Oil Lower After IEA Says Supply Stretched to the Limit

Oil prices steadied on Thursday after sharp losses the previous session as the International Energy Agency (IEA) said the world’s oil supply cushion “might be stretched to the limit” due to production losses.

West Texas Intermediate graph

Benchmark Brent crude oil LCOc1 rose $1.70, or more than 2.3 percent, to a high of $75.10 a barrel before losing almost all its gains to trade at $73.60, up 20 cents, by 1340 GMT. On Wednesday, Brent had slumped $5.46 or 6.9 percent.

U.S. light crude CLc1 fell 30 cents to $70.08 a barrel, after losing 5 percent the previous session.

“Warnings from the IEA of a potential spare capacity crunch are helping the energy complex … following yesterday’s bloodbath,” said Stephen Brennock, analyst at London brokerage PVM Oil Associates.

via Reuters

Fed’s Mester Says US Economy Can Handle Two More Rate Hikes

Members of the Federal Reserve are telegraphing two more rate hikes this year, with Federal Open Market Committee voting member Loretta Mester on Wednesday repeating the central bank’s expectation for the next six months.

“The economy can certainly handle two more increases this year,” Mester, the president of the Cleveland branch of the Fed, said in an interview with The Wall Street Journal. “We could end up getting behind if we don’t keep moving things up, so I’m very comfortable, if the economy stays on the path it’s going that we move rates up as appropriate this year.”

When hiking its benchmark short-term interest rate a quarter percentage point in June, the Fed stated two more hikes would be appropriate in 2018. This would bring the year’s total to four. Despite this, traders are expecting just a 55 percent chance of a fourth hike in December — a little better than a coin flip and just 10 percentage points or so above the chances before the meeting. Those watching the markets center these comparatively low odds on the belief that the Fed will have limited room to move considering the dovish position of many of its global counterparts.

Mester said she expects the Committee to increase the fed-funds rate to 3 percent, from today’s range of 1.75 percent to 2 percent.

“We are still in an accommodative stance on monetary policy, and yet we have a very strong economy. And we’re very near our goals,” Mester said in the report. “To me, that’s a compelling case that we want to keep on this path” of gradually raising rates.”

via CNBC

Canadian Dollar Lower Despite BoC Hike and Hawkish Comments

The Bank of Canada raised interest rates on Wednesday, as expected, and said further gradual rate hikes will be warranted, but warned mounting trade tensions will have a larger impact on investment and exports than previously thought.

The central bank said the effect of tit-for-tat tariffs imposed by Canada and the United States will cause some difficult adjustments for industries and workers, but the impact of the tariffs on growth and inflation is expected to be modest.

usdcad Canadian dollar graph, July 11, 2018

The bank tweaked its standard language on future rate hikes, saying that while it will take a gradual approach guided by data, it is monitoring the economy’s adjustment to higher rates, the evolution of capacity and wage pressures as well as “the response of companies and consumers to trade actions.”

Pointing to a stronger-than-expected U.S. economy, the bank boosted its estimate of Canadian second-quarter growth to 2.8 percent from 2.5 percent forecast in April, but said growth will slow to 1.5 percent in the third quarter.

The bank said inflation is expected to pick up to about 2.5 percent before settling back to 2 percent by the second half of 2019, while wage growth is running at about 2.3 percent, “slower than would be expected in a labor market with no slack.”

via CNBC

US Mortgage Refinancing Drops to 8 Year Low

U.S. loan applications to refinance existing homes fell to their lowest in over 17-1/2 years even as most 30-year home borrowing costs fell last week, data from the Mortgage Bankers Association showed on Wednesday.

The Washington-based industry group said its seasonally adjusted index on homeowners’ requests for refinancing fell 3.8 percent to 958.5 in the week ended July 6. This was the lowest weekly reading since December 2000.

Refinancing’s share of weekly mortgage activity fell to its lowest since August 2008 at 34.8 percent of total applications. This compared with 37.2 percent the previous week, MBA said.

Interest rates on 30-year fixed-rate “conforming” home loans, whose balances are $453,100 or less, averaged 4.76 percent from 4.79 percent the week before, it said.

However, the average rate on 30-year loans backed by the Federal Housing Administration, which are often used by first-time home buyers or borrowers with patchy credit, rose to 4.80 percent from 4.78 percent the prior week.

via Reuters

GBP Falls After Johnson Resignation

Sterling slid on Monday after the resignation of the British foreign minister heaped pressure on Prime Minister Theresa May, but its losses were expected to be contained unless a full-blown leadership challenge materialized.

Boris Johnson followed Brexit minister David Davis in resigning in opposition to May’s hard-fought blueprint for how Britain is to structure its relationship with the European Union after its leaves the bloc in March.

That plan – announced on Friday – has been welcomed by markets, which believe it made the “soft Brexit” favored by businesses and investors more likely.

Sterling had traded higher before Johnson’s resignation as investors speculated May would find it easier to negotiate with Brussels without opponents to her vision of Brexit inside her cabinet.

via Reuters

Boris Johnson Resignation Puts Pressure on PM Theresa May

The resignation of U.K. Foreign Secretary Boris Johnson on Monday afternoon has led to suggestions that the British government is on the brink of collapse.

Johnson stepped down after Prime Minister Theresa May outlined her government’s desire for a softer version of Brexit. He is the second cabinet minister to resign within 24 hours after the U.K.’s main Brexit negotiator, David Davis, quit late Sunday night.

A statement released by Downing Street confirmed Johnson’s departure and said a replacement would shortly be announced. Later, in a statement to parliament, May thanked the “work” of Davis and “passion” of Johnson while noting their differences in opinion with her over Brexit.

That gratitude may not last long with many seeing the resignation as a pre-cursor to a leadership challenge, which would bid to topple May and replace her with a more ardent supporter of Brexit.

The prime minister would have to conduct a leadership contest if at least 48 of her own lawmakers were to move against her. The process for that involves politicians sending letters calling for a vote of confidence to the powerful 1922 committee of backbenchers.

via CNBC

GBP/USD – British pound slips after FM Johnson resignation

The British pound has posted slight losses in the Monday session. In North American trade, the pair is trading at 1.3247, down 0.28% on the day. On the release front, it’s a quiet start to the week, with no major events on the schedule. On Tuesday, the UK releases Manufacturing Production and trade balance.

The British government has plunged into crisis on Monday, following the stunning resignation of foreign secretary Boris Johnson. On Sunday, Brexit Secretary David Davis handed in his resignation, saying that the “Chequers Agreement” which the cabinet backed on Friday gave away too much to the European Union. Under that agreement, Prime Minister May presented concessions to the EU, with the UK agreeing to maintain current customs arrangement for manufacturing and agricultural products after Brexit. However, Brexit hardliners such as Davis and Johnson are against the agreement,  which they argue would force Britain to harmonize many of its regulations with Brussels. May is clearly in trouble, and this could mean turbulence for the British pound.

U.S employment data was a mix on Friday, as job growth remained above the 200-thousand level, but wage growth faltered. Nonfarm payrolls dropped to 213 thousand, but this beat the estimate of 195 thousand. Average Hourly Earnings edged lower to 0.2%, shy of the estimate of 0.3%. There was a surprise as the unemployment rate climbed to 4.0%, above the forecast of 3.8%. The data demonstrates that the U.S labor market remains strong, and the economy continues to perform well. The markets remain bullish on U.S growth, despite uncertainty in Europe and elsewhere, as well as the growing threat of an all-out trade war between the U.S and China.

  The trade war is finally upon us

  Wait-and-see as tariffs and payrolls loom  

  What does Davis resigning mean?


GBP/USD Fundamentals

Monday (July 9)

  • 3:50 BoE Deputy Governor Ben Broadbent Speaks
  • 15:00 US Consumer Credit. Estimate 12.2B
  • 19:01 British BRC Retail Sales Monitor

Tuesday (July 10)

  • 4:30 British Manufacturing Production. Estimate 1.0%
  • 4:30 British Goods Trade Balance. Estimate -11.9B
  • 10:00 US JOLTS Job Openings. Estimate 6.88M

*All release times are DST

*Key events are in bold


GBP/USD for Monday, July 9, 2018

GBP/USD July 9 at 11:05 DST

Open: 1.3285 High: 1.3363 Low: 1.3239 Close: 1.3247


GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2996 1.3088 1.3186 1.3263 1.3494 1.3613

GBP/USD ticked lower in the Asian session. The pair edged higher in European trade but has reversed directions and posted sharp losses in the North American session

  • 1.3186 is providing support
  • 1.3263 is a weak resistance line
  • Current range: 1.3186 to 1.3263

Further levels in both directions:

  • Below:  1.3186, 1.3088, 1.2996 and 1.2908
  • Above: 1.3263, 1.3494 and 1.3613

Edogan sworn in with increased powers

Recep Tayyip Erdogan will cap his years-long drive to transform Turkey’s government on Monday as he’s sworn in as an executive president with vastly expanded powers.

Erdogan, modern Turkey’s longest-serving ruler, will be sworn in at parliament late in the afternoon. In the evening, he’ll mark the inauguration of the presidential system at a grand reception attended by foreign dignitaries, before unveiling the members of a cabinet expected to be pared to 16 positions from the current 27.

The coronation of the presidential office as the nexus of political power takes place at a critical juncture. The 64-year-old president, who has governed since 2003, won a mandate in the June 24 elections to govern with sweeping new powers on the platform that a powerful presidential office would ensure stability in turbulent times. Those times have already arrived, with the economic boom he’s presided over threatening to turn into a bust, and a crackdown on dissent gaining new momentum.


China Seeks Closer Ties With Europe After US Tariffs

China is looking to the European Union as its new best friend amid trade frictions with the United States.

Prime Minister Li Keqiang met eastern and central European leaders in Sofia, Bulgaria, on Saturday, and vowed to open up China’s economy to the wider world. Keqiang is also meeting German Chancellor Angela Merkel on Monday and next week, in Beijing, he will host an EU-China summit.

“Opening up has been a key driver of China’s reform agenda, so we will continue to open wider to the world, including widening market access for foreign investors,” he said. “Countries are welcome to board China’s economic express to share opportunities of China’s development.”


What does Davis resigning mean?

The resignation of a key driver of the U.K.’s Brexit process is a blow for British Prime Minister Theresa May, but analysts believe she can survive the departure.

Brexit Secretary David Davis resigned Sunday evening, objecting to May’s withdrawal plan that seeks to maintain close economic ties with the European Union (EU), rather than a harder separation favored by Davis and other so-called “Brexiteers.” Former Housing Minister Dominic Raab was named as Davis’ successor on Monday morning.

Analysts are seeing the latest move as a “crunch point” for May, but that the vagaries of British politics and need for leadership just nine months before the official Brexit date could mean that she can soldier on.