BoE hike a close call

Thursday August 2: Five things the markets are talking about

The Bank of England is more likely than not to hike interest rates +25 bps to +0.75% this morning (07:00 am EDT), but this has only recently become a closer call.

June’s BoE meeting minutes showed that three out of nine MPC members voted to raise rates, opening the door wide for a hike at today’s meet – futures are pricing a +91% odds.

Note: With those odds, the danger with today’s decision is if the BoE don’t go, then sterling (£1.3080) should plummet, otherwise the priced-in hike should have a limited impact.

However, for the ‘doves’ since then, June inflation has been lower than expected, earnings growth has slipped, and political and Brexit uncertainties are very much more heightened.

For the ‘hawks,’ the U.K economy continues to grow in line with, or slightly above, and employment is on the rise, two good reasons that should provide sufficient justification for a rate rise.

Elsewhere, global equities are a sea of ‘red’ ahead of the U.S open as President’s Trumps latest threats to free trade again has rattled markets – Trump is considering increasing proposed levies on +$200B in Chinese imports to +25% from +10%.

The ‘big’ dollar has found support, while sovereign bonds trade mixed as central banks policy decisions dominate proceedings. In commodities, oil prices touch a new two-week low on U.S crude inventories supply concerns, while gold prices remain choppy.

1. Stocks have little support

Global stocks are on the back foot amid heightened concerns over the escalating trade dispute between the U.S and China.

In Japan, equities again felt the impact from the slide in the broader Asian markets following Trump’s latest proposal on China imports. The Nikkei share average has pulled back from Wednesday’s two-week highs, as Chinese stocks fell sharply. The index ended the day down -1.03%, while the broader Topix fell -1%.

Down-under, Aussie shares slid overnight, pulled down by global miners – BHP and Rio Tinto. The S&P/ASX 200 index fell -0.6%. In S. Korea, the Kospi index also weakened on trade escalation worries. At the close, the index was down -1.6%, pressured mostly by major electronics and steel sector shares.

In China and Hong Kong, stocks extended their previous day’s losses as trade war fears, along with a Chinese vaccine scandal and signs of slowing domestic growth continue to undermine investor confidence.

At the close, the Shanghai Composite index was down -2% and the blue-chip CSI300 index fell -2.3%.

In Hong Kong, the Hang Seng index and the China Enterprises Index both ended down -2.2%.

In Europe, most regional bourses see red on geopolitical worries. Germany’s export-heavy DAX has already fallen -1.2% and this despite a declining EUR (€1.1617).

U.S stocks are set to open ‘deep’ down (-0.4%).

Indices: Stoxx50 -1.1% at 3,470, FTSE -0.8% at 7,588, DAX -1.8% at 12,516, CAC-40 -0.7% at 5,461; IBEX-35 -1.0% at 9,700, FTSE MIB -1.30% at 21,507, SMI -0.4% at 9,136, S&P 500 Futures -0.4%

2. Oil steadies to trade higher after losses, gold choppy

Ahead of the U.S open, crude oil prices have steadied after losses over the past two-days from a surprise increase in U.S crude inventories and renewed concerns over Sino-U.S trade friction.

Brent crude futures are up +16c, or +0.2%, at +$72.55 a barrel, after dropping -2.5% yesterday. U.S West Texas Intermediate (WTI) crude futures have rallied +6c, or +0.1%, to +$67.72 a barrel. They fell -1.6% yesterday.

Yesterday’s EIA report showed that U.S crude inventories rose +3.8M barrels last week as imports jumped. The market was expecting a drawdown of -2.8M barrels.

However, providing some support on pullbacks is ongoing tensions between the U.S and Iran.

Gold prices are small better bid, recovering from the yesterday’s session fall, supported by a weaker USD/JPY (¥111.44). Spot gold is up +0.2% at +$1,218.23 an ounce, after losing -0.65% Wednesday. U.S gold futures are little changed at +$1,226.70 an ounce.

3. Sovereign yields fall

Fears of an escalating trade dispute between the U.S and China is triggering a fall in some sovereign bonds yields.

In the Eurozone, German and French yields in particular have pulled back from their two-month highs as demand for safe-haven debt grows on trade fears.

In Germany, the 10-year Bund yield has eased -1 bps to +0.48%, while in the U.K, the 10-year Gilt yield has backed up +1 bps to +1.37%, the highest in seven-weeks.

Stateside, with the Fed leaving short-term interest rates unchanged yesterday, an upbeat assessment of the U.S economy’s performance would suggest another rate increase is likely at the next meeting in September. The market is pricing in an additional two rate rises by year-end.

4. Turkish lira at a new record low

With global risk appetite dwindling on global trade concerns is benefiting the U.S dollar. Also providing support for the greenback are rate differentials, aided by the Fed emphasizing yesterday, the U.S economy’s strength in a statement following its expected ‘no rate hike’ decision.

Overnight, the Turkish lira (TRY) has slid to a new record low outright of $5.0822 and is looking to go even lower. Year-to-date, brings its loss outright above -24% after the White House announced yesterday it would sanction the country over the detention of a U.S pastor.

Turkish inflation figures for July will be released tomorrow, and the market expects another acceleration. If so, this would be another negative factor for the TRY after the Central Bank of the Republic of Turkey (CBRT) recent decision not to hike their key interest rate.

GBP (£1.3071) is softer ahead of today’s anticipated “dovish” rate hike by the BoE.

In Japan, the BoJ demonstrated its flexibility in it policy performing an unplanned purchased in the 5-10-year JGB range during the Asian session that helped to cap rising JGB yields. Officials commented that it acted to meet target of keeping the 10-year JGB curve around 0.00% with the operation. USD/JPY (¥111.57) is a tad softer on ‘risk aversion’ trading.

Finally, the offshore yuan has hit its weakest level outright in more than 14-months ahead of the open after China said it would retaliate against the U.S on trade. The Chinese currency lost -0.6% to ¥6.8654.

5. Euro area industrial producer prices rise

Data this morning from Eurostat show that in June, industrial producer prices rose by +0.4% m/m in both the euro area (EA19) and the EU28. Year-over-year, prices rose by +3.6% in the euro area and by +4.4% in the EU28.

Digging deeper, the increase in the euro area is due to rises of +1.1% in the energy sector, of +0.4% for intermediate goods and of +0.1% for durable consumer goods, while prices remained stable for capital goods and for non-durable consumer goods. Prices in total industry ex-energy rose by +0.2%.

In the EU28, the increase is due to rises of +1.2% in the energy sector, of +0.4% for intermediate goods and of +0.1% for capital goods, durable and non-durable consumer goods. Prices in total industry ex-energy rose by +0.2%.

Forex heatmap

FOMC : Pardon the interruption

FOMC: Pardon the interruption

The FOMC interlude was even less of an event than expected but that belies some of the headline risk creeping back into play, as the market has been waiting for a Whitehouse press release on China tariffs which has left investors to speculate if this will confirm the overnight chatter the US is proceeding with USD 16 bln in tariffs.

US equities market have struggled all NY session despite a strong showing by Apple as US-China trade headlines started to sound alarms from the NY cash markets open.

On the other trade front, however, Canada and Mexican officials are “harnessing the power of trade agreements to promote higher wages” undoing some of the aggressive US rhetoric that was suggesting the US administration was on the cusp of freezing Canada out of NAFTA talks.

Oil Markets

Oil had been moving lower all session on the back of reports OPEC and Russian crude oil production rose during July, while a larger than expected DOE inventory build confirmed the API reports from Tuesday. While not quite as large as the API survey suggested it was still very bearish correlative to market expectations. US Crude oil exports have\ fallen right off the table from last week 2.7 million barrels per day to only 1.3 million barrels per day while clocking the slowest reading since April.

Oil traders were caught long and wrong by the surprising increase in OPEC production and more significant than expected  US Crude inventory builds. The downward spiral halted when headlines surfaced the Iran Revolutionary Guard was planning a substantial exercise within 48 hours in the Persian Gulf in a show of force to bespeak its ability to close Strait of Hormuz, a primary oil artery.

Gold Prices

Gold prices have had another down day. Outside of some short covering into the FOMC, the yellow metal has been trading offered from the get-go with selling showing few signs of abating. US 10 year yields are trading above 3 % while the Feds are set to raise interest rates next time around which is lending support to the USD. Given that Gold is more or less trading at the dollar mercy and with USDCNH inching towards 6.84 in late NY trade gold is heading lower.

Currency Markets

JPY:  The Yen has traded stronger today in part due to JGB yields moving higher. But with US stock markets trading with offered bias, a tinge of risk aversion is creeping in the USDJPY space.

Trade war angst trumps Fed rate decision

Wednesday Aug 1: Five things the markets are talking about

Over the past fortnight, fixed income, forex and the commodities market have become rather boring and range bound. Will today’s Fed monetary policy announcement be the facilitator to end this market consolidation?

Futures prices would suggest rather strongly that, nope, there is nothing new to be seen this afternoon. It’s what you would call a “continuity” meeting, with little fanfare and maybe, but unlikely, a comment on trade tensions.

Capital markets may have to wait until Friday’s non-farm payroll (NFP) for some action, but that could even be a stretch as market participants historically head for the hills for holidays. Only liquidity tends to be a real concern this time of year. U.S payrolls are predicted to show a healthy labor market, with +190K new jobs.

Dominating today’s U.S central bank meet is conflicting signs over the state of the Sino-U.S trade relations. It’s again pulling markets in different directions on rumours that the Trump administration is expected to announce this morning plans to propose tariffs of +25% instead of the initially proposed +10% on +$200B of imported Chinese goods.

Both equities and commodities are struggling on these headwinds to trade after China threatened to hit back if the U.S hikes tariffs. The dollar has found some traction, while JGB’s lead sovereign debt lower.

1. Stocks mixed reaction

In Japan, the Nikkei rallied overnight to trade atop its two-week high, supported by strong earnings for blue chips such as Sony and Sharp and the yen’s slide (¥112.02) to a 10-day low outright. The Nikkei ended the day up +0.86%, it’s highest since July 20, while the broader Topix closed out +0.94% higher.

Down-under, in a muted session, Aussie stocks finished slightly lower as the heavily weighted banks weighed. A late retreat left the S&P/ASX 200 settle down -0.07% after Tuesday’s +0.03% gain. In S. Korea, the Kospi index edged up +0.51% overnight while the market awaits the outcome today’s Fed meeting, despite fears of an escalation in U.S-China tariff war.

In China, stock selling accelerated, leaving the market a noted regional underperformer earlier today. After posting its best month since January with a +1% gain, the Shanghai Composite slid -1.8% to log its worst day in three-weeks, while the Shenzhen Composite fell -1.7%. Weighing again were vaccine makers and as the Sino-U.S trade war looked set to escalate with the threat of higher U.S tariffs.

In Hong Kong, shares ended lower also, dragged by property developers, and as weak data and an escalating trade war dimmed the outlook for growth in the mainland. At close of trade, the Hang Seng index was down -0.85%, while the China Enterprises Index lost -0.5%.

In Europe, regional bourses trade mixed in a range bound trade with the FTSE 100 an outlier trading over -0.6% lower, weighed down by mining names.

U.S stocks are set to open little changed.

Indices: Stoxx600 -0.2% at 390.8, FTSE -0.8% at 7681 DAX -0.1% at 1278, CAC-40 +0.1% at 5518, IBEX-35 -0.3% at 9840, FTSE MIB -0.5% at 22101, SMI Closed, S&P 500 Futures flat

2. Oil under pressure on U.S inventories, OPEC supply, gold lower

Oil prices have slipped again this morning pressured by a market report yesterday that U.S stockpiles of crude rose unexpectedly and by higher OPEC production, adding to indications of abundant supply.

Brent crude prices fell -85c to +$73.36 a barrel, while U.S crude is down -73c at +$68.03.

Note: Last month, Brent fell more than -6% and U.S crude slumped about -7%, the biggest monthly declines for both benchmarks in 24-months.

Yesterday, the American Petroleum Institute (API) said crude inventories rose by +5.6M barrels last week. The market was expecting a decrease of -2.8M.

Expect dealers to take their cues from today’s EIA report at 10:30 am EDT.

Ahead of the U.S open, gold prices are lower, pressured by a stronger U.S dollar on rising trade war fears and ahead of today’s Fed rate announcement. Spot gold is down -0.2% at +$1,220.77 an ounce. The yellow gained slightly on Tuesday on a weaker USD/CNH after a report that the U.S and China were trying to restart negotiations to defuse a potential trade war. U.S gold futures are -0.3% lower at +$1,220.10 an ounce.

3. Sovereign yields look to back up

Fed fund futures are currently pricing in an 80% chance of a rate hike in September and a “hawkish” FOMC statement that echoes the optimism of Fed Chair Powell will leave the market convinced that there will be at least one and possibly even two more rounds of tightening this year – December is the final candidate.

Today’s Fed statement will most likely highlight the underlying strength of the economy and the uptick in inflation and a ‘hawkish’ Fed should also raise the markets hopes that Friday’s non-farm payroll (NFP) report will be strong with wage growth rising and the unemployment rate falling.

Elsewhere, Japan’s benchmark 10-year JGB yield has backed up to +0.131%, an 18-month high as the fixed income dealers test the BoJ’s resolve after the central bank said it will allow for greater flexibility in yield moves.

Earlier this morning, the Reserve Bank of India (RBI) raised its repurchase rate by +25 bps to +6.50% as expected and leaves its cash reserve ratio (CRR) at +4%. The decision was not unanimous – 5:1 vote. Tomorrow, in the U.K, Governor Carney is expected to hike interest rates by +25 bps despite ongoing Brexit worries.

4. Will the Fed impact the dollar?

Today’s Fed rate announcement is not expected to have a material impact on the USD outright. No rate rise is expected until September (odds of +80% already baked in) as domestic U.S data has not changed much since the forecast update at the June meeting.

For the Fed, its challenge going forward is communication – how will Powell and company move away from regular rate rises without their actions being interpreted as a sign of a weaker growth outlook?

The Fed has been raising rates every three-months, but with rates currently between +1.75% and +2.0%, they are encroaching on the “neutral” rate of +3% quickly.

Note: There is no press conference today, maybe it will be explained away next month.

Elsewhere, summer holidays are kicking in and that leads to ranges consolidating, something we have been witnessing over the past fortnight. EUR (€1.1679) CHF ($0.9920) and GBP (£1.3113) are little changed outright and today’s FOMC decision is seen as unlikely to buckle the trend.

However, USD/JPY (¥112.00) continues to move higher, supporting the “carry-trade” after Tuesday’s BoJ rate decisions and the bank’s pledge to keep interest rates “extremely low” for an extended time.

5. U.K manufacturing starts Q3 on softer footing

Data this morning from Markit showed that U.K Manufacturing PMI were at a three-month low in July. There were weaker increases in both output and new orders and intermediate goods production falls for first time in two- years. Price pressures also remained elevated as a strong increase in average input costs led to the steepest rise in selling prices in four-months.

The seasonally adjusted IHS Markit/CIPS PMI fell to 54.0 in July, down from 54.3 in June and well below the highs achieved around Dec/Jan of this year. The PMI remains comfortably above its long-run average of 51.8.

Last month saw the weakest rate of expansion in U.K manufacturing output in 16-months, as production growth was hindered by an easing in the pace of increase in new orders.

Digging deeper, the domestic market was the main focus of the slowdown in new business growth, as new export work increased at the fastest pace for six months.

Forex heatmap

Dollar Higher Ahead of Fed Meeting OANDA Market Beat Podcast

OANDA Senior Market Analyst Alfonso Esparza reviews the major upcoming market news, macro analysis and economic indicator releases that will impact currencies, stocks other asset classes. Joining him this week is OANDA’s Vice President of Research Dean Popplewell

Subscription available on iTunes https://goo.gl/TZEWRW and GooglePlay https://goo.gl/cRBk39. Tune in every Tuesday and don’t miss a beat as we cover the hottest trends impacting the markets in the week ahead. Trading is high risk. Losses can exceed investment.

Wall of worry builds around the US tech sector 

Wall of worry builds around the tech sector 

US equity markets continue to absorb Facebook’s swoon which is weighing down FAANG’s ahead of Apple earnings announcement on Tuesday. Indeed the markets heavyweight champions are having a rough day, but US markets pruned much of their losses as bank stocks and surging oil prices boosted producers. But all eyes will remain on NASDAQ as the Wall Street wall of worry continues to build around the tech sector.

Interest rate markets are predictably in flux ahead of the numerous central bank announcements this week with the BOJ tomorrow, the US FOMC on Wednesday and the BOE on Thursday. No one is expecting any rate changes, but as always the statements will be closely analysed for any shifts in policy.

But the US dollar is still suffering a bit of a GDP hangover after squeezing higher vs G-10 peers on whisper numbers that were running exceptionally hot. But in the GDP  aftermath, the USD bears continue to remind that 4.1% print was below consensus but more significantly, core PCE came in below expectations  And while the GDP print keeps the Fed on a path for two more rate hikes in 2018, the markets are not buying in wholeheartedly given the lack of inflationary pressures.

Oil Markets

Oil markets are starting the week on a very positive tone with prices trading bid throughout the NY session as supply concerns are making headlines once again  Both Brent and WTI contracts are seeing strong support after three UK oil fields, Alwyn, Dunbar and Elgin are shutting down due to labour strikes. All the while middle east geopolitical tensions recur as Saudi Arabia continues to halt their shipments via the vital Red Sea shipping lanes as ongoing attacks from Houthi rebels take their toll.

Also, Trump’s auto plan continues to influence prices as the rollback in US efficiency requirements is projected to increase fuel consumption by some 500 K barrels per day.

Gold Markets

The markets are trying to turn bullish on the hope for some type of relief rally, but prices remain entirely at the fate of the US dollar. The Yuan has continued to weaken throughout the day and has pressured prices lower.  It’s taking little to spook gold longs suggesting as the markets remain decidedly bearish ahead of the critical central bank decisions.

Currency Markets

Not making much of current price actions given summertime liquidity feel to FX markets as the subtle ebb and flows are more apt to little more than position driven given the tricky calendar of events in the days ahead. And to complicate matters, month end is approaching with quant signals suggesting USD selling portfolio adjustments.

USDJPY still hovering around 111 ahead of the highly anticipated BoJ policy meeting. And while it’s unlikely the BoJ will lay a summertime hawkish horror story on the markets, there has been enough noise to suggest that something is afoot. And while USDJPY could gap higher on the lack of hawkish inference, but the markets will likely continue to bank on a fall review which should temper upside moves. At this point, the general market consensus is for a downgrade on CPI forecast to 1.5 % from 2 %

USDCAD with WTI surging, its been playing positively into CAD trading sub 1.300 before midday profit-taking set in and WTI traded off intraday highs.

EURUSD: The Euro has been trading firmer today on the back of higher EU Zone yields suggesting we could see a move to the top side of the current ranges.

GBPUSD: Cable has been rangy” but with the lack of Brexit noise Sterling shorts are being pared.

AUDUSD: The Aussie short remains a crowded trade but with month-end dollar selling likely to develop into month end shorts are getting covered.

USDCNH Spot continues to move higher even though the fix was lower than market expectation. There is little news, but the lack of progress on the trade war front coupled with little pushback from the PBoC suggests the USDCNH has room to run higher.

USDMYR: Oil prices have been mildly supportive, but the MYR continues to be weighed down by the weaker Yuan and uncertainty over trade war. But with the plethora of central banks taking the stage this week. The local trader is waiting to take their cues from both BoJ and the FOMC forward guidance.

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

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

Dollar Rebounds in Anticipation of Q2 GDP Release

The US dollar is higher across the board against major pairs on Thursday. The first estimate of second quarter gross domestic product (GDP) in the US will be published on Friday, July 27 at 8:30 am EDT by the Bureau of Economic Analysis. The dollar gained ground on the euro after the European Central Bank (ECB) held interest rates unchanged as expected but said rates would be steady a year from now. The first release of GDP data for the second quarter is released 30 days after the end of the quarter with economists and analysts expecting it to be one of the best quarters in recent years. How good will the final number be has been the subject of commentary from President Trump and other members of his administration while some forecasters are lowering their estimates after a disappointing durable goods order data point.

  • US 2Q GDP forecasted at 4.1 percent
  • President Trump has told associates GDP is around 4.8 percent
  • Some forecasters have cut their estimates due to recent soft data

EUR Lower as ECB Plays it Safe

The EUR/USD lost 0.57 percent on Thursday. The single currency is trading at 1.1661 after the central bank kept rates and the quantitive easing program unchanged. The July meeting was almost a beat for beat replay of the June meeting, leaving investors with almost no new information. There was no clear guidance on the vague meting of summer of 2019 as the time horizon to lift rates.



The US GDP release will be the main market event of the week as it could come in above 4 percent. There is an open debate between economists on how much did the Trump tax cuts influenced the positive momentum. The U.S. Federal Reserve is scheduled to meet for two days next week. There are no expectations of a rate lift, but the data has so far validated the two rate hikes and more to come.

The meeting between Donald Trump and Jean-Claud Juncker was a win for the USD as it seemed Europe had conceded to American demands even if the goal is to reach zero tariffs. With trade tensions easing the market turned to monetary policy and growth divergence ahead of the Q2 GDP release on Friday morning.

The USD will face a serious challenges in August. Central banks are expected to close the monetary policy gap and retaliations from China on trade could end up hurting the American economy in the long term. Politics will also add some uncertainty to the US dollar as midterm elections approach with a forecasted Democratic win that change the power dynamics in Washington.

Brexit Fears Overpower BoE Rate Hike Expectation

The GBP/USD lost 0.59 percent on Thursday. The currency pair is trading at 1.3110 as the USD rebounded from yesterday’s losses. The Bank of England (BoE) is heavily anticipated to lift rates next week after the last monetary policy committee had three members who dissented from holding rates. Investors are pricing in a 81 probability of higher interest rates on Thursday but the divorce between the United Kingdom and Europe put more pressure on sterling.



The lack of an unified front within the Conservative party on which Brexit to pursue has left Prime Minister Theresa May with just eight months to figure out a lot of issues. The GBP has fallen as more uncertainty grips investors hopes of a comprehensive trade deal that keeps the UK as a participant of the single market.

Loonie Lower Despite NAFTA Optimism

The USD/CAD gained 0.20 percent in the last 24 hours. The currency pari is trading at 1.3072 ahead of the release of the second quarter GDP data in the US. The pair almost touched 1.32 at the at the beginning of the week, but a rebound from the loonie took the currency to near 1.3050. The optimism surrounding the NAFTA renegotiation was behind most of the move with the Canadian currency touching a six week high. The meeting between US President Trump and EU Commission chief Jean-Claude Juncker had a positive outcome although it was scarce on details and did not directly address the tariffs on steel and aluminum that will remain in place.



The change in leadership in Mexico gave the locked NAFTA negotiations a chance for a fresh start. The comments from advisors to elected-president Andres Manuel Lopez Abrador have been pro-NAFTA and the Trump administration came out in support of a quick resolution. It is unclear if the US is willing to drop the two more contentious issues it has pushed on the table, the sunset clause and the higher American percentage of US parts on autos. U.S. Trade Representative Robert Lighthizer has said that the negotiation is in its finishing stages, but so far the biggest issues remain up in the air.

Market events to watch this week:

Friday, July 27
8:30am USD Advance GDP q/q

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

Draghi’s assessment at ECB press conference

The ECB has made no changes to its policy or forward guidance, and comments during the press conference are likely to confirm the bank’s optimistic but cautious stance.

“Prudence, Patience, Persistence Will Continue to Guide Policy”

Draghi’s assessment in press conference:

  • Urges “Decisive Steps” to Complete Banking Union, Capital Mkt Union
  • Monetary Analysis Confirms Need for Ample Degree of Stimulus
  • Recovery in Private-Sector Loan Growth Ongoing
  • Underlying Inflation Expected to Rise Gradually Over Medium Term
  • Underlying Inflation Expected to Pick up Towards Year-End
  • Uncertainty Concerning Inflation Outlook Receding
  • Domestic Cost Pressures Strengthening
  • Underlying Inflation Remains Generally Muted Despite Recent Pick Up
  • Headline Inflation to Hover Around Current Level until Year-End
  • Rise in HICP in June Reflects Higher Energy Prices
  • Risk of Heightened Fincl Market Volatility Warrants Monitoring
  • Risks Related to Global Factors Remain “Prominent”
  • Data Point to Growth in Line With Staff Estimates
  • Expansion in Global Demand Should Continue, Underpinning Exports
  • Econ Growth Expected to Remain Solid, Broad-based
  • ECB Stands Ready to Adjust All Instruments if Needed
  • Significant Stimulus Still Needed to Underpin Inflation
  • Incoming Data Consistent With Solid, Broad-based Growth
  • Exchange Rate is No Policy Target
  • Euro Has Appreciated Considerably in Last 1.5 Yrs Despite Ample Stimulus

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