FED keeps loans interests rate unchanged

There was no surprise from this week’s FED meeting, as Janet Yellen announced there would be no loans interest rate hike in September.

There was no surprise from this week's FED meeting, as Janet Yellen announced there would be no loans interest rate hike in September.

The interest rate has not moved since last December’s decision to move interest rates from 0.25% to 0.5%. Another rate hike in December 2016 is now looking a shoe in.

It seems that unless global economic sentiment deteriorates in the next few months, December is seen as a good time to move again. As key data solidified in recent months, the Fed now want to see ‘economic progress’. Employment and inflation will be scrutinised until the end of the year, and the Fed members seem more aggressive as three voted to move rates, where as in July there was just the one.

UK’s public sector net borrowing falls

The UK’s Public Sector Net Borrowing fell in August, as the latest figures from the Office for National Statistics were released. The Public borrowing figure has dropped to £10.5 billion from July, down £0.9 billion from a year earlier, but the numbers had been expected to fall an additional £500 million. UK Borrowing in the present economic year to date has touched £33.8 billion, which is £4.9 billion lower than the previous year.

The ONS did say that ‘there was no clear sign of Brexit voting affecting the figures’. They also added that ‘receipts from income and corporation taxes rose strongly compared with a year ago, but VAT receipts rose at their slowest annual pace since March 2015′.

Also out was positive car production news in the UK, as car production touched a 14 year high in August. According to the Society of Motor Manufacturers and Traders (SMMT), just over 109 K vehicles were released from manufacturers hands, up 9.1% year on year.

Attention shifts to Sterling

Following a bit of an anti-climax after no policy changes from the FED on Wednesday we only saw a narrow trading range of about 100 points on the GBPUSD pairing yesterday. We surprisingly saw an even narrower trading range on GBPEUR yesterday considering we had the President of the ECB, Mario Draghi speaking at 2 pm. Further to this, he gave a speech at the first annual conference of the ESRB (European Systemic Risk Board) where he discussed overbanking in Europe and macro-prudential policy. We didn’t see too much market movement during this speech as it was mainly focussing on the broader picture of the over European banking system.

Attention focuses on Eurozone and US PMI

With not much news to drive the market today, the attention will be focussed on Eurozone and US PMI. So far, both have shown resilience in the face of the UK’s vote to leave the EU although analysts will be watching for hints of pre-election nerves within the US economy.

Bank of England leaves interest rates on hold

Wise Money is pleased with loans interest rates news from Bank of England.

Wise Money is pleased with loans interest rates news from Bank of England.

The Bank of England rate decision meeting didn’t provide any fireworks last week, as UK policymakers voted 9-0 in favour to keep interest rates unchanged. Despite signalling further rate cuts in the future, the decision didn’t come as a surprise considering the amount of stimulus they introduced last month.

The central bank is monitoring recent data closely, and they are encouraged to see that the stimulus package seems to be working, as recent data has been fairly positive and at times even better than market expectations.

It appears that investors are still not worried about the implication of the Brexit, at least until they find out what it really means. For this they will have to wait until article 50 is invoked early next year.

Busy money market data releases

It has been a very busy 24 hours in terms of economic releases. In the US, data came in softer, led in particular by a disappointing retail sales number. Headline sales were down -0.3% last month, the first decline in 5 months. Excluding autos and gas, spending fell -0.1%. Industrial production also declined in August, printing -0.4% against a market expectation of -0.2%.

It wasn’t all bad news though, as manufacturing activity encouragingly bounced back in the New York and Philadelphia regions, but it is not enough to convince investors that the FED will have enough reasons to lift interest rates next week.

Data in Europe will be quiet with final Q2 wages numbers due out in France. In the US, investors will closely look at August CPI report with market expectations of an increase of +0.1% month on month. Those numbers also match the views of our US economists. As always in the US, the University of Michigan consumer sentiment is scheduled for release.

Wise Money watches FED eyeing US data

The US FED is watching the to non manufacturing data to decide on interest rate hike.

The US FED is watching the to non manufacturing data to decide on interest rate hike.

Sterling has started the week on the front foot after last week’s positive manufacturing PMI print coupled with a better than expected services PMI sector. With Friday’s US non farm payroll data falling considerably short of expectations, the Pound rallied and GBPUSD currently finds itself trading just over the 1.33 mark.

The weak print from the US jobs data put pressure back on the Federal Reserve on the interest rate decision given that they were so heavily banking on employment numbers. At the Jackson Hole symposium last month, Janet Yellen and various Fed members were fairly hawkish on increasing interest rates but the fall in job growth has meant that analysts are now expecting the next hike in December at the earliest, if any.

However, later today, we are expecting data from the US including ISM non-manufacturing composite numbers which will be heavily watched by the markets as it could be the last resort to finalise any action from the Federal Reserve.

GDP revisions and retail PMI numbers expected from the Eurozone

From the Eurozone, second quarter GDP revisions and August’s retail PMI numbers are out today which could put further pressure on the euro. Last week’s manufacturing PMI data fell well short of expectations from the Eurozone and news flow and economic sentiment have rapidly deteriorated over the past fortnight.

Given such uncertainty, all eyes will turn to the ECB meeting later this week as markets are preparing themselves to see what stimulus measures the European Central Bank will further undertake.

In the midst of weak data from the US and the Eurozone, coupled with surprisingly positive data prints from the UK, Sterling seems to be enjoying a steady consolidation phase for the moment although any sharp moves up are fairly limited due to the uncertainty and forthcoming negotiations on how ‘Brexit’ will pan out.

A 10 year treasury gilt auction makes for the sole activity on the economic calendar for the UK today.

Pound up after bank holiday weekend

After the 3 day weekend, the markets have opened up after fully digesting the Fed Jackson Hole meeting with the Pound increasing over the bank holiday weekend.

After the 3 day weekend, the markets have opened up after fully digesting the Fed Jackson Hole meeting with the Pound increasing over the bank holiday weekend.

Janet Yellen’s suggestion that a rate rise is still likely has seen the FTSE strengthen again by 0.3%, but oil has stated to come under renewed pressure.

With a hike now potentially in September a real possibility, Brent Crude found itself trading below $50 per barrel once more and with that, the price for those who do not hold US Dollars as their base currency will find all oil based products more expensive to purchase.

Number of investments coming into UK at year high

The number of investments that come into the UK was at a year high, up a big 11%.

A number of the 116,000 jobs created were said to have been created from overseas investments, also showing the UK as the most appealing region in Europe to do business.

A number of reasons were given as to why the UK attracts so well, such as the English language (spoken globally), fair tax and EU membership, which could now become a hindering block after Article 50 is triggered.

Today’s key data is mixed in terms of geography, with UK Mortgage Approvals, Fed’s Fischer speaking on Bloomberg and German Consumer Price Index out today which may move the markets.

FED keeps interests rates flat

The Federal Reserve last week sparked US dollar weakness as they kept interest rates on hold.

The Federal Reserve last week sparked US dollar weakness as they kept interest rates on hold. The forecast outlined by the Fed at the beginning of the year was for four gradual rate rises over the course of the year, but now markets are anticipating just one further hike, if any at all during 2016. This is owing to the uncertainty in global markets as well as flat lining inflation and global growth concerns.

Despite this, commodity prices have rebounded slightly. This has helped stock markets recover from their slump earlier in the year and triggered a strong rally in risk assets.

Markets will be keenly watching this week’s data from the US for further direction as we move into the Easter weekend. Core Durable Goods and unemployment claims are released on Thursday.

While the Federal Reserve have chosen to remain dovish on forthcoming monetary policy, the European Central Bank have expanded their quantitative easing programme and cut deposit rates.

The outlook for growth and inflation in the EU has continued to slow further, but this has helped reverse the negative sentiment; with the Central Bank standing firm in its efforts to boost inflation.

Sterling rallies against the dollar

Sterling has rallied almost 4 cents against the US dollar on the back of dovish comments made by the Fed last week on monetary policy as well as a watchful evaluation of global growth conditions.

As monetary policy gets slightly less divergent, fears regarding a Brexit scenario and a soft inflation outlook has capped any further gains for the pound.

The CBI Industrial Trends Orders print is the only set of data out on the economic calendar to provide further direction.

US Non Farm Payroll data released

The Non-Farm Payrolls is arguably the most important release of each month but this month it will be the most vital indicator for the future direction of the US Dollar.
US Non Farm Payroll data released
Ben Bernanke and the FED hinted for months that the improvement outlook in the US labour situation could trigger a scaling back of Quantitative Easing. September has become to be known as SepTaper as a tapering of the asset purchase programme could be a real possibility.

The US dollar, stocks and treasury yields indicates that many investors are still unsure there is enough reason for the Federal Reserve to taper asset purchases in September and the Non-Farm Payrolls today could provide vital clues.

According to most economists a 150,000 reading or better will be enough for the FED to scale down QE. According to the consensus, the market is expecting a reading of 180K and if past NFP releases are any guide, anything below consensus could spark a US Dollar selloff. There is a strong argument for a bullish number.

Service sector activity expanded at its fastest pace since January 2006 and interestingly, the employment component of the report rose to its highest level in 6 months. The ISM index rose from 56 to 58.6 in the August. Jobless claims dropped to 323k from 332k and continuing claims also declined by 43k to 2.95 million. The only disappointing data came from the manufacturing sector where job growth slowed slightly despite an increase in activity.

Over in Europe, the ECB kept interest rates unchanged. Draghi started yesterday’s press conference talking about the gradual signs of recovery, but he warned of downward risks. Draghi conceded, while answering one of the questions, that he doesn’t exclude the possibility of more rate cuts again if market interest rates move in an unsatisfactory way.

The ECB has been uncomfortable with the rise in the market interest rates and he has used forward guidance to reduce volatility to contain the market’s overreaction to the recovery. The ECB raised its 2013 GDP forecast to -0.4% from -0.6% but lowered next year’s forecast to 1.0% from 1.1%. Widespread improvements in U.K. data contrast sharply with mixed economic reports from the Eurozone.

The Bank of England has also left monetary policy unchanged yesterday. We will have to wait two weeks to see if the MPC members are comfortable with a much improved outlook for the UK economy.

The US Dollar continues to struggle as interest rates fears persist

There was further turmoil in the market late in trade yesterday as there were hints, again, that the Federal Reserve in America may start to taper or reduce the amount of Mortgage Backed Securities they purchase a month.
The US Dollar continues to struggle as interest rates fears persist
This sent the markets into a flurry of risk off activity with government bond yields increasing across Europe while major European indices lost over 1% on average.

This came after industrial output in the UK came in slightly better than expected across the board citing oil and gas production as a major factor.

Yesterday saw GB Pound/US Dollar rise over 1.56 for the second time in three days this was mainly dictated by the sharp rise in EUR/USD to 1.3315 to hit an almost 4 month high.

The GBP/EUR has continued to remain range bound and after earlier pressure it regained its composure to keep the trading range between 1.1690 – 1.1775.

After the recent flurry of positive data, before new governor Mark Carney takes the reins at the Bank of England, it is expected that today’s claimant count change will have fallen again, for the 7th month, in May in another positive sign that the UK’s job market is finding its feet as the nation continues to hire.

On the other side of the pond – as further hints about the Fed tapering the 85 billion worth of MBS purchased a month continuing to weigh on the greenback we have a quiet session ahead data-wise.

Without any strong positive news or data for the US it is likely the USD will continue to struggle today against GBP and EUR but mostly remain range bound between 1.5550 and 1.57 where key support and resistance levels.

As the legality of the Open Market Transactions continue into their second day in the German Constitutional Court, further negative news for the euro has struck with Greece being downgraded from a developed nation to emerging-market status as the local stock index has fallen 83% since 2007.

This morning’s data release saw inflation figures across the Eurozone’s 4 largest economies remain stagnant with France seeing a slight fall to 0.1% against expectations of 0.3%.

Wise money markets look to central banks for future direction

After the positive US Confidence figures to start last week US Dollar suffered as the week came to a close, so did the Dollar rally and strength that was sustained for the past 3 weeks.
Wise money markets look to central banks for future direction
With mixed messages coming from America, the USD suffered as investors continue to look for further hints at reductions in the Fed’s current cycle of monetary stimulus, as stock markets start to suffer.

This morning, April Chinese Manufacturing PMI was revised downwards, in further signs that momentum in the Republic is continuing to falter as domestic demand is flagging.

Also, this morning weaker then consensus retails sales data from Australia is continuing to weigh on the currency ahead of tomorrow’s interest rate decision.

In the UK there is a quiet week data wise to follow with Manufacturing PMI this morning expected to show slight growth at 50.2 and Services PMI on Wednesday showing growth at 53.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take the reins in July.

This is unlikely to be much of an event this month with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

Over the channel after the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Manufacturing PMI data today and Services on Wednesday are expected to come in line with releases late last month to show a brighter picture in the Eurozone but that the area is still struggling to find growth in the sectors.

FED tapering fears worry wise money markets

FED induced volatility across the US Dollar crosses is the major wise money markets theme this week- after the deliberate vagueness from Chairman Bernanke over the taping of asset purchases at the end of last week.
FED tapering fears worry wise money markets
We are desperately trying to discount the effects of withdrawing stimulus, particularly withdrawing it too early, leading to whipsaw action in risk markets and across the USD pairs.

Add to the mix the best consumer confidence figure from the US since the financial crisis and the overall sentiment gets even messier to try and gauge. What exactly is the dominant trend here? An improving US economy or the Fed scaling back asset purchases, the recent volatility suggests no one is quite sure of the answer at the moment.

Apart from the usual month end flows to keep things interesting, today should be reasonably quiet because of a lack of big ticket data. Looking forward to next week there is the ECB and Bank of England monthly meetings plus US non-farm payrolls to digest.

Turning first to the central banks, both are expected to keep policy on hold, with more details from the ECB on its credit easing policy top of the agenda after announcing the bare bones of it last month. June marks the outgoing BoE governor last MPC meeting before Mr Carney takes over and he is not expected hand over with a change to the asset purchase scheme.

Non-farm payrolls for May are expected to show around 175K jobs created and the unemployment rate to continue to fall, from 7.5% to 7.4%.

Fed policy is highly unlikely to be affected to any changes to the data but the tapering effect, as the market tried to second guess the next move by the Fed is likely to be large meaning volatility is here to stay for the time being.

US Dollar gives up recent gains

The US Dollar was the main focus yesterday as US equities opened lower following on from the lower sessions in Asia and Europe.
US Dollar gives up recent gains
The fall in equities came largely from fears that the printing presses would be slowed in the US and this has largely led to a stronger US Dollar.

However comments from Fed officials soothed fears that imminent scaling back was not on the cards and this seemed to help momentum swing into USD weakness.

My thoughts are that we will need to see significant improvements above what we have seen so far in the underlying labour market conditions before the Fed commit to scaling back on asset purchases.

In Europe the European commission revealed that Spain and France are to be granted an extra two years to get their budgets into line.

The softening in tone corresponds to a change in tact away from austerity and towards growth and job creation and it will be interesting if this translates over to the UK.

Elsewhere the Bank of Canada in Mark Carney’s last meeting left rates unchanged but warned that interest rates could rise as economic conditions improved, this led to gains in the Canadian Dollar.

There is little focus for today in relation to economic data with US jobless claims the highlight with an expectation that labour market conditions should maintain their upward momentum. We also have preliminary US GDP with the expectation that the quarter on quarter figure will maintain at 2.5%.