Previous Day's Market Highlights
Markets continued to grapple with the Fed's likely monetary policy path on Friday, resulting in a broadly weaker dollar as bets on significantly looser policy were increased. Fed Chair Powell's dovish testimony earlier in the week has shifted the debate from whether rates will be cut in July - which seems a done deal - to the extent of policy loosening that will take place. Comments on Friday from FOMC voter Evans, typically a hawk, that low inflation shows policy remains too restrictive helped to heighten expectations of July heralding the beginning of an easing cycle. Adding to these expectations were relatively soft producer price inflation (PPI) figures, which, although above expectations, fell to just 1.7% YoY, the slowest pace since January 2017. These points, along with various other Fed speakers over the past few days, have seen markets fully price in around 75bps worth of rate cuts in 2019. Despite this, the negative impact on the dollar going forward may be more limited should other central banks also look to loosen policy. On Friday, the dollar shed just under 0.4%, falling to a 1-week low against a basket of peers.
Elsewhere, eurozone industrial production rose to a 5-month high on a month-on-month basis, increasing by a better than expected 0.9%. However, economic momentum across the bloc remains sluggish, hence additional ECB stimulus is still on the cards. The common currency closed around 0.15% higher on Friday. Meanwhile, in the UK, the pound took advantage of the dollar's broad weakness to reach a 1-week high, adding 0.4%. Sterling also gained against the euro, adding 0.2%, though this was not enough to prevent a weekly loss. The pound has now chalked up 10 consecutive weekly declines against the single currency, the worst weekly run on record.
Friday's best performing major was the Australian dollar, which gained ground as risk appetite remained healthy. The Aussie's antipodean counterpart also benefitted from the risk-on mood, with the Kiwi dollar adding 0.4%. The Canadian dollar also performed well, with firming oil prices helping to support the loonie.
Away from FX, equities in both Europe and the US gained ground as the prospects of looser Fed monetary policy grew. The pan-European Stoxx 600 added 0.1%, while the US benchmark S&P 500 added 0.45% to close at a fresh record high. Finally, oil prices remained firm on Friday, with both Brent and WTI adding more than 4% apiece over the course of the week as a storm in the Gulf of Mexico sparked supply concerns.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
A fresh trading week begins with relatively little in the way of tier-one economic releases due during either the European or American sessions. The only scheduled release from either session will be the New York Fed's monthly manufacturing survey, expected to bounce back into positive territory after last month's steepest single-month fall on record. A further negative reading would likely increase concerns over the wider health of the US manufacturing sector, though will likely have little impact on the dollar. Overnight, the data calendar is busier, with both Q2 CPI figures from New Zealand and minutes from the Reserve Bank of Australia's (RBA) latest policy meeting due. The former is expected to show a modest increase in inflation, with CPI set to have increased by 1.7% on a year-on-year basis, and by 0.3% on a quarter-on-quarter basis. Such an improvement in the pace of price increases would be a welcome sign for the RBNZ after recently announcing a 25bps rate cut. Meanwhile, from the RBA, minutes of July's monetary policy meeting, where a 2nd 25bps rate cut in as many months was announced, will be closely examined for any signs of further policy easing on the horizon.
Elsewhere on Monday, corporate earnings season begins on Wall Street, with America possibly heading for a first earnings recession since 2016. Q2's earnings season will be kicked-off by banks, with Citi reporting today, as the prospects of lower Fed interest rates spark concerns that banks' profit margins will be squeezed. Today's only scheduled central bank speaker is New York Fed President Williams, though remarks are set to centre around replacement of LIBOR hence will have limited market impact.
Looking ahead to the remainder of the week, the economic calendar is much busier. Inflation figures will be in focus from the UK, eurozone, Canada and Japan as global central banks continue their shift to a more dovish policy stance. Meanwhile, also from the UK, labour market and retail sales reports will be closely eyed as concerns continue to be raised over the UK's economic health as Brexit uncertainties rumble on, though the labour market should remain tight. Across the pond, focus will likely centre on the consumer, with retail sales and consumer sentiment data due. Markets will also digest remarks from 10 FOMC speakers ahead of July's rate decision and the FOMC blackout period beginning on Saturday.
Today's Economic Calendar
|1:30pm||USD||New York Empire State Manufacturing Index||0.5||-8.6|
|11:45pm||NZD||CPI (YoY - Q2)||1.7%||1.5%|
|11:45pm||NZD||CPI (QoQ - Q2)||0.3%||0.1%|
|2:30am (Tues)||AUD||RBA Meeting Minutes|