It has been another big day for global trading. The Dow rallied to a new all-time high, confirming the recent S&P breakout. The NASDAQ failed to confirm, however, and instead followed Apple’s post event profit taking downward.
The spotlight has been on the UK where Sterling soared against USD and EUR. At its meeting today, the Bank of England held its benchmark interest rate at 0.25%. The vote was 7-2 with two hawks dissenting, same as last meeting and as expected. The minutes and subsequent comments from Governor Carney, however, were interpreted as hawkish by the street. The minutes indicated a majority of MPC members think that “some withdrawal of stimulus is likely to be appropriate over the coming months” if the economy continues to grow and inflation pressures keep building. In a subsequent pooled TV interview, Carney indicated he is with the majority who see the need to adjust interest rates in the coming months which is important given his long standing dovish stance.
There has been some chatter that the removal of last year’s rate cut could come as soon as the November meeting with the probability of a November hike priced into bonds spiking up to 43.8% from 16% a week ago. There also is a 56% chance of a hike by December and a 64% chance of a hike by February getting priced in.
Just has the collapse of the pound last year ignited a rally in the FTSE by making UK exports and the shares of multinationals cheaper, today’s rally sent the FTSE off a cliff. The big cap index fell 1.1% on the day and took out 7,300.
The Swiss national bank held interest rates at its meeting today. The SNB noted recent declines in CHF relative to the Euro as encouraging but still thinks the Swiss Franc is overvalued and that interest rate differentials remain narrow. I'm other words, it looks like the SNB wants to see the ECB take the lead on cutting stimulus before following suit.
US consumer price inflation came in above expectations but wage growth declined, similar to the UK reports. Another implication of the BoE news is that it means softening wages are unlikely to deter the Fed from continuing to normalize monetary policy. It looks like the FOMC may announce the start of balance sheet normalization. Meanwhile, political developments may influence where the Fed goes from here.
Apparently the White House and Democrats have been talking immigration with the potential for settling Dreamers status in exchange for increased border security spending (but not wall funding). The most important thing is that the two sides finally talking on areas like immigration and tax reform reduces some of the domestic political risks in the US related to the budget and debt ceiling. This means that the risk of a December government shutdown is starting to ease which could free up the Fed to raise interest rates in December. Friday brings another round of significant US data announcements that could impact Fed speculation trading including retail sales, Empire Manufacturing, industrial production and consumer sentiment.
The US dollar tried to rally on the inflation news but performance ended mixed. While Sterling was the top performer, the greenback was flat against the Yen and the Euro. The Canadian Dollar rallied on the back of oil price gains. With the street looking past hurricane disruptions, WTI gained 1.1% driving toward a test of $50.00, while gasoline fell 0.9%.
The New Zealand Dollar has been under pressure again today with the latest election poll giving Labour a 44%-40% lead over National. The Kiwi Dollar may remain active through the day with housing and PMI data for New Zealand due.
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