US markets were little changed last week. US Consumer Prices again faltered, coming in at 2.0% Y/Y for May versus expectations of 2.1%. Headline US retail sales missed the mark too at 0.5% vs expectations of 0.6% M/M for May, but April’s print was revised to +0.3% and was strong enough to create a small dollar rally, notably against major cricketing currencies GBP, AUD and NZD as well as the Euro.
Gold eased back to 1345oz from highs of 1360oz on relief that the current tensions on the US/Mexico trade front have dissipated for the moment. Oil came more into focus as two ships were sabotaged in the Gulf of Oman, increasing US Iranian tensions, although WTI Crude oil closed the week lower at 52.28 per barrel. In the UK, Prime Minister hopeful Boris Johnson won the first ballot in the UK leadership race.
This week is one for inflation gauges and interest rate announcements, with the UK, Canada and Japan announcing CPI numbers and the UK, Japan and the US announcing interest rate decisions. New Zealand releases 1st quarter GDP.
What is clear, with respect to the US is that pressure is mounting for the Federal Open Markets Committee to cut interest rates, perhaps not this meeting, but certainly this year. The Fed seems to be entertaining a policy of “acting appropriately to sustain expansion” which I believe to be over and above their mandate as stated below.
“The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment.”
Unless I’m mistaken, “prices” in the context of the mandate are for goods and services and not stock market prices. Therefore, I feel it is folly for the Fed to intervene in bolstering equity markets with accommodative monetary policy when the market is still overflowing with cash that was printed with alacrity since 2008. The US is expected to keep interest rates on hold on Wednesday.
Bank of England Governor Carney has hinted at rate hikes in the UK. Certainly, a weak British Pound plays into this scenario. The pound has not reacted well to the Conservative party leadership battle and the odds on the UK leaving the European Union with no Brexit deal are escalating. EURGBP at 0.8900 has been a major beneficiary of UK political uncertainty and of Worldwide uncertainty as a whole. The UK is expected to keep interest rates on hold on Thursday. UK CPI on Wednesday is expected at 1.7% Y/Y for May.
New Zealand 1st quarter GDP is expected at 2.4% Y/Y on Wednesday.
There seems little that can move the needle in Japan at the moment. Expect interest rates to remain on hold at negative 0.1% early on Thursday morning. Japanese inflation on Friday is expected to read 0.7% Y/Y for May.
A currency that has been broadly strengthening for the last few weeks is the Canadian dollar, after interest rates were kept on hold at 1.75% on May 29, GDP surprised to the upside at 1.3% Y/Y March on 31 May, and the Labour report impressed on June 7th with unemployment falling to 5.4%. Canada CPI will be released this Wednesday and is expected to read 2.1% Y/Y for May. The Toronto Raptors also won the coveted NBA basketball trophy to give some more cheer to many Canadians.
This week ECB President Draghi, Bank of England Governor Carney, RBA Governor Lowe and Fed Chair Powell are all expected to speak or be part of economic panels. Of these, Powell’s remarks post the Fed meeting on Wednesday are the most likely to affect markets.
Good luck and good trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You can Too.
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