Daily Alert: Friday 16th June 2017

Mark NugentDaily Alert, June 2017

Forex Analysis for Friday 16th June 2017

Economic Calendar

A quick re-cap of events on Tuesday and Wednesday…

Tuesday:

There were press reports (Monday) that the Conservative Party and Labour Party held secret talks on a soft Brexit. (Telegraph) Also on Monday, UK lawmaker said that PM May has recognised that a broader consensus is needed for Brexit. (Newswires)

UK CPI rises to 2.9% vs an expectation of 2.7%. This is above the BoE’s target of 2.0% but is below wage growth. This latter fact will dilute the MPC’s desire to raise interest rates.

Wednesday:

UK Average Earnings Index came in at 2.1% vs expectation of 2.4% and the prior number was revised down to 2.3% from 2.4%.

There was a slew of poor numbers from the US – CPI missed (-0.1% vs 0.2%); Core CPI did no better (0.1% vs 0.2%); Retail Sales missed by a large margin (-0.3% vs 0.1%) as did Core Retail Sales (-0.3% vs 0.2%).

Fed Interest Rate Decision
• The Fed hiked rates 25bps to 1.00%-1.25% as expected; Kashkari was the lone dissenter.
• Fed officials: 8/16 see one more hike in 2017, with 4/16 seeing two for the remainder of the year. Dot plot largely unchanged

Fed Balance Sheet Plans
• Fed expects to implement balance sheet normalization this year, initially trimming re-investments in Tsy securities by USD 6bln/month, and MBS by USD 4bln.
• Fed said the cut to reinvestment seen is expanding on a quarterly basis until it reaches USD 30bln/month for Treasuries and USD 20bln for MBS.
• Fed didn’t specify the long-run size of the balance sheet, but said it would suspend normalisation if economic conditions change.

Yellen Press Conference (Fed’s Yellen Stated):
• Economic growth appears to have rebounded after the first quarter slowdown.
• Expects inflation to move up, and stabilize around 2% and the FOMC is monitoring inflation developments closely.
• Additional gradual rate hikes will be appropriate over the next few years.
• The Fed expects to begin implementing balance sheet plan this year.

Reaction
• The release was overall seen as slightly more hawkish than anticipated given plans for reinvestment adjustments and the Fed overall upbeat about data despite recent disappointing numbers
• This stopped the rot seen in US treasury yields after yesterday’s retail sales and CPI with USD supported and some downside in the S&P 500 before recovering into the close

Antipodean currencies took centre stage amid key data releases, including New Zealand Q1 GDP which missed expectations (0.5% vs 0.7%) and pressured NZD, while AUD outperformed on stellar jobs data as Employment Change surpassed estimates, fuelled by a surge in Full-Time jobs which pushed the Unemployment Rate to a 4-year low of 5.5%. Elsewhere, the other majors were relatively quiet overnight with the greenback holding to the FOMC-inspired gains after the Fed was deemed more hawkish than anticipated.

Special Counsel Mueller is reported to be investigating US President Trump for possible obstruction of justice. (Washington Post)

Thursday:

Bank of England kept everything unchanged. Of note was the voting on interest rates. 3 out of 8 participants voted for a rate hike.

Early Friday: BoJ kept rates unchanged at -0.1% as expected and maintained QQE with Yield Curve Control as expected via 7-2 votes. BoJ maintained annual pace of JGB holdings at JPY 80tln and to target 10yr yields at around 0%, while it also kept its economic assessment unchanged in which it stated that the economy turned to moderate expansion. (Newswires)

Market Reaction

Covering Tuesday to Thursday inclusive.

The big issues were the Fed (Wed) and the BoE being more hawkish than expected. The USD rose over the period and US equities were mixed with the Nasdaq continuing it’s sell-off. Oil continues down as does gold. The JPY has weakened and the US 10 Year yield has dropped. I think we are risk-off/neutral. The FTSE100 is up while the FTSE250 is down, although that has been reversed this morning, and some. The EUR drops back to resistance from the upside. The GBP rises to the post-election open. The CAD’s BoC and economic news-inspired gain has run out of steam. AUD grinds up and NZD consolidates.

News Media

Oil set for longest run of weekly losses since 2015
Greek debt restructuring still an issue for IMF

Today’s Calendar

Europe – Final CPI.

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