Forex and commodity trading took the spotlight today as inflation reports and conflicting comments from Fed members impacted market sentiment and interest rate speculation. USD sold off early in the day in reaction to a paper from SF Fed President Williams that suggested low interest rates could be here to stay for a long time and that central banks and governments may need to look at other ways for managing economic cycles going forward.
Traders took this as a dovish shift in his thinking and with headline inflation coming in lower than expected, USD sold off on speculation the Fed may not raise rates any time soon. The selloff ignited rallies in other currencies particularly gold, AUD, NZD, CAD, EUR, JPY and GBP. In particular USDJPY
broke 100 at one point, while GBPUSD regained 130.00. USD losses were slowed, however by comments from NY Fed President Dudley, one of the Big 3 members, who shifted from the dovish to the hawkish camp suggesting that the Fed could raise rates in September, and that markets, particularly bonds are too complacent about the potential for rate increases over the next year.
This seems to me like he was trying to put the fear of the Fed back into markets, stop speculation from getting out of hand and keep the central bank’s options open. December remains more likely after the election. He also indicated that a rate hike would be a sign of a strong economy supported by rising wages and better than expected industrial production.
Fed interest rate speculation may keep markets hopping through tomorrow’s FOMC minutes and on through next week’s big KC Fed Jackson Hole Conference. For today, AUD and NZD may remain active on Q2 inflation data for Australia and New Zealand which may indicate how much scope the RBA and RBNZ have to cut interest rates further if necessary.
Crude oil continued to rally Tuesday blasting through $45.00. While speculation of potential talks among producers including Russia and Saudi Arabia are getting all the attention, the late announcement of a 1.0 mmbbl drop in API oil inventories indicates an upswing
within a $40-50 trading range has fundamental support as well. Oil could attract more attention from traders around the DOE inventory reports with a moderate build for oil and a drawdown for gasoline widely expected.
GBP and UK stocks may also attract trading activity as UK data week continues with reports on the first full month since the country’s decision to leave the EU. Inflation rose in July as expected from the plunge in the pound, with employment due Wednesday and retail sales due Thursday.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
US API crude oil inventories (1.0 mmbbls)
US consumer prices 0.8% vs street 0.9%
US core CPI 2.2% vs street 2.3%
US real average weekly earnings 1.4% vs previous 1.2%
US industrial production 0.7% vs street 0.3%
US industrial production previous revised down to 0.4% from 0.6%
US manufacturing production 0.5% vs street 0.3%
Canada manufacturing sales 0.8% vs street 0.5%
UK consumer prices 0.6% vs street 0.5%
UK core CPI 1.3% vs street 1.4%
UK retail prices 1.9% vs street 1.7%
UK producer input prices 4.3% vs street 2.0%
UK producer output prices 0.3% vs street 0.0%
UK house prices 8.7% vs previous 8.1%
Germany ZEW current situation 57.6 vs street 50.2 vs previous 49.8
Germany ZEW expectations 0.5 vs street 2.0 vs previous (6.8)
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)
8:45 am AEST NZ Q2 employment change street 2.3% vs previous 2.0%
8:45 am AEST NZ Q2 unemployment rate street 5.3% vs previous 5.7%
8:45 am AEST NZ Q2 producer input prices previous (1.0%)
8:45 am AEST NZ Q2 producer output prices previous (0.2%)
10:30 am AEST Singapore electronic exports street (4.3%)
10:30 am AEST Singapore non-oil domestic exports street (2.5%)
11:30 am AEST Australia Q2 wage price index street 2.0%
9:30 am BST UK jobless claims street 9K vs previous 0K
9:30 am BST UK 3 month employment change street 150K vs previous 176K
9:30 am BST UK unemployment rate street 4.9%
9:30 am BST UK average weekly earnings street 2.3%
10:30 am EDT US DOE crude oil inventories street 0.95 mmbbls
10:30 am EDT US DOE gasoline inventories street (1.7 mmbbls)
1:00 pm EDT FOMC Bullard speaking
2:00 pm EDT FOMC July meeting minutes
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