US Fed in the Spotlight Today
Today all eyes will be on the US Federal Reserve (Fed), as the central bank is scheduled to announce its interest rate decision later this evening. No changes are expected, but market participants will scrutinise the accompanying Fed statement. Taking a step away from tradition, the Fed Chairwoman, Janet Yellen, is not scheduled to deliver a speech after today’s meeting. However, she is due to speak at an event late next month. Thus, investors have another event to look forward to immediately after the Fed meeting. On the data front, the US durable goods orders, pending home sales and weekly mortgage applications report are due today.
In the UK the nation’s second quarter GDP advanced more than expected. Meanwhile, the Eurozone just witnessed a slew of economic data releases today. Notably, German consumer confidence index fell less than expected in August.
Pound Sterling – UK Markets
The Pound has extended its previous session losses against the greenback this morning. The just out data showed that the preliminary reading of UK’s second quarter GDP surpassed expectations. This indicates that Britain remains relatively resilient in the second quarter, despite a string of disappointing economic reports. Looking ahead, the Confederation of British Industry’s distributive trades survey for July, which indicates short-term trends in Britain’s retail and wholesale distribution sector, is up for release soon.
Yesterday Sterling lost ground against the US Dollar, after the Bank of England's most hawkish policymaker, Martin Weale, made a sudden volte-face and stated that he now supports an immediate stimulus for the UK economy at next week’s monetary policy meeting. Flashback to barely a week ago: the widely sought-after policymaker called on the central bank to wait for "firmer evidence" before implementing additional monetary easing. Meanwhile, Britain’s BBA mortgage approvals dropped to a 15-month low in June.
US Dollar – US Markets
The US Dollar is trading mixed against the common currency and the Pound this morning with market participants closely watching for clues ahead of the Fed’s latest monetary policy statement due later in the day. The FOMC is widely expected to keep interest rates unchanged for their fifth consecutive meeting but will keep investors on their toes for indications on the timing of the next rate hike. However, strong US economic data has reinforced expectations that the Fed could raise interest rates in coming December, thereby enhancing relative demand for the greenback.
Yesterday macroeconomic data showed that the US services sector activity surprisingly decelerated in early July amid a slower rise in new business, with the headline PMI figure recording its weakest reading in five months. Other data showed that the Americans were slightly more positive about current business and labour market conditions, suggesting that the Brexit vote did not bother American consumers much. Meanwhile, new home sales rebounded strongly, hitting their highest level for over eight years in June.
Euro – European Markets
The Euro managed to rebound this morning against its key peers after witnessing a dip in the previous session. In the Eurozone, a slew of economic data points crossed the wires during the past few hours. To begin with, Germany’s forward looking GfK consumer confidence index dropped less than expected in August. Moreover, the nation’s import prices declined at the slowest pace since January 2016 in June, on an annual basis. In the Eurozone issuance of private sector loans rose in June. Meanwhile in France, producer prices advanced in June from May, pulled upward by prices of energy and refined oil. However, the nation’s consumer confidence slightly dipped for the second consecutive month in July. In Italy, both business as well as consumer confidence index recorded a rise in July. Elsewhere in Spain, retail sales surpassed investor expectations in June.
Yesterday data showed that Spain’s producer price index posted an improvement in June. Separately, investors remained focused on the continuing Italian banking crisis.
Other Currencies – Highlights
The Australian Dollar briefly rallied against the greenbackL00dPess2016 after Australia’s second quarter consumer price index (CPI) rebounded in line with market expectations. Also, the trimmed mean CPI, which excludes the most volatile items, surpassed expectations during the period. However, the jubilation quickly fizzled out once the annual figures were reviewed. On an annual basis, the nation’s consumer prices slowed down more than expected in the second quarter. Market participants focused on this figure because the Reserve Bank of Australia (RBA) refers to annual statistics for monetary policy. The central bank members will convene for the next monetary policy meeting in the coming week and given the latest benign inflation data, expectations for an interest rate cut still stays firm on the table.
Meanwhile in China, Australia’s largest trading partner, industrial profits advanced at their fastest pace in three months in June, buoyed by support from government spending. On the other hand, confidence among Chinese consumers slightly eased in July. Going ahead, investors await Australia’s Q2 producer price index, due at the end of this week.