Good morning,
Nothing new in the States
Much like the skies over London this morning the currency markets are murky and more than a little foreboding. Volatility was thin on the ground yesterday and will likely be so as well today as we gear up for tomorrow’s meeting of the Federal Reserve’s Open Markets Committee and its decision on interest rates. While a hold is as expected as the sun to rise in the east tomorrow, we will be searching for further clues on the central bank’s decision to try and reduce the size of its $4.5trn balance sheet.
The dollar has been quiet in Asian trade overnight and was little affected by Jared Kushner’s statement that he had had no improper contact with Russia during the Presidential campaign. Both Kushner and former Trump campaign Chairman Paul Manafort will once again testify in front of lawmakers on Wednesday.
Over exuberance bleeding out of European data
European PMIs – sentiment data on both the services and manufacturing sectors in France, Germany and the wider Eurozone – weakened yesterday. While this is not a huge surprise, we had thought that some over exuberance may have crept into the numbers, continual strong and employment and spending sentiment is not meaningfully creating inflation. With that in mind we see signs of an ECB blindly pressing on with a policy of tightening monetary conditions as incorrect. The euro looks and feels overly strong here and a correction is likely but, given issues elsewhere, may have to come from a run of weaker than expected data. Today’s German IFO reading of business sentiment will provide us this opportunity.
Kiwi dips on cattle disease discovery
Overnight news has been rather slow and idiosyncratic; the Kiwi dollar slipped slightly after the Ministry for Primary industries detected a disease in a dairy herd of cattle that, while of no risk to humans via milk consumption, can have serious effects on the cows. Dairy is the country’s number one export and anything that damages those terms of trade will hurt New Zealand and its currency. While this does look to be an isolated case and nothing as serious as something such as ‘mad cow’, investors will be waiting to see if the disease spreads to more than the 150 cows who are currently showing signs they are infected.
Oil a little higher on output cost chatter
Oil rose a little yesterday prompting gains for CAD and NOK as Saudi Arabia and other members of OPEC promised cuts to supply in the coming months.
Have a great day
Jeremy Cook, Chief Economist