FOMC Minutes Being Awaited As Equity Markets Near 2 Decade Highs

The Week That Was

The week through August 12 witnessed some stock markets hitting 17-year highs along with a comeback by the crude price, on a potential freeze deal that could be reached next month, with the prospect of a re-balancing of the crude market.

Most global equity markets closed the week in the green, led by positive sentiment from three U.S benchmark stock indices which climbed to the highest levels since 1999 on Thursday thanks to a nearly 4% advance in crude prices that helped boost the energy sector.

Saudi Arabia’s Energy Minister Khalid Al-Falih said in a statement on August 11 that the kingdom might unite with other members of the Organization of Petroleum Exporting Countries and non-OPEC producers to take action to stabilize the market, during informal discussions being held on September 28-29. WTI crude finished the week at a 3-week high at $44.76 per barrel while Brent rocketed to  the highest level since July 21 at $47.15 per barrel.

GBPUSD extended its losses into a second week, falling to $1.29194 after Ian McCafferty, who is widely considered as the only “hawk” in the nine-person BOE committee, adopted a dovish tone in remarks made on Tuesday, stating that the “Central Bank’s benchmark rate can be cut further, closer to zero, and quantitative easing can be stepped up”.

Meanwhile, the Pound didn’t receive any support from the fundamentals side. The U.K. Office for National Statistics reported on Tuesday that manufacturing output fell 0.3% in June, worse than the consensus forecast for an unchanged reading.

The U.K.’s trade deficit also widened in July to 12.4 billion pounds ($16.2 billion) from 11.5 billion pounds, one month earlier, as imports rose faster than exports. According to HSBC, the pound needs to weaken substantially to prevent further deterioration in the U.K.’s current-account deficit. The U.K.’s largest bank by assets said that the pound could trade as low as $1.10 by the end of 2017.

The New Zealand dollar rocketed to more-than-one-year highs at $0.73417 after its central bank  followed in other central bank’s footsteps in cutting interest rates. The RBNZ trimmed its rate to a fresh record low of 2.00 percent but disappointed some investors who were looking for a half percentage point cut and more aggressive signals on further easing. The New Zealand central bank’s latest interest rate move marked the sixth cut in the last 14 months as the RBNZ is attempting to combat low inflation, amid stimulus measures deployed almost all around the world.

Gold prices closed lower on Friday, coming back to the weekly opening price after jumping sharply higher following data published by the Commerce Department that reported that U.S advance retail sales for July were flat, compared to a revised figure of 0.8% for June. Core retail sales, which strip out auto sales, dropped 0.3% last month, compared with a revised figure for June of 0.9%. Both figures that were released on Friday, fell short of expectations, as economists had expected the retail sales and core retail sales to come in with a rise of 0.4% and 0.2%, respectively.

In a separate report by the Labor Department, U.S. producer prices unexpectedly tumbled by 0.4%, the first decline since March and the largest since September 2015. The fall, that was mainly caused by declining costs of services and energy products, disappointed analysts that had forecast the PPI to edge up by 0.1 percent, especially after the 0.5% rise in June.

Compared to one year ago, the PPI slipped 0.2 percent after rising 0.3 percent in the 12 months through June. Economists had forecast the PPI gaining 0.2 percent on a year-on-year basis. Energy prices fell 1.0 percent while prices for services fell 0.3 percent in July.

A gauge of underlying PPI that excludes food, energy and trade services was unchanged last month after rising 0.3 percent in June. The core PPI was up 0.8 percent compared to a year earlier but remains far away from the Fed’s 2 percent inflation target.

Apart from the strong labor market, an inflation moving towards the Fed’s target level will be a motivation for the Fed to undertake another rate hike. However, a strengthening dollar and cheaper oil continued to keep prices low last month, leaving price growth weak. The possibility of the Fed tightening rates this year has fallen to 34.3% from above 40% before the data release on Friday.

The Week Coming Up

The markets will be turning their attention to an upcoming release on Wednesday,which shall form the highlight of the key information flows being watched by the market in the coming week. The minutes of the Federal Reserve’s July policy meeting will be published on Wednesday. The market shall be closely scanning the minutes for fresh clues on the timing of the next U.S. rate hike.

U.S. inflation data coming out on Tuesday will also be in focus, as investors attempt to gauge if the world’s largest economy is strong enough to withstand an increase in borrowing costs in the coming months. US CPI is expected to remain flat in July while the core CPI which strips out food and energy, is forecast to rise by 0.2%.

On the same day, the U.S. is also scheduled to release report on building permits and housing starts and industrial production, before reporting jobless claims on Thursday.

In other Central Bank news being watched in the coming week, minutes of the most recent monetary meeting held by the Reserve Bank of Australia are due to be published on Tuesday. The minutes are expected to give investors insight into how RBA officials view the economy and their policy options.

The European Central Bank will be the last central bank to publish its monetary policy meeting minutes next week on Thursday. Revised data on consumer inflation in the EU will also be out on the same day.

Out in the UK, there is a wealth of data to track. Traders should watch for data on consumer prices on Tuesday, the monthly jobs report on Wednesday, retail sales on Thursday and public sector borrowing on Friday.

Canada is to round up the week with reports on retail sales and consumer inflation.

Leave a Reply

Your email address will not be published. Required fields are marked *