Today’s FOMC news kicks off a really big 24 hours for economic news from around the world that is still just getting started.
As expected, the FOMC made no changes to monetary policy and issued a very neutral statement that looks designed to keep the central bank’s options open, recognizing growth in the US economy but also noting slowing job growth. Overall the tone was neutral but there were a few items which could be read as dovish including a cut in the GDP projection to 2.0% from 2.2%, no hawkish dissenters and the dot plot split between 6 members looking for 1 hike this year and 9 members looking for two hikes.
In her press conference Fed Chair Yellen talked up the economy, especially the sizeable pickup in consumer spending. She mentioned that Brexit was a factor in the Fed’s decision making (but not enough to put in writing as Brexit was left out of the statement), essentially that the Fed doesn’t want to commit to a change then potentially have to quickly reverse it because of a big event elsewhere.
In response to the news stocks rallied a bit then slipped back, finishing the day with a moderate rebound. US indices traded up 0.3% through the day while the FTSE rose 0.7% and the Dax
gained 0.9% as stocks digested two days of seasonal selling.
Crude oil turned lower today on a smaller than expected decline in US inventories which also dragged on oil sensitive currencies like CAD and energy stocks. Gasoline, on the other hand, rallied with its stockpiles falling as summer driving season kicks in.
Today could be potentially quite active for Asia Pacific trading with a number of big events on the way. Early on, AUD and NZD plus Australia stocks could be active around today’s New Zealand GDP which is expected to show a pickup in activity and the Australia employment report which is expected to show job creation picking up toward 15K.
The main event of the day for traders may be the Bank of Japan decision. It’s been several months since the central bank introduced negative interest rates and traders may be looking not only for an update on how that is working out but also on whether any additional stimulus is planned for the summer. The Bank of Japan finds itself stuck in a conundrum. Economic and political uncertainty in parts of the world has sparked a flight into defensive havens including JPY which is offsetting the effects of the bank’s stimulus program. The last time it increased stimulus, however, traders took it as a sign of economic instability and drove JPY up rather than down. With USD weakening today, it will be interesting to see how Governor Kuroda deals with the problem of the rising Yen.
The potential for trading action continues into Europe tomorrow. The Swiss National Bank and the Bank of England like the Fed are expected to act like deer caught in the headlights of the upcoming Brexit vote and do nothing Despite the Chorus of Brexit Doom out there, Wednesday’s positive UK employment report indicates that the Brexit debate has not impacted UK economic growth and on the contrary, the economy has been accelerating as momentum has shifted to Leave through the campaign. Thursday’s UK retail sales report may attract attention from traders looking for confirmation or rejection.
Later tomorrow morning, the US inflation report may attract some attention but it now seems that the decision on whether the Fed raises interest rates in July or not may hinge on the July 8 nonfarm payrolls report and whether job growth remains sluggish or bounces back and whether or not there is an upward revision. Fed Chair Yellen indicated today not to read too much into one or two monthly readings but a series of soft reports could give the Fed reason to pause through the summer.
There have been no major corporate announcements so far this evening.
Significant announcements released overnight include:
US FOMC decision 0.50% no change as expected
FOMC member 2016 projections
GDP cut to 2.0% from 2.2%
unemployment rate steady at 4.7%
PCE inflation raised to 1.4% from 1.2%
PCE core inflation raised to 1.7% from 1.6%
0.50-0.75% (1 hike) 6
0.75%-1.00% (2 hikes) 9
More than 1.00% (3-4 hikes) 2
US Empire Manufacturing 6.0 vs street (4.5) vs previous (9.0)
US producer prices (0.1%) as expected
US core PPI 1.2% vs street 1.0%
US industrial production (0.4%) vs street (0.2%) vs previous 0.7%
US manufacturing production (0.4%) vs street (0.1%) vs previous 0.3%
US DOE crude oil inventories (0.9 mmbbls) vs street (2.3 mmbbls)
US DOE gasoline inventories (2.6 mmbbls) vs street (0.175 mmbbls)
Canada manufacturing sales 1.0% vs street 0.6% vs previous (0.9%)
Canada existing home sales (2.8%) vs previous 3.1%
Overnight Brexit Polls:
ComRes for the Sun Remain 46% Leave 45% narrows dramatically from Remain 52% Leave 41% last month
IPSOS Mori Remain 58% Leave 33% among likely voters
UK jobless claims (0.4K) vs street 0K vs previous (2.4K)
UK 3M employment change 55K vs street 60K vs previous 44K
UK average weekly earnings 2.0% unchanged vs street 1.7%
UK unemployment rate 5.0% vs street 5.1%
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)
8:45 am AEST NZ GDP street 2.6% vs previous 2.3%
11:30 am AEST Australia employment change street 15K vs previous 11K
11:30 am AEST Australia full-time previous (9K)
11:30 am AEST Australia part-time previous 20K
11:30 am AEST Australia unemployment rate street 5.7%
2:00 pm AEST ish Japan BOJ decision no changes expected
8:30 am BST Swiss SNB decision no changes expected
9:30 am BST UK retail sales street 3.9%
9:30 am BST UK retail ex auto street 3.8%
12:00 pm BST UK BoE decision 0.50% and £375B no change expected