After a Brexit-fueled bumpy start, markets entered a long and boring summer lull, with many traders closing books and going on vacation.
But as we get into September, the summer lull looks set to end with a bang, as investors returning from vacation turn their attention to the growing possibility the Federal Reserve will hike interest rates in the weeks ahead.
On Friday, Asian stocks headed south as market participants mostly held fire ahead of clues from Janet Yellen, Fed Chair.
The S&P/ASX 200 tumbled 0.1%, South Korean Kospi lost 0.4%, while in Hong Kong, the Hang Seng Index acquired 0.6%. As for the Shanghai Composite index, it edged up by 0.1%.
Fed Chair is expected to speak later in the global trading day at the Jackson Hole meeting of key bankers.
In Japan, the Nikkei Stock Average slumped 0.9%, with insurance and automobile shares affected by expectations that Fed Chair would deliver downbeat news regarding the American economy. There’s no doubt it would push down bond profits and weaken the greenback.
Lower yields diminish insurers’ returns, while a weakening greenback pushes the Japanese yen higher, thus hurting Japan’s export competitiveness.
Toyota Motor tumbled 3%, Honda Motor lost 2.5%, while Nissan Motor sank 1%.
Financial experts find a December rate hike quite probable.
FTSE 100 tumbles, though miners find relief
British shares headed south, set to round off the trading week with a loss, as market participants waited for an update on Britain’s economic growth as well as a closely watched speech from Yanet Yellen, Fed Chair.
The FTSE 100 dropped 0.2%, being worth 6,802.00, with healthcare as well as consumer goods among the dropping sectors. As for miners, they traded higher after staying under pressure this week. The London benchmark has found itself on track to sink 0.6% for the week - a second straight weekly loss.
On Thursday, the index sagged 0.3%, weighed by those losses for drug makers and miners.
However, on Friday, BAE Systems PLC managed to top the FTSE 100. Shares grew 1.2% as the defense company’s rating was upgraded to purchase from hold at Berenberg.
Friday’s trading session will see the issue of a second reading of the UK’s GDP for the second quarter.
Ahead of the British GDP publication, in New York, the sterling rose $1.3217 from $1.3175 late on Thursday.
On Wednesday, the evergreen buck grew, moving off its recent minimums against the major Japanese currency overnight, as financial markets looked to a meeting of global major bankers in Jackson Hole, Wyoming for hints whether the Fed is braced for raising interest rates again or not.
Tuesday’s data revealed that in July, new American single-family home sales suddenly soared, reaching their highest value in almost nine years as demand surged broadly, brightening the housing market outlook.
At the end of the week, Fed Chair Janet Yellen is expected to address the key bankers gathered for the annual mountain retreat, which starts on Thursday.
Recent hawkish comments from Fed Vice Chairman Stanley Fischer as well as New York Fed President William Dudley have spurred some investors' hopes that Janet Yellen might take a less cautious tone.
The US dollar soared 0.1% to 100.30 yen having nudged below 100 yen overnight to 99.925.
The dollar index, traditionally estimating the evergreen buck’s strength against a basket of six key counterparts, grew 0.1%, being worth 94.593.
Aussie and Kiwi tumble moderately in Asia
The New Zealand and Australian dollars descended modestly after recent data revealed that missed hopes as well as cautious trade ruled ahead remarks due at the end of the trading week from the Fed Chair.
In Australia, construction work done edged down 3.7% during the second quarter, quite below the tumble of 1.9% observed quarter-on-quarter. Earlier, in New Zealand, July’s trade balance came in at a deficit of about NZ$433 million month-on-month as well as at a deficit of NZ$3.03 billion year-on-year. Both those outcomes have turned to be wider than expected.
The currency pair NZD/USD was worth 0.7285, down 0.05%. Meanwhile, AUD/USD sagged 0.01%, trading at 0.7614. USD/JPY traded at 100.26, showing a 0.02% rise.
Overnight, the greenback remained broadly lower against the other key currencies, as market participants remained cautious ahead of Friday’s statement by Fed Chair Janet Yellen.
In June, new home sales were revised down to 582,000 units a 1.7% revenue, from the previous reading of +3.5% to 592,000 units.
On Friday, the evergreen buck held firm, backed by comments from a Fed speaker, suggesting that an American interest rate hike this year is still real because inflation pressure keeps growing.
American retails sales data along with a series of Chinese economic indicators due later in the day will be the market's next key focus points, though trading could be slow with many investors in Japan on leave this week for the summer holidays.
The dollar's index against a basket of six key counterparts edged up to 95.906 from this week's minimum of 95.442 achieved on Wednesday, though it will probably conclude the week lower, having lost approximately 0.3% so far.
The evergreen buck appears to be on a much more substantial footing than when financial markets were worried about the actual impact of Brexit. It might take time a bit but its direction is definitely looking upwards.
Against the Japanese yen, the evergreen buck firmed to 101.83 yen from this week's minimum near 101 yen, although it stood still on the week so far.
Aussie goes down on disappointing China data
The Australian dollar sagged on gloomy data out of key trading partner China on industrial output, retail sales as well as fixed-asset investment.
China’s fixed-asset investment for July soared 8.1%, below a pace of 8.8% observed year-on-year, while industrial production acquired 6.0%, also below an expected at 6.1% year-on-year revenue, while retail sales headed north 10.2% under the expected up 10.5% year-on-year growth observed.
The currency pair AUD/USD traded down 0.26%, hitting 0.7190, while USD/JPY was worth 102.15, up 0.19%.
Earlier, in New Zealand, the Business NZ PMI tumbled to 55.8 for July, sagging from a previous reading of 57.7. Moreover, core retail sales for the second quarter leapt 2.6%, better than the quarter-on-quarter reading observed up 1.1%. As for full retail sales, they spiked too, approximately up 2.3%, compared to a 0.9% quarter-on-quarter revenue observed and an annual pace of 6.0%, thus outpacing the 4.9% expected from the same quarter a year ago.
The currency pair NZD/USD hit 0.7195, showing a 0.21% sag after of the figures and also a statement that the major bank would delay measures just to curb house loans.
EconomyVN - USD dropped against most of the major currencies during yesterday's trading session as investors reassess the ability to raise interest rates by FED this year in the context of no new additional economic indicators might indicate clearly about the US economy's health.
The greenback strengthened as reported non-farm jobs in July announced on Friday (05th of August), much better than expected, increasing speculation that Federal Reserve will raise interest rates later this year . However, dollar's rally has stalled in the absence of catalysts in the context of the trading volume expected this week at a low level because many investors entered the summer vacation.
Many analysts predict FED will raise interest rates in December this year and believe that the Fed will not act before the President election in November. The speech of Federal Reserve Chairman Janet Yellen at the annual conference of the finance ministers and central bank governors in Jackson Hole, Wyoming on 26th of August are closely monitored by investors for more clues about when interest rates are raised.
The dollar continues to have 3 consecutive declines with a quite sharp fall on Wednesday supported the gold prices rallied in Asian, European and early US session. Nevertheless, then taking profit has braked the rise in gold prices and closed with modest gains. At End of yesterday session, gold prices rose 6 dollars to the world $ 1.346 / ounce.
The market today continues absence of information important impact. Economic data released today is the number of last week applications for US unemployment with the forecast of rising slightly from 269,000 to 272,000. As volume this week is forecast at a low level, data is launched today can impact on the evolution of the main currency pairs in the market.
New York Fed governor - William Dudley - said that the market should not eliminate the possibility that US Federal Reserve System (Fed) will raise interest rates this year.
In a press conference on 1sth August in Bali between Fed officials and financial managers, Mr. Dudley said that the market is too complacent as forecasting the Fed will raise interest rates by 25 basis points from today until the end of 2017.
Thanks to improved consumption, Mr. Dudley expects the US economy will grow at a rate of 2% in the next 18 months.
If the coming information reinforces economic outlook, US monetary policy will need faster moves than the price in the future to neutralize the market because the labor market tends to tighten and the inflation increases.
In addition, Mr. Dudley also noted that the market has underestimated the ability that no.1 economy grows faster than forecast.
The risks affecting growth such as the UK to leave the European Union (EU) and other international moves will soon ease. If the events, which have a negative impact, happen, Mr. Dudley said the US economy will require a faster growth rate than people expect.
Mr. Dudley supposed that this time is too early to exclude the possibility of tightening monetary policy further in 2016. It depends on the data, and no one can predict precisely.
In last week's policy meeting, the Federal Open Market Committee (FOMC) - who are directly responsible for the monetary policy of the Fed - have decided to keep interest rates unchanged at 0.25 to 0, 5% although they admitted the job market has been strengthened and other indicators also showed growth.
The last time, when Fed raised interest rates in December last year, is also the first time as they raised interest rates from nearly 0% for almost a decade.
On the other hand, in their statement, FOMC said inflation has not shown signs of growth yet and as the forecast, this situation will last. Chairman Janet Yellen and her colleagues noted that inflation will only increase as the energy prices retreat and the job market continues to grow.
Mr. Dudley said that the medium-term risks to the US economy tend to decrease in near future.
For that reason, he suggested that the market may believe that the Fed will likely stick plans to raise interest rates two times as their plan launched earlier.
According to the governor, Fed is adopting a risk management approach and they were prudent with the risks of tightening fiscal policy. Although the market supposes that Fed is cautious too early, but they decided to choose this method to not have to deal with the later discovered risks.
However, the Fed was slow to react to inflation risks. Inflation policies may be adjusted by increasing short-term interest rates quickly.
By ending the regular meeting lasted two days 26-27th of July, almost all Fed officials agreed to postpone raising interest rates to keep track of economic indicators before deciding on policy adjustments in the next session. Up to 9/10 of votes cast in favor of unchanged interest rates at 0.25%-0.5%.
Some bright views in the FOMC statement issued after the meeting, are that the labor market has returned to strong growth, consumer increases sharply. The agency claims that short-term risks threatening the US economic outlook have disappeared. In the opposite direction, a statement said inflation is still low and this situation may continue for the short term. However, inflation will rise again when the energy prices recover and the labor market continues to improve.
Dollar Index, measuring the strength of Dollar against a basket of currencies rose 0.4% immediately after the Fed announced the results of the meeting. However, the greenback was bearish back against most of the major currencies as investors disappointed with the absence of specific signals on raising interest rates, especially plan of adjusting interest rates at the next meeting in September.
In spite of not raising interest rates in this meeting, however, Fed's assessment on the US economic situation has increased expectations of interest rate hikes in the coming months. Wall Street investors bet 20.9% chance of rate hike in September and 49.5% in December. US dollar is expected to continue to show strength in the future.
The yen yesterday witnessed volatility with the soared USD / JPY after Reuters reported Japanese government is expected to issue 50-year bonds to support big fiscal stimulus programs. However, the yen then rebounded when the Japanese Finance Ministry denies rumors related to 50-year bonds.
After the Fed meeting, the market's attention focused on the results of the meeting of the Central Bank of Japan (BOJ) to be announced tomorrow. This session will be closely monitored in the context of that the Japanese government determines to implement a huge stimulus package to revive the economy of the country. Analysts predict BOJ will ease monetary policy further and most likely the agency will increase the size of the bond purchase program from 80 trillion yen per year to 100 trillion yen while reducing interest rates on deposits from minus 0.1% to minus 0.3%.
The continuous price rise of the dollar has temporarily halted when greenback dropped again against most of the major currencies during yesterday's trading session due to taking profit by investors after US dollar index measuring the strength of the dollar against a basket of currencies, goes to its highest level for 4 months. Besides, the carefulness before Fed meeting result made investors reduce bets on the greenback.
The result of periodic policy meetings of Fed will be announced today, and the agency is expected to keep interest rates at this meeting. However, investors will closely watch policy statements issued after the meeting of Fed in order to know about the current situation and prospects of the US economy. The recently released data show retail sales, consumer prices, and industrial production in the US in June rose further. Meanwhile, reports of non-agricultural jobs in June announced earlier this month, also stressed the labor market is recovering strongly and allay concerns about the deceleration of economic growth. The positive data in the US economy prompted investors to increase expectations that Fed will raise interest rates before the end of this year.
According to observers, after the relatively peaceful attitude in June, this announcement of Fed may indicate a more optimistic tone before the improvement of recent economic data. However, do not exclude the possibility that the Fed expressed a cautious view when the agency is awaiting the evaluation of the impact of the UK to leave the European Union for the outlook of the US economy before making any orientation interest rate policy in the coming period.
The yen this morning decreased sharply after Reuters reported the Japanese government is expected to issue 50-year-bonds to support the big fiscal stimulus program which will be launched. However, the currency subsequently bounced back as Japanese Finance Ministry denies rumors related to 50-year bonds. Also this morning, Prime Minister Shinzo Abe said the fiscal stimulus package in this time values over 28 trillion yen (265 billion dollars) and details will be announced next week. Information about the strong package of government will be announced before the meeting shelf of the Central Bank of Japan (BOJ) held on Friday, 29th of July. Analysts predict the BOJ will ease monetary policy further and most likely the agency will increase the size of the bond purchase program from 80 trillion yen per year to 100 thousand billion yen while reducing interest rates on deposits from minus 0.1% to minus 0.3%.
Brent and NYMEX earn in Asia as traders look ahead to API estimates
On Tuesday, crude oil prices held their revenues with traders cautious after bearish supply forecasts unsettled the energy market overnight and also ahead of industry estimates on American stockpiles.
The American Petroleum Institute is expected to publish its estimates of American crude and refined stockpiles late on Tuesday, with the US Department of Energy to issue its own more closely-watched data on Wednesday.
In New York, September delivery WTI crude futures soared 0.23%, hitting $43.23 per barrel, while October delivery Brent crude futures soared 0.33% at $45.28 per barrel.
Overnight, oil futures edged down abruptly, going down to a new three-month minimum, as continuing concerns regarding global oversupply as well as a resurgent American dollar remained in focus.
During Monday's trading session, crude sagged to its lowest value since late-April as market participants reacted to further indications of a supply glut on global energy markets.
Gold dips towards 1-month minimum ahead of Fed gathering
On Tuesday, gold kept extending its losses from the previous session during European trade, going down towards a one-month minimum, as market participants readjusted their trading positions ahead of the Fed’s two-day monetary policy gathering due to start later this day.
As a matter of fact, the Fed isn’t supposed to take action on interest rates at the conclusion of its gathering on Wednesday, though market participants are on the verge of scrutinizing its policy statement for new hints as for the timing of interest rate lifts within the next several months.
In New York, December delivery gold futures sank 0.18%, being worth $1,324.80 per troy ounce. Yesterday, the given commodity dipped to a session minimum of $1,311.10 per troy ounce, just higher a one-month minimum of $1,310.70, as renewed hopes for a Federal Reserve rate lift later this year drove the greenback.
A recent string of better than expected American data revived rumors that the Fed is going to lift interest rates before the end of 2016. Currently, interest rate futures are pricing in a 52% chance of a rate lift by December, compared to less than 20% the previous week and up from 9% at the beginning of this month.
USD rose to the highest level in four months in last trading session of the week as the positive economic data increased expectations that US Federal Reserve (FED) will raise interest rates until the end of the year. In trading sessions of 20th July, the US dollar index measuring the strength of the greenback versus a basket of currencies was closed at 97.50 raising to 0.5%, the highest since March 2016.
According to the Association of American national real estate, home sales in the country last month rose 1.1% in June, the fourth consecutive rising month, the highest level since February 2007. On the job market, Labor Department said the number of applications for unemployment benefits on 16th of July firstly fell 1,000, to 253,000, a 13-week low. Data released earlier also showed that retail sales, consumer prices and industrial production in the US in June rose further. Meanwhile, reports of non-agricultural jobs in June announced earlier this month, also stressed the labor market is recovering strongly and allay concerns about the deceleration of economic growth.
The recently released positive data on US economy increases expectations of investors that Fed will raise interest rates before the end of this year. The percentage predicting the Fed will raise interest rates by 0.25% from the end of the year has risen to 46% from 12% in earlier this month.
Periodic policy meeting of Fed will take place on 26th and 27th of July, and in anticipation of observers, the agency will keep interest rates at this meeting and wait for the evaluation of the impact of the UK leaving the EU for US economic outlook before adjusting interest rate policy. In spite of not giving policy direction for the coming period, any positive assessment of Fed for the US economy bring considerable support for USD.
British Pound fell sharply in the last session of the week because British economy shows worrying signs of the first month since UK chose to leave the EU. Markit survey published on Friday showed that both PMI manufacturing and services in July of UK will fall below 50, this indicates contraction. In July PMI fell to 47.7 from 52.4 in the previous month. Thus the index has fallen to the lowest level since early 2009. July's PMI warns UK economic growth will decline significantly in the third quarter. Most analysts predict that the Bank of England (BoE) will cut interest rates at its meeting next August and the issue is whether the cut will be 0.25% or 0.5%.