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Macro Events & News

Market Analysis
2016-07-22_0828

FX News Today

European Outlook: Asian stock markets moved broadly lower, led by a more than 1% decline in Japanese bourses, after BoJ’s Kuroda dampened hopes for “helicopter money”, saying that there is currently “no need and possibility for helicopter money”. The reaction highlights how much markets are still relying on stimulus hopes and U.S. and U.K. stock futures are also heading south, pointing to opening losses on European markets, which would give Bund and Gilt futures the chance to recover from yesterday’s dip. Bunds underperformed yesterday as Draghi re-affirmed the wait and see stance and today’s PMI readings from Europe and the U.K. will be watched carefully amid signs of a growing split between financial market and real sector assessments of the impact of the Brexit impact. The ECB also publishes the results of its survey of professional forecasters.

ECB Wait and See Until September: The ECB didn’t spring any major surprise today, with Draghi effectively confirming the central bank’s wait and see stance at least for now. Uncertainty has clearly risen but so far seems to affect financial markets much more than the real sector and central bankers – not just in the Eurozone – want to have more time to assess the real impact of the Brexit vote. An overreaction now may lay the ground for difficult corrections now, but at the same time Draghi left the door to a policy review in September wide open and was eager to stress that the central bank is not just willing, but also able to act again if necessary. The ECB did the expected today and left policy unchanged. The Brexit referendum turned out to be not quite the Lehman moment many had feared and after the initial turbulence stock markets have settled down again and the DAX is back above the psychologically important 10000 mark, while Eurozone spreads have stabilised. And while central banks on both sides of the channel stepped in to ensure that there were no liquidity shortages, especially at the ECB the prevailing feeling seems to be that more time is needed to assess the longer term implications of the U.K.’s decision to leave the EU.

US Data Reports: Today’s U.S. reports revealed a July headline Philly Fed drop to -2.9, but with big component gains for all but prices that left a stronger than expected report, alongside a 1k drop in initial claims to 253k in the BLS survey week that leaves a tight path for claims through the auto retooling period. The mix suggests upside risk for our 180k July payroll estimate. We also saw a 1.1% June existing home sales rise to a 5.57 mln new cycle-high that left a 9.9% four-month sales bounce though the important spring months, alongside a 16.8% four-month median price rise to a new all-time high of $247,700, and a 0.3% June leading indicators bounce that leaves a big Q2 climb in this gauge alongside the assumed bounce in GDP growth to 2.7% in Q2 from 1.1% in Q1.

US VIX equity volatility vaulted nearly 9% higher to the 12.79 highs as stocks finally caved in and declined after successive gains of late. Intel slumped over 4% and risk aversion popped up after the terror arrests in Brazil. That saw the yen, gold and Treasuries catch a bid at the expense of stocks and help reverse the VIX, which hit a trend low of 11.40 yesterday, just ahead of year lows of 10.88. The VIX 200-day moving average back up near 17.34 may provide a handy near-term target for those who don’t believe complacency is a great hedge ahead of partisanship and electioneering this fall. Meanwhile, the S&P 500 has stalled under its 2,175 all-time high after surging from Brexit lows of 1,991 on June 27, with its 200-day m.a. way down at 2,036.3.

Main Macro Events Today

  • Euro Area, UK and US all publish  PMI Today’s release of preliminary PMI readings marks the first major real sector survey since the Brexit vote and expectations are for a marked dip in confidence. We are looking for a decline in the manufacturing reading to 52.2 (med 52.0) and a dip in the services number to 52.3 (med same) from 52.8. There is some chance of an upside surprise after French national confidence numbers yesterday unexpectedly improved and Draghi also highlighted yesterday that there seems to be a marked disparity between financial sector assessments of the Brexit vote and economist estimates and real sector views.
  • CAD Retail Sales & CPI  We expect today’s CPI release to reveal a 0.2% m/m gain in June CPI (median +0.1%)on a not seasonally adjusted basis following the 0.4% increase in May as higher gasoline prices provide another boost. CPI is projected to expand at a 1.5% y/y growth rate in June (median +1.3%), matching the 1.5% pace in May. The Bank of Canada’s core CPI index (CPI-X) is anticipated to slip 0.1% m/m in June, in line with the moves seen in recent months of June, after the 0.3% gain in May. The CPI-X should slow to a 2.0% y/y pace in June (median same at +0.2%) from 2.1%. In last week’s announcement, the BoC judged that risks to the inflation profile are balanced. This report will not challenge that view.

 

 

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Stuart Cowell

Market Analyst

HotForex

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