Gold is back to its highest level after the dollar’s decline
S&P futures, European stocks, and bond yields all fell in the early trade alongside oil and the euro after the latest Fed minutes expressed concern over weak U.S. inflation, while Asian equities rose overnight ahead of WalMart earnings and the latest ECB minutes. Gold rose as high as $1,290 before fading most gains as the USDJPY rebounded. Fund futures are now pricing in about a 40% chance the Fed will raise rates by December, compared to 50% before the Fed’s minutes.
But political angst isn’t over; investors continue to watch the political train wreck in Washington where President Trump disbanded two high-profile business advisory councils amid the fallout from his response to the weekend violence in Virginia.
Lost in the political noise were the July FOMC minutes, where the most notable takeaway was the reference to “most participants expected inflation to pick up over the next couple of years….and to stabilize around the 2% objective over the medium term”. However, many participants “saw some likelihood that inflation might remain below 2% for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.” The debate on inflation echoed recent comments made public by various Fed presidents, while some members noted the “committee could afford to be patient….in deciding when to increase the rates further and argued against additional adjustments until incoming information confirmed that the recent low inflation was not likely to persist”. However, those comments were balanced by the observation that “…some other participants were more worried about risks arising from a labor market that had already reached full employment and was projected to tighten further from the easing in financial conditions”. Elsewhere, on the balance sheet unwind topic, “several” members favored an announcement in the July meeting, but most preferred to defer that decision to the next meeting in September.
With concerns about weak inflation in the air, the Stoxx 600 Index was down 0.1%, with declines in banking shares offsetting advances in healthcare stocks. Germany’s DAX, France’s CAC 40 and the UK’s FTSE 100 all fell 0.1%. Yesterday’s Reuters’ trial balloon, according to which Mario Draghi would not say anything of note next week during the Jackson Hole conference, weakened the euro, which traded as low at 1.1700 this morning.
In currencies, sterling was once again a key focus for FX markets amid further tier 1 data from the region, this time with retail sales on the data slate. Upon the release, GBP/USD saw a spike higher after 3/4 headline metrics exceeded expectations before prices were dragged lower to pre-announced levels with all 4 components revised lower. USD has regained some ground against its major counterparts following the losses were seen last night in the wake of the FOMC minutes. USD has particularly out-muscled EUR with participants looking for further insight via the ECB minutes into the current train of thought at the central bank given yesterday’s source reports. AUD has regained some ground amid firmer metals prices, subsequently shrugging off the domestic jobs data overnight.
Looking at the day ahead, we’ve got a fair bit of data due today including July IP (0.3% mom expected), capacity utilization, conference board US leading index (0.3% expected), the Philadelphia Fed business outlook survey (19 expected), initial jobless claims and continuing claims stats. Away from the data, the ECB will publish the account of its July policy meeting and the Fed’ Kaplan will also speak. Further, Wal-Mart will report its results today.
The Euro reversed gains from the Asia Session to trade lower on the crosses before and after the European Central Bank publishes the minutes of its July meeting.
Dollar Index – The dollar index gained 0.2% following a 0.5% drop on Wednesday, alongside U.S. data releases, investors will keep an eye on the speech by Fed’s Kaplan who is a voter on Monetary Policy.
USDJPY – The Yen led gains among the G-10 peers, rising to a high of 109.67 vs the dollar. USDJPY longs held by macro and leveraged accounts were trimmed overnight as turmoil from the White House weighed on the dollar.
GBPUSD – The Sterling saw somewhat of a repeat of its reaction to data seen on Wednesday. The pound failed to sustain gains above $1.2900 and traded slightly lower for the day.
AUDUSD – The Aussie saw gains during the Asian session only to trade close to the open as the London Session saw more selling on the pair. The shooting star formation is a bearish pattern and could foreshadow a correction
USDCAD – Forming a Doji as of this writing the USDCAD, reflecting indecision on the pair after dropping during the FOMC Minutes.
Dow Jones – Down for the day, the index has dropped below the 22,000 but close very close to it as it tries to rally back higher.
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