The US dollar is firm ahead of what promises to be an eventful North American session. The ADP steals much of the thunder once reserved from the monthly non-farm payrolls report. The US created a net 1.4 mln jobs in H1, and the streak of 200k+ monthly gains in non-farm payrolls is expected to continue into July’s report.
The first estimate of Q2 GDP is expected to completely reverse the 2.9% contraction in Q1. It appears that momentum softened late in Q2, suggesting the risks are on the downside. That said, the jump in consumer confidence to seven-year highs, reported yesterday, and the upbeat regional Fed surveys suggest momentum returned at the start of Q3.
The FOMC meeting is likely to be close to a non-event. The action is universally anticipated: another $10 bln in tapering. The economy has proceeded along lines the Fed expected, and this means that its assessment is likely to be simply tweaked. The housing market remains disappointing, and the Fed may acknowledge this.
The other wrinkle may be in a hawkish dissent by Dallas Fed Fisher, whose op-ed piece in the Wall Street Journal, earlier in the week, and during the traditional quiet period ahead of an FOMC meeting, seemed to have tipped his hand. Moreover, there has been reports indicating that he will likely step down next spring and is being considered for a position as Chancellor of the University of Texas. Lastly, in this period, we suspect the FOMC minutes may be more interesting as surely the Fed will be discussing the post-taper period.
There have been a few developments to note. First, the recent string of Japanese economic data suggest the toll of the sales tax increase may be greater than officials anticipated. This includes the June industrial production figures released earlier today. The preliminary estimate indicates a 3.3% decline, nearly three times worse than the market expected, and the worst since March 2011. Industrial output fell a cumulative 6.8% in the April-June period. Estimates for July have been revised up (2.5% from 1.5%), but such estimates have shown a clear optimistic bias.
