Yen Higher Ahead of Bank of Japan

The USD/JPY lost 0.43 percent in the last five trading sessions. The currency pair is trading at 110.95 ahead of the July 31 Bank of Japan (BOJ) policy meeting. The central bank has remained on the sidelines for most of the year and its most active contribution was to remove inflation targeting in April. The BOJ has in place an easing monetary policy that includes bond buying to keep 10 year bond yields under control.



There is a possibility that the BoJ will change the extreme form of its QE program on Tuesday, but it remains small given the lack of strong economic indicators out of Japan. Inflation continues to struggle and the economy contracted in the first quarter of 2018 so at this point it remains unlikely that the Bank of Japan would join the group of central banks who are scaling back their quantitive easing efforts.

GBP Awaiting BoE Rate Hike

The GBP/USD lost 0.08 percent during the week. The currency pair is trading at 1.3116 amid political tension due to Brexit with three consecutive weekly losses. The Brexit deal that was presented to the EU, a hard fought battle for Prime Minister Theresa May and for which hard core Brexiteers resigned, was knocked back by EU Brexit negotiator Michel Barnier. Key elements were rejected outright, even both parties still cling to an October deal.



The GBP lost despite heavy anticipation of a rate hike by the Bank of England (BoE) on super Thursday. The market is pricing in a 81 percent probability of a 25 basis points rate lift to 0.75 percent. Last meeting there were three dissenters that opposed holding rates. Despite a higher interest rate the comments from Bank of England Governor Mark Carney will be in focus as he could add a dovish tone as political uncertainty will surely make the job of protecting the UK economy harder.

Market events to watch this week:

Tuesday, July 31
10:00am USD CB Consumer Confidence
Wednesday, August1
4:30am GBP Manufacturing PMI
8:15am USD ADP Non-Farm Employment Change
10:00am USD ISM Manufacturing PMI
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pmUSD Federal Funds Rate
Thursday, August2
4:30am GBP Construction PMI
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
7:30am GBP BOE Gov Carney Speaks
Friday, August3
4:30am GBP Services PMI
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate
10:00am USD ISM Non-Manufacturing PMI

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

U.S dollar firmer on GDP expectations

Friday July 27: Five things the markets are talking about

Euro stocks have found some traction after a mixed performance overnight in Asia, as investors remain upbeat over the tentative trade truce between the U.S and the E.U.

President Trump and E.C Commission President Juncker agreed, in principle, not to impose new tariffs while the two economies sorted out their differences. The truce comes as Sino-U.S trade relations remain on edge.

Aside from corporate balance sheets, capital markets remains focused on trade and central bank policy – BoJ (July 30), Fed (Aug. 1) & BoE (Aug. 2).

Today’s advanced U.S GDP will be an important print (08:30 am EDT) – Trump and his economic team are convinced that the GDP numbers will be strong.

Trumps advisers have been privately telling associates that GDP growth should rise to +4.3% or +4.4% for Q2. The President is even more optimistic, telling anyone who will listen he expects a +4.8% headline – anything close and the president will be accused of leaking data. The danger for the U.S dollar is a weaker headline print below +4%.

This morning’s U.S data may provide support for the Fed’s tightening path, while in Japan, reports suggest the BoJ is debating ways to reduce the side effects of their yield-curve control policy.

Note: The ECB indicated yesterday that it will stick to its plan to end bond purchases and pledged to keep interest rates unchanged “at least through the summer of 2019.”

1. Stocks mixed results

In Japan, equities closed higher overnight, taking solace from signs of reconciliation between the U.S and Europe over trade issues. The benchmark Nikkei share average hit a one-week closing high and ended the week +0.56% firmer. The broader Topix ended +0.57% higher.

Down-under, the Aussie’s stock benchmark topped early July’s best in notching another eleven-year closing high – the S&P/ASX 200 rose +0.9% as BHP Billiton rose +2.3%. In S. Korea, the Kospi cooled following Thursday’s outperformance, but still rose further, allowing the index to narrowly avoid a sixth-decline in seven-weeks. It rose +0.3%, both today and on the week.

In Hong Kong, stocks ended flat as expectations of more stimuli from Beijing offset worries over a China economic slowdown. The Hang Seng index rose +0.1%, while the China Enterprises Index gained +0.2%.

In China, bourses ended down overnight, as investors remain cautious amid concerns over the Sino-U.S trade friction. The blue-chip CSI300 index ended -0.4% down, while the Shanghai Composite Index closed -0.3% lower.

In Europe, regional bourses are pushing higher, continuing the positive momentum, with largely positive earnings helping fuel sentiment.

U.S stocks are set to open ‘unchanged’.

Indices: Stoxx600 +0.1% at 391.1, FTSE +0.2% at 7681 DAX +0.3% at 12846, CAC-40 +0.0% at 5480, IBEX-35 +0.9% at 9866, FTSE MIB +0.3% at 21,932, SMI +0.1% at 9153, S&P 500 Futures flat

2. Oil markets ease after three days of gains, gold higher

Oil prices are a tad lower in quiet trading after three-days of gains, but took support from Saudi Arabia halting crude transport through a key shipping lane, falling U.S stock levels and easing global trade tensions.

Brent futures are down -5c at +$74.49 a barrel – it’s heading for a near +2% gain this week, the first weekly increase in four. U.S West Texas Intermediate (WTI) futures are -5c lower at +$69.56, after rising nearly +0.5%on Thursday. The contract is heading for a -1.3% weekly loss, a fourth-week of declines.

On Thursday, Saudi Arabia said that it was “temporarily halting” all oil shipments through the strategic Red Sea shipping lane of Bab al-Mandeb after an attack on two oil tankers by Yemen’s Iran-aligned Houthi movement.

Note: An estimated +4.8M bpd of crude oil and refined petroleum products flow through this waterway towards Europe, the U.S and Asia.

This week’s EIA report showed that crude inventories fell -6.1M barrels in the week to July 20, compared with a market expectation for a decrease of -2.3M barrels.

Ahead of the U.S open, gold prices have edged a tad higher overnight as the dollar slipped against G10 pairs ahead of U.S GDP data that could shed light on the pace of rate hikes stateside. Spot gold is up +0.1% at +$1,223.96 an ounce. U.S gold futures, for August delivery are -0.2% lower at +$1,223.20 an ounce.

Note: The ‘yellow’ metal is on track for its third consecutive weekly decline.

3. Euro yields barely move

Eurozone government bond yields have barely moved in this week’s post-ECB meeting environment, even as the central bank stopped short of providing details on reinvestments. The 10-year Bund yield is trading at +0.40%, unchanged on the day.

Note: Later this morning, both France and Spain are scheduled to announce details of their respective auctions for next week.

Stateside, U.S bond prices are a tad weaker, falling after the ECB said it would hold its benchmark interest rate steady and the U.S. reported progress on a revamped Nafta agreement.

The yield on the benchmark 10-year Treasury note is at +2.975%, up from 2.936% Thursday.

Yesterday, Draghi confirmed the ECB’s plans to gradually phase out easy-money policies, but signalled the central bank would likely hold interest rates steady until the end of next summer. The move continues to highlight a widening policy divergence with the Fed.

4. Dollar firmer on GDP expectations

The USD is firmer on high expectations for this morning’s U.S Q2 GDP with some speculation of a +4.4 to +5% print.

After this morning’s release, the markets focus will quickly shift to next week’s BoJ’s policy meeting (July 30/31), which could prove to be significant for the JPY (¥111.19) as some analysts believe that BoJ could opt to raise the 10-year government bond yield target from +0.0% to +0.1%. Nevertheless, the majority believes that Japanese policy makers will keep its policy steady after authorities again conducted a fixed-rate JGB Bond purchase operation (second operation this week) to keep their yield control target around +0.00%.

EUR/USD (€1.1625) trades sideways in the aftermath of the ECB policy decision with the pair remaining stuck in the tight €1.16-1.17 range it has been for the past month.

5. French consumer spending sluggish in June

Data this morning showed that French consumer spending was lethargic last month, with household expenditure staying ‘virtually flat,’ according to statistics agency Insee.

Digging deeper, consumer spending rose +0.1% on month in June, well below market expectations for a rise of +0.5%.

Spending was up +0.3% on year – the agency also revised May’s figure for household expenditure on goods to +1.0% from +0.9%. Consumption in food and energy was stable in June, with a slight rise in engineered goods and a slowdown in durables.

Forex heatmap

Yen buoyed as inflation tops estimates

Tokyo prices rise most in four months

This morning’s release of consumer prices in Tokyo saw the biggest rise in four months. Prices rose 0.9% y/y, beating economists’ estimates of a mere 0.5% increase by a large margin. Prices in June were 0.6% higher than a year earlier. This contrasts with the national reading for June which showed a below-forecast 0.7% gain. Excluding food and energy, the price rise was a more modest 0.5% y/y.

NOTE: Japan releases two sets of inflation data. A national one, which has a lag of one month, and one for just Tokyo, which is more current.

In the currency markets, the yen was given a little boost across the board post-data though there was perhaps more reaction in the bond markets. The 10-year JGB yield touched 0.1% for the second straight session. Last Monday, the Bank of Japan announced its first special fixed rate bond auction since February, offering to buy 10-year bonds at 0.11%. The Bank announced unchanged tenors and amounts at its last daily bond auction before the rate meeting on Monday/Tuesday next week.

USD/JPY Daily Chart

Source: Oanda fxTrade

Bank of Japan to change QQE plan?

Also fueling the rise in Japan yields is speculation that the Bank will make changes to its bond yield targets at next week’s meeting. Observers suggest that quite often when it comes to the Bank of Japan, there is no smoke without fire. Some suspect that they may be testing the waters for such a move later in the year. Analysts reckon that any shift higher in yields, or a steepening of the yield curve, would be beneficial for Japanese banks and financial institutions.

10-Year JGB Yield Chart

Source: Bloomberg.com

ECB sticks to its plans

At yesterday’s rate meeting, the ECB maintained its stance to end bond purchases by the end of the year and pledged to keep interest rates static at least through the summer of 2019 before considering a tightening bias. The EUR did slide versus the dollar after the press conference, though this could also be attributed to gains in the US dollar ahead of today’s release of US Q2 GDP data.

Dollar Rebounds in Anticipation of Q2 GDP Release

US Q2 GDP data on tap

The main event on today’s data calendar will undoubtedly be the release of US Q2 GDP data. Estimates suggest growth accelerated to 2.3% q/q from +2.2% in Q1, while the annualized figure is seen jumping to 4.0% from 2.0%. Apparently, a top Trump official has been telling Republicans to expect a “blockbuster GDP number” while Trump himself has commented he’d be happy with a number 4 in front. Other data releases include German import prices and US personal consumption expenditure prices for Q2.

You can see the full MarketPulse data calendar at: https://www.marketpulse.com/economic-events/

Trump and Juncker to set the dollar’s tone

Wednesday July 25: Five things the markets are talking about

Euro equities have found some support, following Asian stocks as earnings season continues, although trade tensions remain to the fore ahead of today’s meeting between President Trump and E.C chief Jean-Claude Junker.

Most G10 currency pairs trade in a tight range awaiting today’s development from the U.S/EU meeting. In fixed income, most U.S Treasuries prices have edged a tad higher along with E.U government bonds.

Markets are struggling to build on Tuesday’s upbeat session as trade relations worries between the world’s biggest economic powers return to the fore.

Elsewhere, the AUD (A$0.7419) has had a mixed reaction with G20 currency pairs after inflation data missed estimates last night, backing the case for the Reserve Bank of Australia (RBA) to keep interest rates at a record low. The pound (£1.3155) is currently on to gains initiated by PM May taking control of Brexit talks.

In commodities, crude prices are higher, supported by lower inventory levels.

On tap: As the week continues, more corporate earnings come on line, while the ECB’s monetary policy will be the markets focus on Thursday. On Friday, Trump and his economic team are increasingly convinced the GDP numbers will be strong – he expects Q2 GDP to rise to as much as +4.8%!

1. Stocks get the green light

Overnight, Japanese stocks rallied for a second consecutive session, supported by gains in steelmakers and metal producers, as the market welcomed China’s pledges of a more forceful fiscal policy.

The benchmark Nikkei share average rallied +0.46%, expunging a significant of Monday losses on hearsay reports that the BoJ may adjust its policy at next weeks monetary policy meeting (July 30/31). The broader Topix gained +0.47%.

Down-under, Aussie stocks underperformed as the major banks faltered again following a soft CPI print. The S&P/ASX 200 fell -0.3%, with only the resources sectors showing a meaningful gains, supported by higher commodity prices. In S. Korea, the Kospi struggled overnight, barely getting back into positive territory. The benchmark fell -0.3% to move back toward its 14-month lows. Drug stocks were a noted sore point, while tech stocks eliminated those declines.

In Hong Kong, stocks rallied overnight led by the energy sector as investor sentiment improved on signs that the PBoC is loosening monetary and fiscal policies to prevent a domestic economic slowdown. The Hang Seng index rose +0.9%, while the China Enterprises Index also gained +0.9%.

In China, equities ease after three-straight days of gains. The blue-chip CSI300 index ended down -0.1% while the Shanghai Composite Index also eased -0.1%.

In Europe, regional bourses trade mixed amid another busy day for earnings.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.1% at 388.0, FTSE -0.6% at 7659, DAX -0.2% at 12662, CAC-40 +0.2% at 5444, IBEX-35 -0.3% at 9742, FTSE MIB +0.1% at 21,897, SMI +0.1% at 9016, S&P 500 Futures -0.1%

2. Oil rises as U.S crude inventories fall, gold higher

Oil prices remain supported after U.S data yesterday showed that domestic crude inventories fell more than expected last week, easing worries about oversupply.

Global benchmark Brent crude was up +50c, or +0.7% at +$73.94 a barrel, after gaining +0.5% yesterday. U.S light crude is +5c higher at +$68.57, having risen nearly +1% in its previous session.

API data yesterday showed that U.S crude inventories fell by -3.2M barrels in the week to July 20 to +407.6M barrels. Consensus was expecting a decrease of -2.3M barrels.

Dealers will take their cues from today’s DoE report (10:30 am EDT).

Ahead of the U.S open, gold prices have inched higher as the ‘big’ dollar held steady ahead of today’s U.S and E.C meetings. Spot gold is up +0.2% an ounce. U.S. gold futures for August delivery are +0.1% higher.

3. Yields play in a tight range

Most sovereign bond yields continue to consolidate as dealers search for fresh impetus to head in a new direction. The economic calendar provides no new hints ahead of tomorrow’s ECB meeting.

However, today’s meeting between E.C Commission President Jean-Claude Juncker and President Trump could fuel further trade concerns, while cross-market themes and the lack of market liquidity can still provide erratic price moves.

The yield on U.S 10-year Treasuries has dipped -1 bps to +2.94%. In Germany, the 10-year Bund yield has fallen -1 bps to +0.39%, while in the U.K, the 10-year Gilt yield has decreased -1 bps to +1.264%.

4. FX markets trade sideways

The FX market trades in a tight range ahead of the today’s key Trump/Juncker trade talks stateside.

The EUR/USD (€1.1703) is slightly higher, but contained within this months trading range. E.U data continues to take the back-stage ahead of tomorrows ECB policy decision.

Note: The ECB is widely expected to leave its key policy settings and guidance unchanged after it announced its plans for monetary policy beyond September last month

USD/JPY (¥111.14) is holding above the psychological ¥111 level as fixed income dealers price-in that the BoJ would not likely make any policy changes until at least October.

Elsewhere, China is letting the yuan slide primarily to combat a slackening economy, as the government rolls out more pro-growth measures amid an intensifying trade feud with the U.S.

5. German July Ifo business expectations lowest in four-months

German data this morning revealed that domestic business expectations fell further this month, albeit only marginally, according to the Ifo Institute’s monthly survey.

While the Ifo measure of the current business situation improved a bit, the expectations component hit its lowest level in two-years.

The Ifo business-climate index fell to 101.7 from 101.8 in June.

Note: It marks the lowest reading in 16-months.

“The German economy continues to expand, but at a slower pace,” said Clemens Fuest, the president of the Ifo Institute.

Digging deeper, uncertainty about global trade policy remains high, with potential tariffs on the auto sector being a key concern for Germany.

Forex heatmap

U.S dollar boosted by higher Treasury yields

Tuesday July 24: Five things the markets are talking about

Overnight, Euro bourses along with U.S equity futures have edged a tad higher on the back of a plethora of positive corporate earnings boosting investor sentiment.

Also, China’s determination to support the world’s second largest economy has helped to support various risk assets in the Asia session overnight. Is there another cut to its reserve-requirement ratios (RRR) coming? China needs to shore up economic growth in the face of an actual trade war.

In FX, the EUR (€1.1695) is little changed, supported by German data showing that they have so far resisted worries over disruption to trade. In China, the People’s Bank of China (PBoC) guided the Yuan to new 12-month lows.

U.S Treasuries have backed up a tad along with Euro sovereign bonds.

Elsewhere, crude oil prices trade atop of its recent lows, while gold prices are steady.

On tap: As the week continues, more corporate earnings come on line, while the ECB’s monetary policy will be the markets focus on Thursday. On Friday, Trump and his economic team are increasingly convinced the GDP numbers will be strong – he expects Q2 GDP to rise to as much as +4.8%!

1. Stocks see the light

Shares in Asia rallied on news China will increase spending on infrastructure among other measures to bolster growth.

In Japan, the Nikkei share average bounced overnight, reducing Monday’s losses as the yen’s (¥111.23) rally stalled exporters. The Nikkei ended the day up +0.51%. The index had fallen -1.3% the previous session as the yen soared outright. The broader Topix rallied +0.47%.

Down-under, Aussie shares rallied on Tuesday as firmer commodity prices supported material stocks, while financials followed its Wall Street peers. The S&P/ASX 200 index rose +0.6% at the close of trade. The benchmark fell -0.9% on Monday. In S. Korea, the Kospi stock index rose overnight, up +0.48%, in line with its Asian peers, while the won tumbled ahead of Friday’s U.S advanced GDP growth.

Note: South Korea’s Kospi has experienced the weakest H1 in five-years – down -5.7%.

In China, government bond yields and equities rallied overnight after authorities promised to pursue a more ‘vigorous’ fiscal policy, in an effort to support growth amid rising economic headwinds. The blue-chip CSI300 index rose +0.9% while the Shanghai Composite Index ended up +1.1%. In Hong Kong, the Hang Sang index rose +1.44%, while the China Enterprises Index gained +0.5%.

In Europe, regional indices trade higher across the board, supported by generally strong manufacturing PMI data and upbeat earnings from European names.

U.S stocks are set to open in the ‘black’ (+0.2%).

Indices: Stoxx600 +0.9% at 388.2, FTSE +0.7% at 7710, DAX +1.4% at 12718, CAC-40 +0.9% at 5424, IBEX-35 +0.7% at 9794, FTSE MIB +1.1% at 21,893, SMI +0.4% at 8992, S&P 500 Futures +0.2%

2. Oil is steady as U.S/Iran row balances trade worries, gold lower

Oil prices remain little changed as rising tension between the U.S and Iran highlight potential risks to supply, while escalating trade disputes raised the prospect of slower economic growth and perhaps weaker energy demand.

Brent crude oil is unchanged at +$73.06 a barrel, while U.S light crude is up +15c at +$68.04.

Note: Both benchmarks have fallen this month as crude supplies from Russia, Saudi Arabia and other members of the OPEC have increased and unscheduled production losses have eased.

To date, market sentiment remains driven by geopolitical worries in the Middle East or that Trump’s trade dispute with G7 economies could dampen global growth.

Note: Iran, OPEC’s third-largest producer is pumping +3.75M bpd, has come under increasing U.S pressure, with President Trump pushing countries to cut all imports of Iranian oil from November.

Ahead of the U.S open, gold prices have edged down overnight on a firmer dollar and a rise in U.S Treasury yields and as the markets reaction to the dispute between the U.S and Iran remains somewhat muted. Spot gold is down -0.3% at +$1,220.27 an ounce, while U.S gold futures for August delivery are -0.4% lower at +$1,220.20 an ounce.

3. Sovereign yields continue to back up

The Nikkei has suggested that politics could be a factor at the BoJ upcoming July 31 policy decision. It suggests that political considerations could pressure the central bank to take action at the July meeting, as a policy decision at the September meeting could influence the LDP leadership elections.

It also notes that Japan has regional elections in April 2019, while in October of 2019 the consumption tax is expected to rise to +10% from +8% – consensus believes the further you look out the ‘curve’ the more difficult it will be to make changes to policy.

In Canada, sovereign bond prices fell yesterday after positive economic data weakened the markets demand for the safety of government debt. Yields on the 10-year Treasury note were recently at +2.22% after it was reported that Canadian wholesale trade rose +1.2% m/m in May.

Note: Last Friday saw better than expected Canadian data – annual inflation had reached a new six-year high, boosting market expectations for another rate increase from the BoC this year.

Elsewhere, the yield on U.S 10-year notes have gained +1 bps to +2.96%, the highest in almost six-weeks. In Germany, the 10-year Bund yield rallied +1 bps to +0.42%, the highest in almost five-weeks. In the U.K, the 10-year Gilt yield climbed +3 bps to +1.298%, the highest in two-weeks.

4. China fixes yuan at fresh one-year low

Overnight, the U.S. dollar has regained some strength, boosted by rallying Treasury yields.

Elsewhere, Chinese officials guided the yuan -0.4% weaker outright, fixing the Chinese currency at a fresh one-year low. The PBoC set the dollar’s midpoint for daily trading at ¥6.7891, compared with ¥6.7593 Monday. The ‘mighty’ dollar ended onshore trading yesterday at ¥6.7834.

EUR/USD (€1.1685) has reversed some of its initial losses in the Euro session as the major PMI manufacturing data beat expectations. The Euro upside has been limited in the belief that the ECB is on hold regardless of any incoming data.

USD/JPY (¥111.23) is holding above the psychological ¥111 handle as the market debates the prospect of a possible tweaking the BoJ’s policy on July 31.

GBP/USD (£1.3109) trades atop of its recent lows as BoE member, Anthony Broadbent, stated that he was not sure if whether he would vote for rate hike next month.

5. German growth strongest since February

July data saw a further pick-up in the rate of growth of Germany’s private sector economy from a 20-month low in May to a five-month high, driven by a stronger increase in manufacturing output.

The IHS Markit Flash Germany Composite Output Index rose to 55.2 in July from 54.8 in June, to signal a second successive monthly acceleration in the rate of growth in private sector business activity.

Digging deeper, new order growth also gathered pace, while private firms continued to add staff and price pressures intensified.

Note: By sector, services business activity increased at a solid rate that was little changed from June, while manufacturing output growth was the fastest since April.

Forex heatmap

BoJ easing talk sends bond yields up

Signs that the Bank of Japan (BoJ) might scale back its monetary stimulus faster than expected sent tremors through bond markets on Monday, while European stocks slipped as threats of further U.S. tariffs on China drained risk appetite.

Europe’s bond yields climbed after a Reuters report that the BoJ was discussing modifying its huge easing programme sent Japan’s 10-year bond yield to a six-month high.

The report rekindled anxieties about monetary stimulus easing around the world and piled further pressure on investors already struggling to navigate rising protectionism.

The yield on Europe’s benchmark bond, the German 10-year Bund, hit a one-month high of 0.39 percent and U.S. 10-year Treasury yields also hit their highest in a month at 2.90 percent.

The yen climbed to two-week highs against the dollar and was last up 0.2 percent at 111.14 per dollar.

“It’s all that concern investors have about the move from global quantitative easing to global quantitative tightening. That fear gets stoked when you have reports such as this,” Psigma Investment Management’s head of investment strategy, Rory McPherson.

“The ECB meeting this week will be more in focus now that we’ve had this concern about Japan.”

The dollar index meanwhile bounced back, up 0.1 percent from two-week lows hit after U.S. President Trump criticised the Federal Reserve’s tightening policy and accused the European Union and China of manipulating their currencies.

“We see the latest news on trade policy as pointing to continued high risk of escalation between the U.S. and China, and a renewed focus of the Trump Administration on currency matters,” Goldman Sachs analysts said.

Beijing said it has no intention of devaluing the yuan to help exports.

Trump’s comments about rates also helped the Treasury yield curve reach its steepest in three weeks. The yield curve’s flattening has been seen by some as a sign of an impending recession.

The U.S. president’s new threats to slap duties on all $500 billion of U.S. imports from China triggered sell-offs across stock markets, though good earnings kept a lid on losses.

The MSCI all-country world index declined just 0.1 percent while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2 percent.

Reuters

Trade and currency wars a market threat

Monday July 23: Five things the markets are talking about

A new week starts with equities under pressure as capital markets digest warnings from G20 finance ministers about the impact of protectionism on growth – “risks to the world economy have increased.”

Also raising concerns is the Sino-U.S trade war is now spilling over into currency markets with President Trump rhetoric supporting the U.S administration preference for lower U.S dollar interest rates and a weaker currency.

Elsewhere, the yen (¥111.00) has found support while JGB’s slid on speculation about Bank of Japan’s (BoJ) stimulus. Crude prices trade a tad softer amid concern the escalating trade rows will destabilize energy demand.

On tap: an E.U Trade Commission is due to arrive stateside this week for trade talks. Expect some tough questions, demands and their own list of retaliatory measures in response to proposed U.S tariffs. The highlight of the week should be Thursday’s European Central Bank (ECB) monetary policy meeting.

1. Stocks start the week under pressure

Japan’s Nikkei fell to a ten-day low overnight, with exporters under pressure by the yen’s (¥111.00) rally and by market speculation that the Bank of Japan (BoJ) could wind back its exchange-traded fund purchases. The Nikkei ended the day down -1.33%.

Note: The market is speculating that the BoJ could debate changes in its monetary policy at its upcoming meeting, with potential tweaks to its interest rate targets and stock-buying techniques on the table.

Down-under, Aussie shares fell on President Trump’s threat to impose tariffs on all Chinese imports. The S&P/ASX 200 index declined -0.9% at the close of trade. The benchmark gained +0.4% on Friday. In S. Korea, it was a similar story. The Kospi fell about -1% overnight following Trump’s comments about tariff’s and the currency last week.

In China, stocks rallied on Monday, aided by strength in financials and industrial stocks, but a slump in healthcare shares capped the broader gains. The blue-chip CSI300 index rose +0.9% while the Shanghai Composite Index ended up +1.1%.

In Hong Kong, it was a similar story. Stocks rose slightly overnight, as declines in tech and consumer shares were offset by strength in financials. The Hang Seng index rose +0.1%, while the China Enterprises Index gained +0.5%.

In Europe, regional bourses are trading mostly lower across the board, following a mixed session in Asia. The Italian FTSE MIB is in focus following weakness in shares of Fiat and Ferrari after the stepping down of its CEO Sergio Marchionne due to health.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.1% at 385.1, FTSE -0.4% at 7651, DAX -0.1% at 12549, CAC-40 -0.3% at 5382, IBEX-35 +0.2% at 9743, FTSE MIB -0.1% at 21,775, SMI -0.5% at 8947, S&P 500 Futures -0.1%

2. Oil steady after G20 warns of risks to growth, gold higher

Oil prices have stabilized as worries over production losses were outweighed by concerns that trade disputes would reduce economic growth and hit global energy demand.

Benchmark Brent crude oil is up +15c at +$73.22 a barrel, while U.S light crude is unchanged at +$68.26.

G20 Finance ministers over the weekend called for more dialogue to prevent trade and geopolitical tensions from hurting growth as “downside risks over the short and medium term have increased.”

Note: Baker Hughes data on Friday showed that U.S energy companies last week cut the number of oil rigs by the most since March following recent declines in oil prices. Drillers cut five oilrigs in the week to July 20, bringing the count down to 858.

Ahead of the U.S open, gold prices are steady atop of a one-week high as the dollar eased to a two week low after President Trump criticised the Fed’s interest rate tightening policy. Spot gold holds steady at +$1,231 an ounce. U.S gold futures for August delivery are nearly unchanged at +$1,231 an ounce.

3. Japan yields in focus

JGB’s have sold-off along the curve on reports late Friday that the BoJ might consider changes to interest rate targets. The market is speculating that the BoJ might be willing to let 10-year JGB yields (+0%) rise to some degree including a possible hike of the target level. Overnight, JGB 2-, 10- and 30-year yields were higher (+1.8, +4.5, and +8.0 bps respectively).

BoJ officials said to be looking for ways to keep stimulus program sustainable while reducing the harm it causes to markets and bank profits.

Note: The BoJ stepped in to buy unlimited bonds at a fixed rate of +0.11%, to cap the move.

On tap for this week: The ECB monetary policy meeting is on Thursday, no policy stance expected, but the market is looking for clarification on their first potential rate hike.

Elsewhere, the yield on 10-year Treasuries gained less +1 bps to +2.90%, the highest in more than a month, while in the U.K; the 10-year Gilt yield advanced +1 bps to +1.232%.

4. Dollar under pressure from Trump rhetoric

The ‘mighty’ USD maintains its softer tone after President Trump criticized the Fed for raising interest rates and suggested the USD was too strong.

Aside from currency Twitter rants, the markets focus this week will be on the ECB rate decision and press conference on Thursday. Consensus is ‘not’ anticipating any policy change in the short to medium term, however, the markets will be on the lookout for any clarification on the first potential rate hike. The EUR/USD is still flipping alternately between moves towards €1.16 and over €1.17 in response to news on the trade row, given the lack of clear direction.

GBP (£1.3124) continues to remain vulnerable to “headline risk,” but consensus believes a lot of negativity seems to be already priced. With parliament in recess, sterling has the potential to stage a modest retracement from its current area.

5. G20 communiqué

In their final communiqué yesterday from their meeting in Argentina, finance ministers and central bankers from the G20 economies said, “Heightened trade and geopolitical tensions pose an increased risk to global growth” and called for greater dialogue.

“Global growth remains robust and unemployment is at a decade low. However, growth has become less synchronised recently, and downside risks over the sort and medium term have increased,” said the communiqué.

Forex heatmap

Dollar weaker at the start of the week as G-20 comments on trade wars

Heightened fears of a switch to currency war rather than trade war

The US dollar continued its softer bias in Asian trading as investors mulled whether we are heading towards a currency war rather than a trade war. The yen benefitted the most, rising as much as 0.61% versus the greenback, closely followed by the Euro and the Kiwi. Currencies still took their cue from Trump’s Friday outrage that China and Europe were manipulating their currencies lower to the detriment of the US. The threat of a currency war on top of a trade war seems that much closer, even though Trump himself categorically said “no” when questioned about the prospects of a currency war. Treasury Secretary Mnuchin also chipped in to allay concerns.

It’s War – Trade and Currency

G-20 Communique warns risks to growth have increased

The statement released at the end of the weekend G-20 summit in Buenos Aires stated that global economic growth remains robust however it highlighted that short and medium term risks to growth have increased amid trade and geopolitical issues. It urged those involved to increase dialogue and actions to mitigate risks.

France’s Finance Minister admitted that a trade war had already started and, if the US imposes more tariffs, then the EU will have no choice but to retaliate. Adding that France is eager to work on a full renewal of the WTO, the European Commission will not make a formal proposal on trade talks until the US takes the first step by withdrawing steel and aluminium tariffs.

In a press interview after the summit, US Treasury Secretary Mnuchin commented that the US was ready to make a trade deal with China if it shows sincere willingness to make meaningful changes. He also commented that the US was closely monitoring Yuan weakness for signs of manipulation.

Japan yields firm up

There was some movement in the longer end of the Japan yield curve amid mounting speculation that the Bank of Japan may consider changes to its interest rate targets at the next meeting on July 31. 10-year yields rose 5bps to near 0.09% in the session and seemed to jolt the BOJ into action, holding its first fixed rate operation since February. The bank offered to buy unlimited amount of 10-year JGBs at 0.11%. It currently has a 1-year control curve target of 0%.

 

10-Year JGB Yield

Source: Bloomberg.com

 

 

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Oanda Market Insigts