FOMC, RBA And Non Farm Payrolls In Focus In Holiday Shortened Week

The Week That Was

 

On Tuesday June 28, the US Consumer Confidence Index, which had decreased in May, witnessed an improvement in June, according to the Conference Board. The index, which measures the relative level of current and future economic conditions including labor availability, business conditions, and overall economic situation of the country was at 98.0, up from the 92.4 reading in May.

The number of barrels of crude oil held in inventory by commercial firms during the week to June 24 witnessed a 4.1 million barrel fall, beating the market’s expectation of a 2.3 million barrel drop. After the figure was reported, oil prices surged significantly. In particular, the West Texas Immediate price hit $49.90 per barrel, up 3.5% compared with the last settlement. Whereas, the Brent price soared from 49.91 to 50.91, up 3.03%.

 On June 30, the UK Current Account Balance for Q1 2016, that measures the difference in value between imported and exported goods, services, income flows, and unilateral transfers  was reported with more-than-expected deficit of 32.6 billion pounds, compared with the market’s prediction of a deficit of 27.3 billion. For the last quarter of 2015, the deficit announced was 34.0 billion. The sterling, which has plunge miserably since the Brexit referendum’s result, continued its down-move against the US dollar to as low as $1.32015 after the negative economic data.

The Japanese Yen stayed at 102.552 JPY per dollar on Friday. The surge of the Yen has been pushing the country’s government into a headache due to the deflation situation, which is made worse by a strengthening Yen.

According to data from the Japanese government on Friday, core CPI, which excludes fresh food prices, fell by 0.4% in the 12 months to May, following the 0.3% drop in the previous month, marking the steepest drop in prices since May 2013.

On the last two days of the week, a wide range of the positive Japanese economic figures were published, supporting the Yen. The country’s Consumer Confidence, jumped to the highest level in around 5 months at 41.8 in June, up 2.2% compared with May’s 40.9. Meanwhile, the Housing Starts data, indicating the number of new residential buildings that began construction in May, rose 9,8%, far beyond investors’ hope of a 4.9% rise. The Purchasing Managers’ Index (PMI), measuring the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories, was also seen at 48.1 in June, adding 0.6% from May’s 47.8.

In the US, the Manufacturing PMI in June was reported higher than analysts’ expectations at 53.2 after being reported at 51.3 in May. However, the US dollar still edged down against the basket of major currencies, as the prospect of a Fed rate increase by the end of the year appears very low under current conditions. The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.24% at 95.63 in comparison with the last trading.

The Week Coming Up

The week begins with the Independence Day Holiday in the US. As a result, markets are expected to have low volumes and thin trading action.

The Cash Rate Statement from the Reserve Bank of Australia shall be the first point of focus for the markets. The statement communicates the RBA’s decision on interest rates and commentary about  economic conditions that influenced their decision. More importantly, it discusses the economic outlook and offers clues regarding future decisions. Volatility is expected in the Aussie around the release.

FOMC meeting minutes from the previous Fed meeting will be released on July 6, providing deep insights into the economic and financial conditions that influenced the FOMC vote on rates. Details of the internal discussions within the FOMC, on the domestic economy and inflation expectations will be very important for the market’s overall sentiment.

The US employment report for June will be released on Friday July 8th. The May employment report came as a huge disappointment for the global market with an increase in non-farm payrolls of just 38,000 compared with expectations of an increase of over 150,000. This month, the number of employed jobs created during the previous month is anticipated to rise by 181,000. A strong figure can boost confidence that the economy is in good overall health, with the potential for interest rate increases in the medium term. On the other hand, a weak report would maintain the current degree of uncertainty surrounding the outlook and trigger a flow of concern surrounding economic prospects, with Fed tightening firmly off the agenda.

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