Following in the footsteps of the Federal Reserve yesterday and the Bank of Japan on Tuesday, the Bank of England is also expected to leave its monetary unchanged. Therefore, the market is not expecting much on this side. However, the BoE will also provide an updated version of its forecast for growth, inflation, unemployment and wages. Out of this, the main thing the market will scrutinise is how Mark Carney’s team has been taking into account the upcoming Brexit against the backdrop of relatively solid growth. In the latest inflation report published in November, the MPC revised its growth forecast to 1.4% for 2017 compared to 0.8% three months earlier in response to a weakening pound. However, despite the fact that the BoE was overly pessimistic in its August report regarding its growth forecast for 2017, the institution expects that the country will really start to feel the sting of Brexit at this end of this year. Given the fact that the economy has been surprisingly resilient recently, we would be surprised if the BoE revises its forecast to the upside for this year.
British manufacturing activity fell during the first month of 2017, as the weak British Pound pushed the prices of imports sharply higher, a private survey revealed on Tuesday. Markit/CIPS said its Purchasing Managers' Index dropped to 55.9 points in January after hitting its two-and-a-half year high of 56.1 in December. However, the figure came out in line with market analysts' expectations and remained above the 50-point level separating expansion from contraction for the sixth straight month. Data showed the weaker Sterling boosted new export orders but also drove acceleration of manufacturers' input cost inflation. However, analysts suggest that the positive effects of the weak Sterling on British exports could actually come to an end in the upcoming months. Back in January, factory prices reached their highest level since 1992, when the first Markit PMI survey for the UK manufacturing sector was published. Last month, consumer price inflation hit its two-and-a-half year high of 1.6%, remaining just 0.4% below the Bank of England's inflationary target. Wednesday's survey suggests that the manufacturing sector is likely to make a positive contribution to the country's economic growth in the first quarter of 2017. After the release, the Pound touched its six-day high of 1.2614 against the US Dollar.
US private companies created far more jobs than expected in January, data published on Wednesday showed. The ADP National Employment Report, a jobs survey released two days before the official Bureau of Labor Statistics government report, revealed that the US private sector saw an increase of 246,000 jobs last month, surpassing markedly analysts' expectations for 165,000. Meanwhile, the December figure of 153,000 was revised slightly down to 151,000. Analysts widely expect the NFP report to show on Friday a 170,000 jobs gain for January, while the unemployment rate is forecast to remain unchanged at 4.7%. Separately, the Institute of Supply Management reported its Purchasing Managers' Index advanced to 56.0 in January, up from the preceding month's reading of 54.5 and surpassing analysts' expectations for 55.0 points. Any reading above the 50 point level indicates expansion in the manufacturing sector. Furthermore, the New Orders Index and Employment Index advanced to 60.4 and 56.1 in the reported month, respectively. Meanwhile, the Price Paid Index rose to 69.0 for the eleventh consecutive month in January, compared with 65.5 previously. The number slightly topped economists' forecasts for an increase to 66.0.
The number of Australian building approvals dropped in December after rising markedly in the preceding month, official data showed on Thursday. The Australian Bureau of Statistics reported building approvals fell 1.2% on a monthly basis in December, following November's upwardly revised jump of 7.5%. Nonetheless, the December figure was better than analysts' expectations of a 1.7% drop. On an annual basis, Australian building approvals decreased 11.4%. House building permits declined 1.6% month-over-month, whereas other dwelling approvals climbed 0.9%. The Australian construction sector is beginning to fade. However, so far it has experienced a rather slow decline in activity. In 2017, the construction sector is likely to see a rise of 212,000 new dwellings, according to the latest forecasts released by Commonwealth Bank of Australia. Meanwhile, the average house price is expected to grow just 5% in 2017 amid slow household income growth. Separately, the Australian Bureau of Statistics said the country's trade surplus hit A$3.51 billion in December, compared to the prior month's upwardly revised surplus of A$2.04 billion, while economists anticipated a decline to A$2.00 billion. As a result, the Kiwi rose to 76.30 against the Greenback, up from 76.00 seen ahead of the release.
Yesterday, the USD returned gains eked out after strong eco data as the Fed stayed muted on the timing of further rate increases. Today, a cautious risk-off sentiment may continue to weigh on the dollar. Sterling traders keep a close eye on the BoE policy decision. A positive BoE assessment might be (moderately) supportive for sterling
Investors hoping for more clarity on the path of U.S. interest rates were disappointed on Wednesday after the Federal Reserve left the fed funds target unchanged at 0.5%-0.75%, and refrained from providing any further indications on the timing of the next hike. The 500-word statement released didn't include any surprises. The Fed continues to see expansion in economic activity, solid jobs gain, moderate household spending, and added to that consumer and business sentiment have improved. This suggests that monetary policy makers were not worried about the most recent GDP figures which showed that the U.S. economy grew at its slowest pace since 2011.
In the UK, the main event today is the Bank of England (BoE) meeting, with the rate announcement and an updated Inflation Report published at 13.00 CET. We expect that the BoE will keep its monetary policy unchanged so focus is on the minutes, the economic projections and Carney's press conference. We also expect the bank to maintain its neutral bias by stating that interest rates could move ‘in either direction', as we think the BoE is reluctant to indicate rate hikes at a time of elevated political uncertainty. As we think the BoE will continue to signal slower growth/higher unemployment in the updated projections, we think it will see through inflation moving above target if it is only temporary due to the weak GBP. We think the current market pricing of a 15bp hike this year is very hawkish and we expect the BoE to stay on hold for the next 12M.
AUD rises to 2 1/2-month high as Australia terms of trade hits a record high amid recent rise in prices of iron ore and coal; Components showing value of shipments to China at record high, Iron ore at highest since Apr 2014, and Coal at highest since Nov 2008. Exports remained robust with 5% increase, though down from 8% prior. Conversely, Aussie building approvals contracted y/y for the 4th straight month, as analysts declare the peak in the housing market coming in 2016.
While Super Thursday should put the focus firmly on the UK today, the first two weeks of Donald Trump's presidency has been eventful, to say the least, so it's safe to assume potentially market moving headlines here are never too far away. Super Thursday marks the day once a quarter when the Bank of England announces its latest monetary policy decision, releases the minutes of the meeting, its quarterly inflation report including new forecasts and Governor Mark Carney chairs a press conference. Needless to say, it's often quite an eventful day, particularly in post-Brexit Britain when so much uncertainty exists for the economy.
The US Dollar rose initially following a much stronger than expected ADP Nonfarm Employment Change print. However, momentum waned after the Federal Reserve meeting and the Dollar eventually declined against all other major currencies in Asia. The Fed decided to keep rates unchanged, as expected, and maintained its hawkish bias. However, this was not enough to keep the Dollar rally alive, as traders had already anticipated such an outcome.
The Cable's defiance of last session's swing back to the dollar stands as a testament to the shift in underlying sentiment towards the embattled pair. Indeed, the market's reaction to Parliament's rather unified response to the Article 50 vote could be a bellwether of easing uncertainty and the return of some much needed optimism regarding the GBP's future. As a result, the 1.30 handle may not be as far out of reach as it has been over the past few months.
The Loonie has been under pressure the past few weeks as the pair has reacted to slumping sentiment for the greenback, as well as rising crude oil prices which have buoyed the CAD. Subsequently, price action has continued to creep lower over the ensuing period bringing it to a relatively critical juncture. However, there are some encouraging signs appearing amongst the technical indicators that could just be predisposing the pair to a rally in the near term.
As expected, this was largely a status-quo statement that highlighted some of the improvement in economic data as of late with the outlook across the FOMC appearing to be relatively constructive. Notably, the statement failed to highlight any potential risks (both upside and downside) that the U.S. economic currently faces.
Despite the annual rotation of four new voting members to the FOMC (and departure of 4), the Committee did not make any change to the policy rate today. There was, however, a slightly more optimistic tone in the accompanying statement. The statement highlighted the economy's continued expansion and solid labour market performance adding that confidence measures had improved. The risks to the near term outlook remained "roughly balanced."
The Federal Open Market Committee (FOMC) meeting has come and gone, and little has changed in the financial markets as a direct consequence. In unanimously deciding to keep interest rates unchanged, as widely expected, the Fed made few appreciable changes to the verbiage of its statement from the last FOMC meeting. Overall, the statement was relatively neutral, skewing slightly towards the dovish side, or at least not as hawkish as might have been expected given the recently renewed optimism pervading the US economy and financial markets since November’s US presidential election.
As expected, the Fed maintained the target range unchanged at 0.50%-0.75% and made no major changes to the FOMC statement. Unfortunately, the statements usually do not change much from meeting to meeting and as this was one of the small meetings without updated projections or a press conference, we did not get any significant news on the Fed's economic outlook or when to expect the next Fed hike. The market reaction was very muted.
Last night's US data dump left more than a few investor's tongues wagging. ADP exceeded even the most optimistic of estimates while the US ISM data printed robustly across the main categories. On the other hand, the FOMC came off a tad dovish as the Fed continues to describe business investment as being 'soft'. The balance of their view remains mostly unchanged. As expected, the statement was not designed to light a fire under a potential rate hike at the March FOMC meeting, although the overall surging ADP data has added a bit of fuel to the debate. However, I caution reading too much into the ADP data as it does not necessarily correlate to an NFP surprise.
The Federal Open Market Committee (FOMC) issues its interest rate decision and statement today at 2:00 PM US Eastern Time (19:00 GMT), the first such decision of 2017. Interest rates are not expected to be raised at this time. Expectations in the Fed Fund futures market of a February rate hike currently remain at only around 4%. The last rate hike was in mid-December, when the Fed raised rates by 25 basis points - only the second such hike in over a decade. During the last FOMC meeting in December, members raised their outlook for the number of rate hikes in 2017 from the previous two up to the current three.
US crude has posted gains in the Wednesday session. In North American trade, US crude futures are trading at $53.44. Brent crude futures are trading at $55.90, as the Brent premium stands at $2.46. On the release front, ADP Nonfarm Payrolls sparkled with a gain of 246 thousand, well above the forecast of 165 thousand. ISM Manufacturing PMI improved to 56.0, beating the forecast of 55.0. Later in the day, the Federal Reserve issues a rate statement and set the benchmark rate, which is expected to remain pegged at 0.50%. On Thursday, the US will release the weekly unemployment claims report.
The U.S. manufacturing sector remained in solid expansionary mode at the start of the year, rising to the quickest pace in over two years. There are few areas of concern, particularly given the inventory overhang, with both producer and customer inventories, as well as the backlog of orders remaining in contractionary territory. Comments by survey respondents were generally positive, however, with few signs that global events have had a material impact on demand. Nevertheless, one respondent in the machinery industry did mention that they were concerned that import restrictions on hot rolled steel were beginning to result in supply shortages. Supply disruptions and potential shortages may become more of a concern to U.S. manufacturers should the new U.S. administration follow through with its threats to impose protectionist trade measures.
GBP/USD has posted slight gains on Wednesday, continuing the upward movement which marked the Tuesday session. In North American trade, the pair is trading just above the 1.2630. On the release front, British Manufacturing PMI came in at 55.9, matching the forecast. ADP Nonfarm Payrolls sparkled with a gain of 246 thousand, well above the forecast of 165 thousand. ISM Manufacturing PMI improved to 56.0, beating the forecast of 55.0. Later in the day, the Federal Reserve issues a rate statement and set the benchmark rate, which is expected to remain pegged at 0.50%. On Thursday, it's a very busy day in the UK. Construction PMI is the first order of business, followed by the BoE, which will publish its inflation report and set the benchmark interest rate. The US will release unemployment claims.
USD/JPY has posted gains in the Wednesday session, pushing above the 113 level. Currently, the pair is trading at 113.30. On the release front, Japanese Final Manufacturing PMI edged up to 52.7, within expectations. In the US, there are two key indicators - ISM Manufacturing PMI and the ADP payrolls. As well, the Federal Reserve issues a rate statement and set the benchmark rate, which is expected to remain pegged at 0.50%. On Thursday, the US will publish unemployment claims.
US equity markets are poised to open a little higher on Wednesday as we await a selection of economic data and the first FOMC monetary policy decision since Donald Trump's inauguration. Trump and his aides have made efforts in recent days to talk down the greenback which has to an extent been successful, with the dollar index having slipped back below 100 to its lowest level since the December meeting. This comes alongside markets also pricing in only two hikes this year - rather than the three that the Fed has outlined - with the next coming in June.
Today, all eyes will be on the FOMC rate decision. At the latest gathering, the officials raised the federal funds rate by 25bps for the second time in a decade, and revised up the projected path for interest rates in 2017 to indicate 3 hikes from 2 previously, surprising many market participants with their hawkish forward guidance. The forecast for this meeting is for the Committee to keep its rate hike powder dry, something overwhelmingly supported by market pricing. This will be one of the meetings that is not accompanied by updated economic forecasts nor a press conference by Chair Yellen and as such, the market action will probably come from the phrasing of the statement accompanying the decision.
Words do hurt, just ask all the dollar 'bulls' - the 'mighty' buck has just completed its worst January in thirty-years after President Trump complained that every other country lives on "devaluation." Nevertheless, the dollar is managing to drift a tad higher on the first trading day of a new month in anticipation of a 'hawkish' tone from the FOMC statement this afternoon (2pm EST). Yesterday, the greenback came under extreme pressure amid administration comments suggesting officials would prefer a weaker dollar.
EUR/USD has taken a pause on Wednesday, following strong gains in the Tuesday session. Currently, the pair is trading at the 1.08 line. On the release front, Manufacturing PMIs in Germany and the Eurozone were within expectations and both pointed to expansion in the manufacturing sector. In the US, there are two key indicators – ISM Manufacturing PMI and the ADP payrolls. All eyes will be on the Federal Reserve, which will issue a rate statement and set the benchmark rate, which is expected to remain pegged at 0.50%. On Thursday, the US will publish unemployment claims.
The Federal Open Market Committee kicked-off its two-day monetary policy meeting yesterday and will announce any modifications later today. There is no doubt that the Federal Reserve will leave its benchmark rates unchanged after lifting them by one notch at the December meeting. Instead, the market will focus on the Fed's assessment of the potential direct and indirect effects of Donald Trump's presidency on the economy. The January meeting is a light one, meaning that there will be no new economic forecasts or a press conference, just a statement.
So it is time to attack the Dollar? That was the name of the game yesterday after the Dollar was sent on a wild tumble following comments from Peter Navarro, the head of President Trump's National Trade Council that Germany was using a “grossly undervalued” euro to gain advantage over the US and its own European Union neighbours. This was later followed by outspoken comments from President Trump himself when he implied during a meeting with senior pharmaceutical bosses that currency devaluation from other countries had increased the probability of drug makers outsourcing their production as he calls on these companies to turn production back towards the United States.
Yesterday, the dollar declined as US president Trump and an one of his advisers openly accused Germany, China and Japan on keeping their currencies artificially weak. Today, the focus is on the Fed's policy statement. Will the Fed statement be hawkish enough to counterbalance the recent USD negatives coming from the Trump administration?
The first FOMC meeting of the year will conclude today, when the Fed announces its latest policy decision and releases a statement. There will be no press conference from governor Yellen, and no change to the dot plot of interest rate expectations, these won't be updated until March, instead the focus will be on the statement.
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