Good morning,
Fed hints that 2nd half of 2017 likely to be quieter than the first
The minutes of the latest Federal Reserve meeting were enough to send the dollar down to the weakest levels since November overnight as the Committee in charge of setting interest rates for the US economy hinted that rises that have been seen in the first half of this year may not be echoed in the second half.
Similarly, plans for the reduction of the Fed’s balance sheet – assets that were bought as part of the numerous quantitative easing programs – were widely talked about although, as one Fed member noted on Tuesday, “it will be the policy equivalent of watching paint dry.” The crucial issue is to prevent a slide in bond markets and wider US assets as we saw in 2014 when then Fed Chair simply talked about reducing the amount that the Fed purchased on a monthly basis.
A lot of currencies in limbo
The fact that I am beginning the morning update with such a dry piece of news is a symptom of the fact that there is very little going on at the moment.
- USD is bracing for more political risk upon Trump’s return from his trip to Europe and the Middle East.
- GBP will see the election campaign creak back into gear by tomorrow but there is very little belief that the central scenario of a large Tory win has changed in recent days.
- Commodity currencies like the AUD, CAD, NZD, ZAR and NOK are waiting on the news from the OPEC meeting in Vienna as to what level of oil output will generate the higher prices some within the cartel need.
- News from China has gone deathly quiet despite the downgrade by Moody’s. Regional emerging market currencies are making gains against a weak USD.
- And that leaves the euro which is doing what it has been doing for a few weeks now; gaining ground as political risk is transferred elsewhere and the data from the Eurozone remains resolutely positive.
No new news in UK GDP numbers
The highlight of the session will likely be the 2nd reading of UK GDP at 09.30. We do not expect too much volatility from the release given how long ago Q1 was and how much more present data has likely already captured the trends of weak growth, poor consumer spending and unsure investment. We think that the consumer spending picture will remain weak for the rest of the year at least courtesy of the squeeze that higher prices and lower wage settlements are having on people’s consumption habits.
The UK government is also expected to update us on the levels of migration into the UK economy in 2016. In the 12 months to September 2016 the UK had welcomed 273,000 migrants. Theresa May has pledged as part of her manifesto that the number will be brought below 100,000.
Other than that, there is very little going on. I’d go and have an ice cream and enjoy the sun before our 100hrs of summer comes to an end.
Have a great day.