Currency and commodity markets remained the focus of trading in Europe and North America today. USD continued to retreat on conflicting indications from the Fed on interest rates with those focused on inflation thinking the central bank can hold off for a while and those focused on employment and economic growth thinking its nearing time for another increase.
High profile Fed members like NY Fed President Dudley and SF President Williams switching between the hawkish and dovish camps has added to the confusion rather than clarify matters. Late in the day, Williams indicated that despite seeing a lower neutral rate longer term (which the street saw as dovish) he thinks rates should go up sooner rather than later with the US at full employment and the inflation target coming into view. Interestingly, the master of muddying the waters, former Fed Chair Alan Greenspan, suggested Thursday that the Fed may need to start raising rates soon and more rapidly than people are thinking. Market action, however, suggests that nobody really listens to Mr. Bubble anymore.
While waiting for FOMC Chair Yellen to hopefully set the record straight in her speech to the Jackson Hole conference, traders have been taking a dovish read on Fed minutes and commentary, sending USD lower again. A number of other currencies and commodities took advantage of the weakness to stage moderate rallies including EUR, CAD, AUD, NZD and gold with two markets capitalizing in particular.
GBP broke out of bases that have been forming against USD and JPY on the back of stronger than expected UK retail sales. This week’s UK economic data for July has been indicating that the fears of Brexit Doom were completely overblown and markets appear to be recognizing that the Brexit selloff in GBP was overdone as well, kicking off a rebound for Sterling.
Crude oil continues to climb with Brent breaking through $50 and WTI nearing $48.00 getting within striking distance of the top of its $40-$50 trading range. While speculation of talks among producers has been attracting the headlines, declines in US inventories earlier in the week and Thursday’s smaller than expected natural gas storage build have been providing fundamental support. On Friday, oil could be active around the Baker Hughes weekly US drill rig count.
CAD has continued to catch a tailwind from crude oil and may be active on Friday around Canadian retail sales and inflation reports which may indicate how much pressure if any the Bank of Canada may be under to follow other commodity exporting countries like Australia and New Zealand in cutting interest rates.
US indices held steady today supported by positive earnings out of the retailing and technology sectors. Wal-Mart beat the street on sales, earnings, same store sales and guidance while stellar earnings from Canadian Solar sparked a 20% gain in its shares that spilled over into other alternative energy stocks.
There’s no major news scheduled for Asia Pacific countries today so central bank speculation and seasonal trends may continue to influence trading activity. USDJPY
may continue to be a key area of focus as the pair continues to test 100.00 raising the potential for some sort of central bank intervention, verbal or otherwise.
There have been no major announcements after the US close today
Significant announcements released overnight include:
US jobless claims 262K vs street 265K
US Philadelphia Fed 2.0 as expected vs previous (2.9)
US natural gas 22 BCF vs street 25 BCF
UK retail sales 5.9% vs street 4.2%
UK retail ex auto 5.4% vs street 3.9%
Eurozone consumer prices 0.2% as expected
Eurozone core CPI 0.9% as expected
France Q2 umemp change (74K) vs street (15K)
France Q2 unemp rate 9.9% vs street 10.1%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
8:00 pm EDT FOMC Kaplan speaking
7:00 am BST Germany producer prices street (2.1%)
8:30 am EDT Canada retail sales street 0.5% vs previous 0.2%
8:30 am EDT Canada retail ex auto street 0.3% vs previous 0.9%
8:30 am EDT Canada consumer prices street 1.4%
8:30 am EDT Canada core CPI street 2.1%
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