• Japan debt rating cut
  • Rate hike expectations strengthening
  • U.K. wages rising
  • Commodities extend rally

japan

In a move that shows that Japan is nowhere near their anticipated recovery, Standard & Poor’s (S&P) has cut Japan’s long-term credit rating from AA- to A+. Prime Minister Shinzo Abe is well known for his huge fiscal stimulus policy designed to get Japan out of a long period of deflation. S&P is sending the message that it isn’t working well enough, as inflation continues to hover around 0 and public debt approaches 250% of GDP. It appears that the market expected this; USDJPY is up only .1%.

The controversy surrounding if the Fed will hike rates tomorrow or not is reaching its zenith. It is worthy to note that expectations for September have risen 4% since Monday, though they are still low: around 1/3 probability. Will the Fed raise, choosing a short-term movement over more volatility?

Are commodities coming back? Oil futures are up 1.5% in today’s session after rising 1% yesterday. Precious metals are up as well, surprisingly. Bad news for Australia, though: Iron ore continues to slide.

EURUSD is down around .3% today, as the USD strengthens in anticipation of the FOMC meeting. Inflation in the Eurozone for August was revised down to .1% from the initial .2% reading. The European Central Bank (ECB) is very concerned with deflation, which lessens the value of goods and discourages economic productivity. If inflation keeps falling it is likely that the ECB will step up their economic stimulus (which should weaken the euro).

GBPUSD: In the U.K., wages rose at a 2.9% annual rate, and the jobless rate fell to 5.5%. These figures, which are key components to support coming inflation, will heighten expectations of the Bank of England’s own possible rate hike. The pound is up .6% against USD this morning, and strengthened almost 1% against the euro.

USDCAD is down just a bit this morning. The CAD is strengthening on the two-day crude oil rise, but the rise is minimal (about .1%).