Market participants that were hoping for central bank policy makers to spur volatility overnight have thus far been disappointed, as both the minutes from the last Reserve Bank of Australia meeting and the Bank of Japan interest rate decision failed to detour much from the recent courses of monetary policy that have been outlined by the respective central banks. The BoJ kept policy unchanged but shaved a tenth of a percentage off its GDP growth forecast for this year, while the RBA minutes were fairly neutral and reiterated a period of stable rates for the region. Both currencies are trading heavy against the big dollar in light of the “steady as she goes†mentality, with USDJPY continuing to change hands in the mid-101s, while AUDUSD is pressured below the 0.94 handle. The deluge of central bank risk is not over just yet, with Janet Yellen’s testimony to Congress beginning later this morning at 10:00EST. Though it is well documented Yellen is more dovish then most of the FOMC, there is always a chance the testimony is more hawkish then what some would assume given that when she is testifying on behalf of the entire board, and needs to adequately represent the balance of opinions. While it is unlikely there is a material shift from reiterating there is a lot of statistical noise with inflation and the slack in the labour market, we do expect the big dollar to catch a bit of a bid if Yellen represents the hawkish camp of the FOMC to a greater degree than the minutes from the last meeting characterized.
The stronger Euro that has now turned into Mario Draghi’s nightmare does not seem to abate, with the common-currency continuing to trade flat against the USD despite the ECB chief’s warning yesterday that an appreciating Euro would be a risk to the recovery and that the central bank is read to use unconventional tools within its mandate to support the zone. Not seeming to be able to catch a break, the weaker than expected German ZEW survey that was released this morning only caused a slight knee-jerk lower in EURUSD which has now almost been fully retraced, leaving Draghi scratching his head as to what will cause the common-currency to move lower. Economic sentiment in Germany as measured by the ZEW institute slide from 29.8 to 27.1 and missed expectations of 28.0, but the EUR was reluctant to give up the 1.3600 handle against the USD, finding decent bids at the strong support level.
Temperatures on Threadneedle Street are starting to heat up, with pressure on Mr. Carney and the Bank of England growing after inflation for the month of June rocketed to 1.9% from the 1.5% that was registered in May. The warmer than expected reading on consumer prices has increased the chance for a dissent in favour of a rate hike in the near future, which has subsequently pushed the Pound up almost half a percent into the mid-1.71s against the big dollar.
Heading into the North American open, equity futures are looking to build on yesterday’s gains after stronger than expected earnings from Goldman Sachs and a mixed bag for consumer spending in America heading into the end of the second quarter. Though the headline retail spending number came in with only a 0.2% increase on expectations of a 0.6% print, May’s number was revised higher from 0.3% to 0.5%, and the retail control group (the number that works into GDP) increased by 0.6% beating expectations of a 0.5% increase. So while the disappointment in the headline was partially offset by revisions to the prior month, the consumer spending portion of GDP looks to have finished the second quarter on strong footing, boding well for a decent rebound from the dreary Q1 that was witnessed. The Loonie was on weak ground against the USD heading into the release, but retail sales combined with a stronger than expected Empire State Manufacturing PMI has the Loonie treading water, moving back into the mid-1.07s.
Further reading:
Yellen’s testimony to Congress
Empire State Manufacturing PMI
