BoE Carney Says No Deal Brexit is Highly Undesirable but Possible

The possibility of a no-deal Brexit is “uncomfortably high” and “highly undesirable”, Bank of England governor Mark Carney has told the BBC.

Mr Carney said the prospect of the UK leaving the EU without a deal was “a relatively unlikely possibility, but it is a possibility”.



He said it was “absolutely in the interest” of the EU and UK to have a transition period.
Critics poured scorn on the comments, calling them part of “Project Fear.

Mr Carney’s warning came ahead of Theresa May’s meeting with French President Emmanuel Macron at his summer retreat on a small island off the French Mediterranean coast.

The prime minister is cutting short a holiday in Italy as she continues to seek support among European leaders for her Brexit plans.
The Bank governor told the BBC that the financial system was robust and could withstand any post-Brexit shocks.

via BBC

NFP could lift dollar higher

Friday August 3: Five things the markets are talking about

President Trump’s unpredictability on trade is keeping capital markets on the back foot and a theme that is not expected to change anytime soon.

The ‘big’ dollar remains better bid ahead of this morning U.S jobs report (08:30 am EDT), supported mostly by the markets confusion surrounding the escalating Sino-U.S trade conflict.

Nevertheless, this morning’s NFP report is forecasted to show a healthy labor market, with +193K new jobs and an unemployment rate of +3.9%. Many will focus on wage growth, a print of +2.8% could support another dollar leg up as the market prices out four rate increases this year.

The only thing that seems certain is that China will be expected to retaliate if President Trump follows through on a threat to increase tariffs to +25% from +10% on +$200B in Chinese imports.

Worries over protectionism has this week punished global stocks despite a stronger earnings season, supported lower sovereign yields and pushed G10 currency pairs to new weekly lows outright. The Chinese yuan is on track to complete an eighth week decline – its longest losing streak in 25-years.

Elsewhere, Turkish assets and lira remain under pressure after the U.S imposed sanctions on two government ministers over the detention of an evangelical pastor.

In commodities, oil prices have touched a new two-week low on U.S crude inventories supply concerns, while gold prices remains choppy.

1. Stocks close out the week mixed

In Japan overnight, the Nikkei managed to make a small gain partly due to a sharp rise in Suzuki motors (+8.6% on earnings). The Nikkei average ended +0.06% higher, while the broader Topix fell -0.54% to a three-week closing low on Sino-U.S trade tensions.

Down-under, Aussie shares closed out lower, pressured by the latest exchange of trade threats between the U.S and China, a major market for Australia’s resources exports. At close of trade, the S&P/ASX 200 was -0.10% lower. In S. Korea, the Kospi was +0.77% higher.

In Hong Kong and China, stocks edged lower, dragged down by fears of slowing growth on the mainland, a vaccine scandal that weighed on healthcare shares and persistent worries over the Sino-U.S. trade war. The Hang Seng index fell -0.1%, while the China Enterprises Index lost -0.4%. In China at the close, the Shanghai Composite index was down -1%. For the week, the index lost -4.6%, its worst performance in five months, while the blue-chip CSI300 index was down -1.65%. It lost -5.9% for the week.

In Europe, regional bourses trade sideways despite misses in macro-data. Geopolitical concerns continue to be main theme, with concerns on trade and Brexit negotiation. Market focus turns to non-farm payrolls (NFP).

U.S stocks are set to open small down (-0.1%).

Indices: Stoxx50 +0.3% at 3,479, FTSE +0.4% at 7,609, DAX +0.4% at 12,601, CAC-40 +0.2% at 5,473; IBEX-35 +0.2% at 9,713, FTSE MIB +0.3% at 21,476, SMI -0.1% at 9,149, S&P 500 Futures -0.1%

2. Oil prices edge lower on long-term bearish factors, gold at a record low

Oil prices are down in early trading as the market re-focuses on the ‘bearish’ longer term factors following yesterday’s rally on a report that U.S crude stocks in a key facility fell to their lowest in nearly four-years.

Brent crude futures are at +$73.15 per barrel, down -30c from yesterday’s close, while U.S West Texas Intermediate (WTI) crude futures are at +$68.70 per barrel, down -26 cents from their close.

EIA data yesterday showed that inventories at the key Cushing storage hub in Oklahoma fell by -1.3M barrels, the lowest level in four-years.

However, overall U.S crude oil inventories actually rose by +3.8M barrels last week to +408.74M barrels.

Saudi Arabia, Russia, Kuwait and the U.A.E have increased production to help to compensate for an anticipated shortfall in Iranian crude supplies once planned U.S sanctions come into effect.

Note: Earlier today, China, Iran’s biggest customer, has rejected a U.S request to cut imports from the OPEC member.

Ahead of the U.S open, gold prices have fallen to their lowest print in over a year amid a strong U.S dollar – another loss would be the fourth consecutive weekly. Spot gold is down -0.1% at +$1,206.05 an ounce. For the week, the yellow metal is down about -1.4%. U.S gold futures are -0.5% lower at +$1,214.10 an ounce.

3. Most sovereign yields fall

Turkish data this morning showed that domestic inflation has rallied to a 15-year high of +15.8% year-on-year last month. Numbers like this certainly strengthens the case for further interest rate hikes, however, the central bank faces pressure from the government not to do so.

In Italy, budget concerns have sent the 10-year BTP yields back above the +3.05% to a 10-week high, while lower down the curve, Italian two- and five-year BTP yields have backed up +22 to +25 bps to +1.27% and +2.32% respectively.

BoE’s Governor Carney in an interview this morning stated that interest rates would not hit the +5% pre-crisis level for a long time. He reiterated that “one” rate hike per year could be seen as a rule of thumb and that the possibility of a no-deal Brexit was uncomfortably high.

The yield on U.S 10-year notes fell -1 bps to +2.98%. In Germany, the 10-year Bund yield fell -3 bps to +0.43%, while in the U.K the 10-year Gilt yield dipped -2 bps to +1.377%.

4. Dollar gets the green light

The ‘big’ dollar is maintaining a firm tone heading into the U.S open.

EUR/USD (€1.1572) has dipped to test new one-month lows as Italian bond yields backed up as Italy Finance Minister Tria holds a top-level budget meeting.

GBP (£1.2997) remains a notable underperformer among G10 currencies despite the fact that BoE officials yesterday ‘unanimously’ voted to hike +25 bps. The market is interpreting the BoE’s decision as a “dovish” hike. Others are arguing that the BoE is heading towards a policy mistake amid heightened Brexit uncertainty.

TRY ($5.0783) managed to hit a fresh record low overnight ($5.1100+). However, slightly better Turkish CPI data helped to push the Lira off its record lows.

China’s Yuan is poised for its longest weekly losing streak on record on continued concerns over a potential trade war. The CNY currency is heading for its eighth weekly decline with USD/CNY approaching the $6.90 area.

Note: CNY is off its worst levels overnight after a large Chinese bank was seen selling USD. It traded as low as ¥6.8965 before paring some of those losses to ¥6.8715.

5. U.K services PMI falls

Data this morning showed the purchasing managers’ survey on U.K. services-sector activity falling to 53.5 in July, missing expectations for 54.7. This morning’s miss reinforces market concerns about weakness in the British economy over Brexit uncertainty.

According to Markit, who compile the survey, “service providers commented that Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment spending among international clients.”

Forex heatmap

Dollar Awaits Jobs Report Amid Trade Uncertainty

The US dollar is higher against major pairs on Thursday in anticipation of a strong U.S. non farm payrolls (NFP). The U.S. Federal Reserve kept rates unchanged on Wednesday and without a press conference there was little guidance for the markets who will have to wait until the minutes from the Federal Open Market Committee (FOMC) meeting are published in two weeks. Two more rate hikes are forecasted to the Fed funds rate in 2018, but the economic indicators will have to validate them. The U.S. non farm payrolls (NFP) will be published on Friday, August 3 at 8:30 am EDT. Investors will be quick to scan the report for the wage growth and unemployment rate components.

  • US expected to add 190,000 jobs
  • US wages could have gained 0.3 percent
  • Unemployment rate in the US to drop to 3.9 percent

Dollar Rises on Safe Haven Flows

The EUR/USD lost 0.62 percent on Thursday. The single currency is trading at 1.1587 as the US dollar rose as investors sought a safe haven as trade tensions once again flared up between the United States and China.The Trump administration proposed a 25 percent tariff on $200 billion Chinese goods with China expected to retaliate.



Friday’s economic data release will be highly focused on US indicators. The employment report by the Bureau of Labor Statistics will be the main attraction but geopolitics will continue to guide the market if trade war concerns do not subside.

The US stock market closed with gains across the board, with the exception of the DJI. Apple became the first company to break above the $1 trillion capitalization. Not unlike Brexit negotiations it is still too early to say what effect the looming trade war between the US and China will have on markets as there is still the possibility that both sides will reach an agreement.

US Commerce Secretary Wilbur Ross said on Thursday that the tariffs are thought through but a compromise is being worked on by the US President. NAFTA negotiations have advanced in recent weeks as the newly elected Mexican president has been optimistic a quick deal can be reached. Mexican Trade teams are in Washington to talk with the US Trade representative, but the US did not extend an invitation to Canada to join the meetings.

Pound Lower Despite BoE Rate Hike

The GBP/USD fell 0.84 percent on August 2. The pound is trading at 1.3015 after a Super Thursday that included a unanimous vote from the Monetary Policy Committee to raise the benchmark interest rate by 25 basis points. The decision to lift rates to 0.75 percent was heavily anticipated by the market. The currency rebounded temporarily on the announcement but quickly dropped as the press conference by BoE governor Mark Carney presented a gradual path in the future.



Governor Carney told the BBC that a rate hike a year was a good rule of thumb but questions remain on the timing of the decision. The EU divorce concerns continue to hang over the UK as Prime Minister Theresa May has not been able to find the perfect compromise between hard and soft Brexit.

The BoE elected to act now based on hard economic data than wait for the unclear outcome of the Brexit negotiations. The deadline is still 8 months away, but there is a lot of issues where not only are the UK and the EU apart, but there is no clear consensus between members of May’s cabinet.

Loonie Falls Ahead of NFP and Trade Disputes

The USD/CAD gained 0.13 percent in the last 24 hours. The currency pair is trading at 1.3026 after the US dollar rose and the loonie failed to get traction from a rebound in oil prices. West Texas Intermediate is trading at $69.54 ahead of US rig data due on Friday.


usdcad Canadian dollar graph, August 2, 2018

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The Bank of Canada (BoC) lifted interest rates by 25 basis points on July 11 and after a stronger than expected monthly GDP report the probability of a follow up in 2018 has risen. Bank of Nova Scotia is forecasting 2 more rate hikes despite the uncertain outcome on NAFTA. The BoC will try to keep the gap between the Fed funds rate and the Canadian rate as much as the economy will allow. The U.S. Federal Reserve is expected to hike in September and again in December to deliver the promised four interest rate hikes in their path to normalization.

Market events to watch this week:

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

GBP Dives on Dovish BoE Hike

Profit taking seen as MPC doesn’t combine hike with hawkish rhetoric

Sterling tumbled on Thursday after the Bank of England raised interest rates by 0.25% to a post-financial crisis high.

The hike, which was initially planned for May prior to the first quarter slowdown, has not come without it criticism due to the mixed data, temporary factors driving some numbers and the uncertain outlook, associated with Brexit. It was, however, almost fully priced into the markets with investors correctly drawing on the central bank’s previous views on the labour market and deafening silence as market rates rose in the run up to the meeting.

With markets pricing in more than a 90% probability of a hike prior to the meeting, it left little room for confirmation of it to have an impact. While this did come in the immediate aftermath of the hike, the lack of any apparent hawkish language alongside it or warning that more hikes will follow in the near-term appears to have triggered some profit taking on those pre-meeting positions and possibly even stops being hit after that.

BoE hike a close call

Will hike be seen as brave or stupid come March?

The result is that, despite an initial rally, the pound plummeted shortly after falling back towards 1.30 against the dollar, 145 against the yen and 1.12 against the euro (or 0.89 for EURGBP). The central bank once very keen to emphasise though that rate increases were likely to be gradual and limited, citing market expectations of three over the next three years, while also stressing the uncertain influence of Brexit, despite it assuming a smooth transition in its forecasts. All of this lacked the hawkishness that traders were obviously hoping for which aided the decline in the pound.

I think it’s clear that the BoE could have held off on the decision today until it had more certainty on Brexit – maybe even by November – and avoided the possibility that it will have to do an embarrassing u-turn in the near future. That said, it backed itself into a corner earlier this year and clearly decided it’s a risk worth taking and should negotiations take a turn for the better and the economic data improve as a result, we could look back on this as a brave and calculated move that set us on a path towards policy normalisation.

AUD/USD slides despite jump in trade surplus

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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

BoE Super Thursday to live up to its name

Surely they won’t bottle it again, right?

Super Thursday promises to live up to its name one way or another this week, as the Bank of England either raises interest rates to post-financial crisis highs or risks causing unnecessary and significant market volatility.

  • Rate hike priced in but not guaranteed
  • Possible scenarios on Thursday
  • Key things to look out for

It’s been an unusual lead up to a central bank meeting, in that despite a lack of clear and specific warning signals, the likes of which we’ve become accustomed to, investors have become absolutely convinced it’s happening.

In fact, markets are now pricing in almost a 90% chance that the Monetary Policy Committee will vote to hike rates on Thursday. If the central bank doesn’t hike now, it will need a very good excuse and even then, this entire process of forward guidance will once again be heavily criticized.

BoE Interest Rate Probabilities

Source – Thomson Reuters Eikon

While it may not make much sense to blame the central bank when I’ve earlier stated that there’s been a lack of clear and specific warning signals, but policy makers are very aware of what market expectations are and when they deviate in such a significant way from reality, they do something about it. This time they have not.

This is where assumptions come into it. The lack of alternative guidance from policy makers has actually fuelled expectations that they must be planning a rate hike or they would have otherwise intervened to realign expectations.

Head fake or breakthrough ??

Remember, investors are always looking for subtle hints in order to get ahead of the curve and in this case, the central bank’s silence has been deafening. Or so investors hope. Should the MPC not deviate much from last month’s vote and hold off again, there could be a sizeable response in the markets, particularly in the pound and short-term UK debt.

Whichever way the central bank goes – and just to be clear, I think they will raise rates – there could be a very interesting response in the markets. These are some of the possible outcomes.

Dovish hike

In this scenario, it would be natural to think that this would be bullish for the pound and, in the immediate aftermath it could be. But if markets are already largely pricing this in then what exactly is left?

A rate hike that is accompanied by dovish language and cautious approach on the economy, or even wait and see approach to Brexit negotiations, could quickly trigger some profit taking by those who have anticipated such a move prior to the meeting and be bearish for the pound not long after the announcement.

EURGBP Daily Chart

OANDA fxTrade Advanced Charting Platform

Hawkish hike

This is probably the most bullish feasible outcome for the pound. In this scenario, the BoE raises interest rates and warns that more will follow, maybe even a couple by the end of next year (more is of course possible but maybe not realistic given how the economy is right now and the uncertainty linked to Brexit).

In this case, the BoE is likely opting to look through Brexit or using base case assumptions on it – due to the sheer number of unknowns still – and base its views purely on the economic data, some of which is very good (unemployment, job openings, inflation) and some of which isn’t great (wages, investment, household debt).

GBPUSD Daily Chart

No hike

I don’t think this is likely (although it is arguably what the central bank should be doing) but it’s possible. Under this scenario, the central bank takes all of the recent data into consideration and takes the view that, given the uncertain outcome of Brexit negotiations and possibility of no deal, it makes more sense to wait until November to raise rates.

A few months is not a long time to wait but by then, they should be a lot better positioned to judge what the outcome of Brexit negotiations will be and whether it’s risky or not to be raising rates in such an environment, or what the chance is that it will be reversing course in the near-future, to its own embarrassment.

Of course, the argument against this is that there has been no noise coming from the central bank that market expectations are out of sync with their own which is usually a reliable sign that they are not.

GBPCAD Daily Chart

What to look out for

All things considered, a rate hike looks likely but there is going to be a number of elements of tomorrow’s event that will influence how markets respond.

Fed decision and US labour market in focus

The interest rate decision is the most obvious (12pm UK time) but alongside the release, we’ll get the minutes from the meeting, voting and the inflation report which contains new growth and inflation forecasts for the coming years, which will effectively determine how many hikes we’ll see.

This will then be followed by a press conference with Carney and his colleagues 30 minutes later which is never a dull event and certainly won’t be if the central bank once again bottles it.

UK Manufacturing Slows to 16 Month Low Ahead of BoE Decision

U.K. manufacturing growth slowed more than expected last month, casting doubt on the strength of the economy as Bank of England policy makers hold their crunch meeting.

IHS Markit’s Purchasing Managers Index for the industry fell to a three-month low of 54 in July, from 54.3 in June, the firm said in a report Wednesday. The reading was below economists’ estimates for a figure of 54.2.



Markit said output growth slowed to a 16-month low, with production of intermediate goods falling for the first time in two years. A weaker expansion of new work from domestic sources offset a stronger increase in export orders, while positive sentiment among manufacturers slid to a 21-month low, amid concerns over Brexit uncertainty and the exchange rate.

“U.K. manufacturing started the third quarter on a softer footing,” said Rob Dobson, director at IHS Markit. “Manufacturing has failed to provide any meaningful boost to headline GDP growth through the year-so-far,” while the data on new orders and business optimism suggest the “industry is unlikely to exit this soft patch in the near future,” he said.

via Bloomberg

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.

Dollar Higher After Trump Administration Reopens Talks with China

The US dollar rose on Tuesday after American inflation data was in line with expectations and consumer confidence came out higher than forecasted. The U.S. Federal Reserve wraps up its two day Federal Open Market Committee (FOMC) meeting on Wednesday at 2:00 pm EDT. The market is not anticipating a major change from the language on the rate statement or the interest rate itself. The September Fed meeting has been priced in for another rate hike as the Fed continues its path toward monetary policy normalization. The private payrolls report from the ADP is expected to show a gain of more than 180,000 jobs and serve as the preamble to the biggest indicator release in the market the U.S. non farm payrolls (NFP) due on Friday.

  • ADP forecasted to add 186,000 jobs
  • Fed to hold interest rates unchanged
  • Central bank week continues with the BoE on Thursday

Dollar Rebounds Ahead of FOMC
The EUR/USD fell on Tuesday. The single currency is trading at 1.1689 after breaking above the 1.17 price level on positive European indicator releases during the European session. The USD started gaining traction with the release of inflation data and higher consumer confidence numbers but it was the reports that the US and China are trying to meet to discuss trade that boosted the currency. Private conversation are said to be ongoing with a goal of having ministerial meetings that have been on hold since the trade war rhetoric escalated.



The U.S. Federal Reserve is not expected to modify its monetary policy on Wednesday and without a press conference the focus will be on the language changes in the statement. The Fed has already hiked twice in 2018 and policy members have talked about two more interest rates lift if the economy continues on its current growth path. President Trump has already commented that he is not a fan of the Fed’s decision to keep driving interest rates higher. Chair Powell has so far avoided commenting outside of the central bank’s mandate and this week there won’t be a chance for the financial press to seek his opinion on the matter of the Fed’s independence.

Bank of Japan (BOJ) Underwhelms Sends Yen Lower

The USD/JPY rose on Tuesday after the Bank of Japan (BOJ) kept most of its monetary policy intact, but will allow a wider band on its bond yields as well as the use of forward guidance. BOJ Governor Haruhiko Kuroda said that rates will remain low for an extended period of time. The central bank remains committed to a lofty 2 percent inflation target and has not reached it despite a massive QE program that has been going on for 5 years. Mr Kuroda closed the door to speculation that the BOJ would exit QE.



Investors were underwhelmed by the BOJ’s decision with the currency pair climbing to 111.87 on its way to break the 112 price level. All eyes will be on the U.S. Federal Reserve and its statement on Wednesday. The Fed will follow the BOJ in this busy week with little changes expected, but in current market conditions small tweaks could have big consequences for currencies.

Strong GDP Boosts Canadian Dollar

The Canadian dollar appreciated versus the US on Tuesday after the stronger than expected monthly GDP report. The Canadian economy expanded at a 0.5 percent rate in May versus the anticipated 0.3 percent. The higher annual pace of growth came in at 2.6 percent and has increased the possibility of another rate hike this year, appreciating the loonie versus the greenback on the North American trading session. Oil prices fell below $70 as the US dollar recovered with the announcement of new trade talks between the US and China.



The US dollar staged a comeback after the announcement of lower trade tension between China and the United States. The currency pair touched a session low of 1.3010 at 8:30 am, but is now back at 1.3016 after sources indicated that US Treasury officials and China Vice Premier representatives intend to meet.

The NAFTA and EU-US trade conversations 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.

Yesterday US Commerce Secretary Wilbur Ross said that NAFTA talks are close to a deal, specially with Mexico. The latest strategy by the US has been to move faster on talks with its southern neighbour with a new incoming government. Mexico and the US will hold ministerial talks on Thursday in Washington. Canadian officials tried to be part of the meeting but were rejected by the US.

Market events to watch this week:

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