Will The BOE And RBA Soothe The Markets?Critical Week Coming Up, NFP On Tap
The Week That Was
In the last week of July, oil prices were hit new lows as a persistent global supply glut and slowing economic growth weighed on the market. The Energy Information Administration reported on Wednesday that crude stockpiles in the US for the preceding week unexpectedly rose by 1.7 million barrels instead of falling by 2.3 million barrels as forecast – ending the run of nine consecutive weeks of reduction. The total production from US suppliers also increased 0.25% to 8.515 million barrels per day (mbpd) in the week to July 22nd, in comparison with output in the previous week of 8.494 mbpd.
Baker Hughes Inc reported on Friday that the total rig count in the US was up to 374, as drillers continued adding oil rigs for a fifth straight week. On Friday, oil prices plummeted below the level of $41/barrel for the first time in over three months, and then bounced back a bit as investors took profits on bearish positions. During the week-long selloff, oil prices declined nearly 6%, bringing the monthly contraction to around 15%. The US benchmark, West Texas Immediate crude, ended July trading at $41.69, after dropping to a low of $40.88 a barrel.
Over in Europe the European statistics office Eurostat reported on Friday that the EU economy grew at a slower pace in the second quarter. GDP in the 19 countries sharing the euro rose only 0.3%, retreating from an increase of 0.6% in the first quarter of 2016. Growth in the EU is anticipated to see further slowdowns in the near future as there have been no visible, bright signals of a strong recovery up to this time.
Meanwhile, in the US, the Bureau of Economic Analysis reported Advance GDP for the quarter ending in June 2016, with a preliminary reading of 1.2%, far below analysts’ expectation of 2.6%. The US economy expanded less than forecast as investment by companies was down, still wary of the shaky global situation during the recent economic turmoil. The softer development in the economy now creates some difficulties for the FED’s policy makers looking for sustained improvement in economic data, for another rate hike in the upcoming meetings.
On July 27th, after concluding the two-day meeting on monetary policy, the Federal Reserve Bank reached a consensus that the target range for the federal funds rate would be left unchanged at 0.25% to 0.5%. The FED also noted that cautious and gradual steps on monetary policy should be undertaken, on the back of some weak data from economic growth. In line with the FED’s observation on mixed economic data, orders for durable goods in June, reported on Wednesday, stumbled by 4% – marking the largest monthly decline in almost two years.
The greenback fell significantly against its rivals in the last week of this month. The dollar index DXY was at 95.53 points at the closing bell of the US trading session on Friday, losing about 200 points from the previous close in the week ending on July 22nd.
By the contrast, Japanese yen soared steeply after the Bank of Japan announced its stimulus measures to the market after the two-day rate review meeting that ended on Friday. According to statements released,, the BOJ would double the purchases of exchange-traded funds (ETF) to an annual pace of 6 trillion yen from the current 3.3 trillion yen. This was also the only stimulus measure announced, as the base money target was kept on hold at 80 trillion yen and the negative interest rates remained unchanged at minus 0.1% – as implemented at the start of this year.
Investors, who had been pricing for a more radical stimulus, were disappointed with the announcement. After the annoucement, the safe-haven yen jumped up significantly versus other major currencies. It registered an intraday decline of 3%, and last traded at 102.044 per dollar, near the important threshold of 100. In comparison with the pound, the strengthening yen led the pair GBPJPY to a two-week low of 134.889 and also closed near that level.
Gold accumulated quite a substantial weekly gain, thanks to a softer US dollar, settling at $1350.55/oz, trimming all the losses from the low of $1312.22/oz reached early this week.
The Week Coming Up
In the coming week, the Reserve Bank of Australia and The Bank of England are scheduled to hold their monthly meetings for August. While markets hold a strong expectation that the RBA will lower the benchmark rate by 25 basis points to a fresh low of 1.5% at the meeting on next Tuesday, the UK benchmark rate is also expected to be cut to a record low of 0.25% on August 4th . The BOE surprised investors earlier by keeping rates unchanged at 0.5% at the previous meeting in July.
The US Non-Farm Payrolls report – will be published on Friday, with a forecast for 180,000 new jobs to have been created during July. This will be an important release coming up after the exceptionally strong reading of 287,000 new jobs created in June. Weekly jobless claims in the US for the week ending on July 30th, will be out on thursday. They are anticipated to come in near the figure of 266,000.
By the end of the week, Canadian Trade Balance for June will be reported by Statistics Canada. The trade balance for June may register a deficit of 2.6 billion, compared with a shortfall of 3.3 billion in May. All data are in US dollar terms.
In other notable events for the week, US, UK and China will report PMI data this week. Chinese’s manufacturing PMI is expected to be at 50.1 in July, 1 point higher than the previous reading. In the UK, while the July index for manufacturing and services sectors is likely to be unchanged, the construction PMI is forecast to edge down to a level of 44.2 from 46.0 in June. US’ ISM PMI for manufacturing and non-manufacturing sectors may continue staying above the average of 50, but may come in a little lower than it did in the month prior.