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EUR/USD: Euro Trades Flattish Ahead of ECB Decision
The single currency was trying to erase this week’s losses and so far remained resilient to a bigger downward movement. The EUR/USD pair was trading 0.05% higher during the morning dealing, seen around 1.1010, but further volatility is likely due to the European Central Bank (ECB) monetary policy decision.
There are no changes predicted and therefore the main rate should stay at 0.00% and the deposit rate at -0.4%.
However, the following press conference will be important because Mario Draghi might sound dovish, or on the other hand, totally neutral, which would benefit the single currency and might send the pair back to the 200-day moving average at 1.11.
"One big issue that will certainly be addressed in the Q&A today will be the shortage of securities available for purchase given certain constraints set out at the start of QE. That shortage will have to be tackled at some point especially if the ECB today hints that QE is likely to continue beyond the current deadline of March 2017. Increasing the single-issue limit from the current level of 33% is one option as is scrapping the exemption of buying bonds yielding less than the -0.4% deposit rate," Jasper Lawler at CMC Markets said on Thursday.
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5 Things to Watch on the Economic Calendar This Week
1. Fed rate decision
The Federal Reserve is not expected to take action on interest rates at the conclusion of its two-day policy meeting at 18:00GMT, or 2:00PM ET, on Wednesday, as policymakers wait for the dust to settle from Britain's decision to leave the EU.
A recent string of better than expected data reignited speculation that the U.S. central bank will raise interest rates before the end of the year. Interest rate futures are currently pricing in a 16% chance of a rate hike by September. December odds were at 45%, compared with less than 20% a week ago and up from 9% at the start of this month.
2. BOJ policy announcement
The Bank of Japan's latest monetary policy announcement is due during Asian morning hours on Friday. Central bank Governor Haruhiko Kuroda will hold a press conference afterward.
Speculation has mounted in recent weeks that the BOJ will cut its main interest rate deeper into negative territory and expand its monetary stimulus program in an effort to help the domestic economy emerge from deflation and fend off possible adverse effects from Brexit.
A recent Reuters poll showed 85% of analysts expect the BOJ to ease on July 29, alongside the fiscal spending boost Abe is set to announce this month.
The BOJ has already implemented negative interest rates and is printing 80 trillion yen ($750 billion) a year to stimulate inflation after decades of deflation and stagnant growth, yet inflationary expectations appear to be weakening.
3. U.S. advanced second quarter growth data
The U.S. is to release preliminary figures on second quarter economic growth at 12:30GMT, or 8:30AM, Friday. The data is expected to show that the economy expanded at a healthy 2.6% annual rate in the April-to-June quarter, improving from growth of 1.1% in the first quarter.
Recent U.S. economic data, including June housing starts, retail sales, ISM manufacturing and employment were all better than expected, suggesting that economic growth regained speed in the second quarter.
4. U.K. preliminary Q2 GDP figures
The Office for National Statistics is to produce preliminary data on U.K. economic growth for the second quarter at 08:30GMT, or 4:30AM ET, on Wednesday, although the number will be seen as less relevant in the wake of the Brexit decision.
The report is forecast to reveal the economy grew 0.5% in the three months ended June 30, after expanding 0.4% in the preceding quarter, confirming that the British economy went into the EU referendum on a solid footing.
Growth is expected to slow down sharply in the second half of the year as U.K. businesses face uncertainty over the country’s future direction in wake of the Brexit vote.
5. Euro zone second quarter flash GDP
The euro zone will publish its first estimate on second quarter economic growth at 09:00GMT, or 5:00AM ET, on Friday. The consensus forecast is that the report will show the economy grew 0.3% in the April-June period, after expanding 0.6% in the preceding three months.
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1. Global stocks gain ahead of central bank meetings
Global stock markets traded mostly higher on Monday, as investors looked ahead to key central bank meetings later this week. The Federal Reserve will meet on July 26 to 27, followed by the Bank of Japan’s policy meeting on July 28 to 29.
The Fed is not expected to take action on interest rates at the conclusion of its two-day policy meeting on Wednesday, but market players will scrutinize its policy statement for fresh hints on the timing of interest rate hikes over the next several months.
The BOJ, on the other hand, is widely expected to ease policy further at a policy review ending on Friday, which could include a rate cut deeper into negative territory and additional asset purchases.
U.S. stock index futures pointed to a modestly higher open, as investors eyed a fresh batch of corporate earnings reports, as well as the Federal Reserve and Bank of Japan’s policy meetings scheduled later in the week.
Meanwhile, European stock markets were slightly higher in morning trade on Monday, as investors digested corporate earnings and prepared for central bank meetings in the U.S. and Japan later this week.
Earlier, Asian stocks held near nine-month highs on Monday, as investors are hoping for a big stimulus announcement from the Bank of Japan later this week.
2. Verizon to buy Yahoo for $4.8 billion
Verizon Communications Inc. (NYSE:VZ) has agreed to pay $4.8 billion to acquire Yahoo! Inc (NASDAQ:YHOO), according to a person familiar with the matter. The announcement will come before the start of New York trading hours, the source added.
The deal will end months of uncertainty about Yahoo's future after the company announced plans to review strategic alternatives in February.
The transaction would boost Verizon's AOL internet business, which the company acquired last year for $4.4 billion, by giving it access to Yahoo's advertising technology tools, as well as other assets such as search, mail, messenger and real estate.
3. Nintendo shares plunge on Pokemon profit warning
Shares in Nintendo Ltd (T:7974) took a steep dive Monday after the company warned investors that the wildly popular Pokemon GO mobile app would have only a "limited" impact on its earnings. The stock sank nearly 18% in Tokyo, wiping out about $6.4 billion in market value.
The Kyoto-based gaming company, which is due to report first-quarter results on Wednesday, surprised markets with a statement on Friday that income garnered through its 32% stake in affiliate Pokemon Company, which owns the licensing rights, would be limited and that it did not plan to revise its earnings outlook for now.
4. German businesses brush off Brexit uncertainty
German business sentiment fell less than forecast in July, in a sign that Europe's largest economy proved resilient to the immediate aftermath of the U.K. Brexit vote.
The German Ifo economic institute said its business climate index dropped to 108.3 this month from a reading of 108.7 in June. Economists forecast a decline to 107.5.
5. Oil languishes near 3-month lows amid glut concerns
Oil prices struggled near the lowest level in almost three months on Monday, as concerns over a global supply glut intensified after data showed that the U.S. oil rig count rose for the fourth week in a row last week.
U.S. crude was down 27 cents, or 0.61%, to $43.92 a barrel, while Brent shed 26 cents, or 0.56%, to $45.83 a barrel.
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Euro Steps Down From 2-Wk High as FOMC Dust Settles
The euro stepped lower from its two-week high at $1.1120 against the greenback during the US market hours, amid the forex market's ongoing stabilization after the turmoil induced by the Federal Open Market Committee's (FOMC) rate decision on Wednesday.
As widely expected, the Federal Reserve (Fed) kept its monetary policy unchanged, but comments of weak inflation well below the 2% target level pushed the cross higher. On the upside, central bankers pointed to the significant rebound of the US labor market in June, following the debacle a month ago. However, the buck still suffered after the Fed's statement.
In the afternoon, the EUR/USD was trading only 0.15% elevated at $1.1073, while the US dollar index inched 0.05% down to 96.70 points on Wednesday.
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Euro-zone inflation beats with +0.2%
Prices advanced by 0.2% y/y in the euro-zone in July. The preliminary release came out better than 0.1% expected. Core inflation did not provide surprises with 0.9%. GDP came out bang on expectations with +0.3%, despite the miss in France. The unemployment rate remained at 10.1%, exactly as expected.
EUR/USD does not move too much. The surprises were quite limited, to say the least.
The euro-zone was expected to report a growth rate of 0.3% in Q2 2016, following +0.6% beforehand. This very early release is based on some big countries such as France and Spain, but not on Germany. Revisions are planned. Initial inflation data for July carried expectations for +0.1% in the headline figure and 0.9% in core CPI, a repeat of June. The unemployment rate was expected to remain unchanged at 10.1%.
EUR/USD traded a bit higher in range, around 1.1090 towards the multiple releases.
Earlier in the day, French GDP disappointed by remaining unchanged. This could have tilted real expectations down. Spain met expectations with a growth rate of 0.7%.
On inflation figures, both countries missed: Spain with -0.6% y/y and France with -0.4% m/m. Germany beat expectations with +0.3% m/m in the publication seen already yesterday.
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1. Yen surges to 3-week high as Japan stimulus underwhelms
The yen surged to a more than three-week high against the dollar on Tuesday, as investors were disappointed by details of Japanese Prime Minister Shinzo Abe’s fresh stimulus package.
The package includes 13.5 trillion yen in fiscal measures, while actual new, direct spending will total about 7.5 trillion yen, most of it over the next two years.
While the headline figure for the package totals 28.1 trillion yen, it includes public-private partnerships and other amounts that are not direct government outlays and thus may not give an immediate boost to growth, according to market analysts.
The dollar hit lows of 101.47 against the yen, the weakest since July 11 and was last at 101.68 by 09:55GMT, or 5:55AM ET, down 0.7% on the day (USD/JPY).
2. Oil edges up but remains in bear market territory
Oil prices edged higher on Tuesday, but remained in bear market territory amid signs of increasing production in the U.S. and rising output among members of the Organization of the Petroleum Exporting Countries.
U.S. crude was up 32 cents, or 0.8%, to $40.38 a barrel during morning hours in New York, while Brent tacked on 41 cents, or 0.97%, to $42.55 a barrel.
Crude futures are more than 20% below their 2016 highs above $50 a barrel scaled in early June, technically placing it in bear market territory, as signs of an ongoing recovery in U.S. drilling activity combined with elevated stocks of fuel products weighed.
3. Global stocks trade lower as sentiment wanes
U.S. stock index futures pointed to a weaker open on Tuesday morning, as investors looked ahead to a fresh batch of corporate earnings reports and U.S. economic data, while keeping an eye on oil prices.
Meanwhile, European stocks were lower in mid-morning trade Tuesday, dragged down by banking shares as worries about the health of the region's lenders continued to weigh on sentiment.
Earlier, Asian shares slipped on Tuesday, taking their cues from a modestly lower day on Wall Street.
4. Credit Suisse , Deutsche Bank to be dropped from Euro STOXX 50 index
Swiss lender Credit Suisse Group AG (SIX:CSGN) and German banking giant Deutsche Bank AG (DE:DBKGn) will be dropped from an index of Europe's top 50 blue-chip companies next week in a further blow to the embattled sector.
For Deutsche Bank, it will be the first time since 1998 that it will no longer be a member of the Stoxx 50.
Shares of both were firmly in the red on Tuesday, with Credit Suisse down more than 6% in Switzerland and Deutsche off 3.5% in Frankfurt.
5. RBA cuts cash rate to record low
The Reserve Bank of Australia cut its benchmark interest rate by a quarter percentage point to an all-time low of 1.50%, responding to record-low inflation and a slowing jobs market.
In his policy statement, RBA Governor Glenn Stevens said the global economy was growing at a lower-than-average pace, with conditions becoming more difficult for several emerging market economies.
The Australian dollar fell to as low as $0.7492 after the RBA decision. It later recovered to around $0.7573, amid speculation the central bank was done with its current easing cycle.
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5 Things to Watch on the Economic Calendar This Week
1. U.S. July retail sales report
The Commerce Department will publish data on July retail sales at 12:30GMT, or 08:30AM ET, Friday. The consensus forecast is that the report will show retail sales rose 0.4% last month, after increasing 0.6% in June. Core sales are forecast to inch up 0.2%, after gaining 0.7% a month earlier.
Rising retail sales over time correlate with stronger economic growth, while weaker sales signal a declining economy. Consumer spending accounts for as much as 70% of U.S. economic growth.
2. Chinese trade data for July
China is to release July trade figures at around 02:00GMT on Monday, or 10:00PM ET, Sunday. The report is expected to show that the country’s trade surplus narrowed to $47.6 billion last month from $48.1 billion in June.
Chinese exports are forecast to have dropped 3.0% in July from a year earlier, following a decline of 4.8% a month ago, while imports are expected to slump 7.0%, after falling 8.4% in June.
On Tuesday, China is to publish reports on July consumer and producer price inflation. The data is expected to show that consumer prices rose 1.8% last month, while producer prices are forecast to fall by 2.0%.
Additionally, the Asian nation will publish data on July industrial production, fixed asset investment and retail sales on Friday.
3. German second quarter GDP
Germany will publish a preliminary report on second quarter economic growth at 06:00GMT, or 2:00AM ET, on Friday. The euro zone's largest economy is forecast to expand 0.3% in the April-June period, slowing from growth of 0.7% in the preceding quarter.
The euro zone will release revised second quarter growth data shortly afterwards at 09:00GMT, or 05:00AM ET, Friday. An initial estimate published last week showed that the region's economy grew 0.3% in the three months ended June 30, compared to 0.6% in the first quarter.
4. June U.K. manufacturing production
The Office for National Statistics is to produce data on U.K. manufacturing production for June at 08:30GMT, or 4:30AM ET, on Tuesday, amid expectations for a decline of 0.2%. Industrial output is forecast to inch up 0.1%.
The Bank of England cut interest rates to a record-low 0.25% and launched fresh easing measures last week in a bid to buffer the economy from a downturn following the Brexit vote.
Economic activity in the U.K. is expected to slow down sharply in the second half of the year as businesses face uncertainty over the country’s future direction in wake of the U.K.'s vote to exit the European Union.
5. Reserve Bank of New Zealand rate decision
The Reserve Bank of New Zealand’s monetary policy update is due at 21:00GMT, or 5:00PM ET, on Wednesday. Most market analysts expect the central bank to cut rates by 25 basis points to a record low 2.0% in an effort to shore up the economy and boost growth.
German Production in June 2016: +0.8% Seasonally Adjusted on the Previous Month
n May 2016, the corrected figure shows a decrease of 0.9% (primary –1.3%) from April 2016. In June 2016, production in industry excluding energy and construction was up by 1.5%.
Within industry, the production of capital goods increased by 3.5% and the production of consumer goods by 1.2%.
The production of intermediate goods decreased by 0.7%. Energy production was down by 2.7% in June 2016 and the production in construction decreased ... (full story)
Europe to Open Higher Ahead of UK Manufacturing Data
European markets on the other hand managed to consolidate and build on the gains of last week, spurred on by the promise of a combination of lower for longer interest rates and weaker currency which helped push the German DAX and the FTSE 250 to their best levels this year.
The US dollar which had dropped sharply in the last week of July, continued to gain ground from its Friday rebound as yield differentials continued to move in its favour.
Whether or not the Federal Reserve moves on rates in September is hardly the point at this stage, the dollar is merely benefiting from the perception that the US central bank is one of the only central banks at this point in time that won’t be easing monetary policy for the foreseeable future.
Yesterday’s rebound was also aided by the continued rally in oil prices on speculation that we could well see OPEC come to an agreement on an output freeze next month in Algiers. While it’s certainly true that we’ve heard this story before, it was enough to prompt some caution from a market that had seen a 20% decline in the June highs.
The fact that neither Russia, or Iran for that matter are likely to back such a freeze makes any prospect of an agreement unlikely, and that’s before you consider the US shale producers who have seen rig counts steadily increase over the past few weeks, as more production capacity comes on line.
Inventories for both oil and gasoline inventories still remain at fairly elevated levels, and it is quite likely that it will take considerably longer for this overhang to come down than was originally thought a few weeks ago. Today’s inventory data from the API is expected to show further draws in US inventory levels for gasoline and crude stocks as US driving season comes into its final month.
Overnight that latest Chinese inflation data pointed to a slight slowdown in July, rising 1.8%, down from 1.9%, though factory gate prices did improve from -2% to -1.7%, with food prices once again fluctuating quite sharply.
Later today we get another snapshot of the UK economy with the latest industrial and manufacturing production numbers for June, which could well give us an insight as to whether the 0.6% GDP number for Q2 might see a downward revision in the coming weeks.
After a pretty poor May performance which saw declines of 0.5% for both the expectation is that we’ll see an improvement to 0.1% for industrial production and -0.2% for manufacturing.
The UK trade balance for June is also expected to come in at -£2.5bn, unchanged from May.
We’ll also get an early estimate of UK GDP for July from the NIESR which is expected to show a slight moderation from the 0.6% seen in June to 0.4%.
Yesterday we found out that consumer spending in July appeared to hold up fairly well in the aftermath of June’s Brexit vote, as data from Visa showed that UK consumer spending rose 1.6% higher than the same period a year ago, as well as the best month on month gain since January this year, which suggests that there was no Brexit hangover here.
Data from the British Retail Consortium appears to show a similar story with like for like sales showing a rise of 1.1% for July as warm weather and the start of the summer holidays helped boost spending in the best single month performance since January.
Some economists have warned that it remains too early to draw any meaningful conclusions from what is a decent set of numbers but in many cases these are the very same economists who are claiming that sentiment and confidence have fallen off a cliff in the wake of the Brexit vote. Well, they can’t have it both ways, either business or consumer confidence surveys have fallen off a cliff, or they’ve taken a temporary knock.
Ultimately it is too early to draw too many conclusions about events of the past few weeks which makes it all the more strange that the Bank of England has acted in the way that it has with respect to last week’s surprisingly aggressive easing measures.
EURUSD – last week’s failure to overcome the 1.1250 area has seen the euro fall back and fall below the 1.1100 area, but we have found some support around the 1.1040 level. We also have support at 1.0950. We need a move beyond 1.1250 to open up a retest of the June highs at 1.1400.
GBPUSD – continues to come under pressure undermining the positive scenario in the process by falling below the three week lows at 1.3060 last week. Currently struggling to rally with any conviction suggesting that the risk now is for a move towards the 1.2800 lows. A move below the lows last week at 1.3020 would be the first sign of this type of move.
EURGBP – needs to push through the 0.8500 level, to raise the prospect of a move towards 0.8600. Until we do we remain vulnerable to a pull back to the lows last week at 0.8360.
USDJPY – continues to edge higher after finding support at the 100.60 level last week, but we need to push beyond the 103.50 area to stabilise. The risk remains for a move back towards the lows at 98.90 on a break below the July lows at 99.99.
Equity market calls
FTSE100 is expected to open 11 points higher at 6,820
DAX is expected to open 13 points higher at 10,445
CAC40 is expected to open 3 points higher at 4,418
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Oil prices fell more than 1% on Wednesday on bearish bets for U.S. weekly crude inventory data out later in the session and concerns of oversupply continued to weigh on black gold.
Saudi Arabia was reported to have pumped a record 10.67 million barrels a day in July in order to meet summer demand as investors looked ahead to a monthly report from the Organization of Petroleum Exporting Counties due later in the session to gauge global supply and demand levels.
Rising stockpiles stateside continued to keep nerves on edge with the U.S. Energy Information Administration set to release its weekly report on oil supplies at 14:30GMT, or 10:30AM ET, Wednesday amid expectations for a drop of 1.025 million barrels.
After markets closed Tuesday, the American Petroleum Institute said that U.S. oil inventories rose by a surprising 2.1 million barrels in the week ended August 5. It also showed a decline of 4.0 million barrels in gasoline stocks.
U.S. crude oil futures slumped 1.24% to $42.24 at 9:56AM GMT, or 5:56AM ET, while Brent oil traded down 0.96% to $44.55.
2. Dollar down as markets reassess Fed rate hike expectations
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, moved lower on Wednesday, as traders reevaluated the odds that the Federal Reserve (Fed) could return to policy tightening this year.
An unexpected third consecutive decline in nonfarm labor productivity on Tuesday dampened buying sentiment in the dollar and decreased odds for rate hike.
While waiting for trade to resume on Wednesday, Fed fund futures assigned only a 40% probability that rates will move higher by December, according to the CME Group’s FedWatch tool.
3. Precious metals jump on dollar weakness
Palladium led gains in precious metals by the most since 2010 on Wednesday with gold trading higher for a second straight day on the aforementioned dollar weakness
Palladium had climbed as much as 8% on Wednesday to its highest level in more than a year, while gold rose nearly 1%.
Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
4. BoE plans to make up bond-buying shortfall, sending gilt yields to fresh record lows
As part of the quantitative easing measures implemented last week, the Bank of England (BoE) admitted late Tuesday that owners of British 10-year debt, known as the gilt, declined its offer to buy £1.17 ($2.22 billion) of the U.K. sovereign bonds, leaving it with a £52 million ($68 million) shortfall.
The BoE announced that it would make up that shortfall over the next six months, prompting investors to once again pile into the gilt pushing the yield to a fresh record low of 0.531% on Wednesday.
5. Global stocks mostly lower near 2016 highs
Global stocks were mostly lower on Wednesday as productivity data from the U.S. dampened the outlook for the global economy.
Chinese stocks, Japan’s Nikkei and the Australian benchmark all moved lower.
European stocks also showed cautious trade on Wednesday.
Meanwhile, U.S. futures bucked the general trend pointing to meager gains. At 9:57AM GMT, or 5:57AM ET, the blue-chip Dow futures inched up 5 points, or 0.02%, S&P 500 futures edged forward 1 point, or 0.06%, while the Nasdaq 100 futures traded up 2 points, or 0.04%.