by The most important thing to appreciate is that the market has moved to price not one but two cuts next year. The first is priced into the September Fed funds futures and the second is in the Dec Fed funds futures. This I in response to weaker than expected data that have elevated recession fears. The Atlanta Fed GDPNow puts Q2 growth at -2.1%. Banks have revised down their forecasts, but none of the 59 economists in the Bloomberg survey have forecast a negative number. The June employment report is the data highlight and the median forecast in Bloomberg’s survey is at 273k. The year-over-year pace of average weekly earnings is expected to have slowed for the third consecutive month. The euro fell to almost .0365 ahead of the weekend but remained above
Topics:
Marc Chandler considers the following as important: 4) FX Trends, 4.) Marc to Market, AUD, CAD, ECB, Featured, Federal Reserve, Germany, jobs, JPY, newsletter, RBA, USD, yields
This could be interesting, too:
Eamonn Sheridan writes CHF traders note – Two Swiss National Bank speakers due Thursday, November 21
Charles Hugh Smith writes How Do We Fix the Collapse of Quality?
Marc Chandler writes Sterling and Gilts Pressed Lower by Firmer CPI
Michael Lebowitz writes Trump Tariffs Are Inflationary Claim The Experts
- The most important thing to appreciate is that the market has moved to price not one but two cuts next year. The first is priced into the September Fed funds futures and the second is in the Dec Fed funds futures. This I in response to weaker than expected data that have elevated recession fears. The Atlanta Fed GDPNow puts Q2 growth at -2.1%. Banks have revised down their forecasts, but none of the 59 economists in the Bloomberg survey have forecast a negative number. The June employment report is the data highlight and the median forecast in Bloomberg’s survey is at 273k. The year-over-year pace of average weekly earnings is expected to have slowed for the third consecutive month.
- The euro fell to almost $1.0365 ahead of the weekend but remained above $1.04 on Monday. The ECB meets July 21. Most expect a 25 bp hike, but the focus is on the tool/efforts to prevent divergence of European interest rates, which the ECB argues disrupts its transmission mechanism of monetary policy. Meanwhile, on another front, Germany reported its first monthly trade deficit in 21 years in May as exports fell (0.5%) and imports rose (2.7%). A trade shortfall of 1 bln euros was recorded instead of a 1.6 bln euro surplus that was expected. Some have blamed the Germany trade surplus for a number of world ills, including the US trade deficit. Ironically, the German trade deficit is a reflect of problems (higher energy prices, weaker demand abroad).
- The US 10-year yield fell 25 bp last week, the most since March 2020. The yen was the only major currency to gain (albeit slightly) to rise against the dollar. The CFTC data showed that for the seventh consecutive week, the net short yen position was reduced. It now stands at the lowest of the year at a still substantial 52.6k contracts (less than half of the mid-May peak). It is the longest bout of short covering since 2019. The dollar toyed with its 20-day moving average on Monday (slightly below JPY135) for the second consecutive session. It has not closed below this moving average since the end of May. Japan has Upper House elections on Sunday, July 10. A Yomiuri newspaper polls projects the LDP and its partner, Komeito Party will secure 65-80 of the 125 seats in contention.
- The US dollar peaked before the weekend near CAD1.2965 before pulling back. It continued to unwind its gains on Monday, and at one point, dipped briefly below CAD1.2840. The Bank of Canada’s quarterly survey, released on Monday, found business and executive inflation expectations are still rising. The market has 75 bp hike nearly fully discounted for the July 13 central bank meeting. That said, the BA futures have 33 bp cut discounted in Q4 2023, but the chances of a Q3 2023 move as in the US, is seen at a little better than 70%. The highlight of the week is the jobs report on Friday. In May, Canada reported blowout numbers, creating !135k full-time jobs. The unemployment rate stands at 5.1%, the lowest since the mid-1970s when the time series began. The US dollar has not settled below its 20-day moving average (~CAD1.2865) since June 9. The CAD1.2800 area is important technical support, and a break could see CAD1.2680-CAD1.2730.
- At the end of last week, the Australian dollar fell to new two-year lows (~$0.6765). It recovered to closed around $0.6815, and to almost $0.6890 on Monday. Early tomorrow, the Reserve Bank of Australia will hike the policy rate (cash rate). It has 40 bp of tightening discounted. That implies 100% confidence of a 25 bp move and a 60% chance of a 50 bp hike instead of 25 bp. The final composite (and services PMI) will be reported shortly before the central bank’s decision. The composite PMI downshifted in May to 52.9 from 55.9. The preliminary estimate was at 52.6.
You Might Also Like
Macro and Prices
2022-07-02
(Combining the weekend macro commentary and price action review in one note. Check out the July monthly.) Three economic reports highlight the week ahead: Japan’s labor cash earnings at the start of the week and the US employment report and China’s CPI at the end of the week.
Consolidation in FX Featured
2022-06-27
Overview: The strong equity market rally seen at the end of last week is carrying into today’s activity. Most of the large markets in Asia Pacific rose by at least 1%.
Risk Appetites are Fickle
2022-06-22
Overview: Yesterday’s strong US equity gains failed to carry over into today’s session. Japanese and Australian shares fared the best among the large Asia Pacific market, with the Nikkei off less than 0.4% and the ASX off less than 0.25%.
Equities Jump, Dollar Slips, and European Yields Drop
2022-06-21
Stocks are rallying. Nearly all the large bourses in the Asia Pacific region rose with China being the noted exception.
Dollar Jumps, Stocks and Bonds Slide
2022-06-13
The prospect of a more aggressive Federal Reserve policy has spurred a sharp sell-off in global equities and bonds and sent the dollar sharply higher. The large Asia Pacific bourses were off mostly 2%-4%.
Dollar Gains Pared
2022-06-02
Asia Pacific equities were mostly lower. China and India bucked the trend. Europe’s Stoxx 600 is steady with no follow through selling after yesterday reversal. US index futures are posting modest gains and are trying to snap a two-day drop.
Equities Finding a Bid in Europe After Sliding in Asia Pacific
2022-04-08
Overview: The capital markets are calmer today. The market is digesting the FOMC minutes, where officials tipped an aggressive path to shrink the balance sheet and confirmed an “expeditious” campaign to lift the Fed funds rate to neutrality. Benchmark 10-year yields are softer, with the US off a couple basis points to 2.58%. European yields are 1-3 bp lower.
Capital and Commodity Markets Strain
2022-03-04
Overview: The capital and commodity markets are becoming less orderly. The scramble for dollars is pressuring the cross-currency basis swaps. Volatility is racing higher in bond and stock markets. The industrial metals and other supplies, and foodstuffs that Russia and Ukraine are important providers have skyrocketed. Large Asia Pacific equity markets, including Japan, Hong Kong, China, and Taiwan fell by 1%-2%, while South Korea, Australia, and India managed to post modest gains today. Europe’s Stoxx 600 is off more than 2.5% to bring this week’s loss to a little more than 6%.
Tags: #USD,$AUD,$CAD,$JPY,ECB,Featured,federal-reserve,Germany,jobs,newsletter,RBA,yields