tock markets in the US and Europe rallied again today, but the more interesting action took place in currency markets.
USD soared Tuesday on comments from FOMC governor Jerome Powell, a permanent voter who indicated that he expects two rate hikes this year, the first in September, and for the Fed to stop reinvesting cash thrown off from its QE holdings, or what I call a stealth taper. This was a decidedly more hawkish tone than the one sent by last week’s member projections and sent traders scrambling to get back on side.
The USD rally sent gold sharply lower once again today but commodity markets stood their ground and even advanced, particularly crude oil and grains. Currency markets were active with EUR getting hit particularly hard. The single currency also declined significantly against JPY as traders remain cautious about the Greece situation. The ECB continues to have to pour money into Greek banks to keep them afloat while a deal remains elusive. Although progress has been made and another meeting is scheduled, there is still not deal in hand and no guarantee that a deal reached would be ratified by national parliaments in Greece, Germany or elsewhere.
Stock markets on both sides of the Atlantic ignored the mounting headwinds and rallied for a second straight day. Better than expected flash PMI reports for Germany and France helped to keep the rally going while the US was helped by stronger than expected home sales and a positive core durable goods orders report which offset a soft headline number that includes lumpy aircraft orders.
AUD, CAD and NZD were able to hold their ground pretty well against USD and outperformed other majors particularly those sensitive to Europe like EUR, SEK and NOK. Asia Pacific indices have also been sizzling and the question now is whether they can keep the party going in the absence of any major economic news today.
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Significant announcements released overnight include:
US durable goods orders (1.8%) vs street (1.0%)
US durables ex transport 0.5% as expected
US FHFA house prices 0.3% vs street 0.5%
US flash manufacturing PMI 53.4 vs street 54.1
US new home sales 546K vs street 523K
US Richmond Fed 6 vs street 4
France flash manuf PMI 50.5 vs street 49.6
France flash service PMI 54.1 vs street 52.6
Germany flash manuf PMI 51.9 vs street 51.2
Germany flash service PMI 54.2 vs street 53.0
Eurozone flash manuf PMI 52.5 vs street 52.2
Eurozone flash service PMI 54.4 vs street 53.6
Italy retail sales 0.0% vs street (0.5%)
Upcoming significant announcements include:
11:45 am AEST China consumer sentiment previous 111.1
7:45 am BST France GDP street 0.6%
9:00 am BST Norway unemployment street 4.2%
9:00 am BST Germany IFO bus climate street 108.1
9:00 am BST Germany IFO current assessment street 114.1
9:00 am BST Germany IFO expectations street 102.4
8:30 am EDT US Q1 GDP update street (0.2%) vs previous (0.7%)
8:30 am EDT US Q1 personal consumption update street 1.9%
8:30 am EDT US Q1 core PCE inflation update street 0.8%
10:30 am EDT US crude oil inventories street (2.0 mmbbls)
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