Market Brief
Asia stock markets were subdued today with a majority of indices in the green. The Hang Seng rose 0.26% and the Shanghai Composite increased 0.15% while the Nikkei 225 fell -0.16%. Investors are hoping that Beijings efforts to hold up stock prices will protect the downside (a "Beijing put"). Volatility across stocks were lower following a stronger US session (good US data). Rates across Asia were flat while the U.S. 10-Year yields rose 2 bps to 2.253%. As expected volatility in FX died out ahead of the FOMC decision later today. EUR/USD took a one-way path from 1.1084 to 1.1037 while USD/JPY was range bound between 123.35 to 123.65. AUD/USD gave back much of yesterday hard won gains falling to 0.7315 from 0.7359. EM Asia FX were generally unchanged against the USD.
RBNZ Governor Graeme Wheeler again highlighted his easing bias as New Zealand’s economic growth was seen as below its potential. However, he stressed that easing should be constant as strong construction growth could get wild if rates were too low. Wheeler stated “local commentators have predicted large declines in interest rates over coming months that could only be consistent with the economy moving into recession.” In comments directly aimed at the NZD he stresses the need for further weakening. He stated in crystal clear terms “current levels of export prices, a more substantial exchange rate depreciation will be required to stabilize the net external liabilities position.” NZD reacted strongly to Wheelers comments as NZD/USD spiked from 0.6659 to 0.6739 as long term interest rates became the brief focus. However, worries over weak commodity prices and outlook of Asia EM has pushed NZDUSD to 0.6690.
Elsewhere in Asia, Japan’s retail sales fell -0.8% m/m in June, below expected -0.9%, a significant deceleration from 1.7% increase witnessed in May. Retail trade expanded 0.9%y/y, against expected rise of 1.1%, and prior 3.0% May read. From China, Westpac-MNI consumer sentiments increased 1.9% m/m to 114.5 in July slight improvement from prior reading of 112.3 in June.
Today we have an event and data heavy schedule (so FX traders should expect increase in vol as liquidity conditions remain thin). In the European session, German GfK consumer confidence, French consumer confidence and seasonally adjusted Spanish retail sales expected to rise from 3.4% y/y to 3.6% y/y in June. Swedish consumer confidence is expected to rise from 97.9 to 98.9 and manufacturing confidence to increase marginally from 101.3 to 101.5. Norwegian unemployment rate is anticipated to rise from 4.2% to 4.3% in May.
In the US session, Brazils central bank is expected to hike interest rates 50bp to 14.75, yet a smaller hike of 25bp is a strong possibility. It is generally expected that the accompanying state will signal the end of the current tightening cycle. From the US, first we will get Pending Home Sales then the main event, the FOMC rate decision. No change in policy is expected that this meeting. Overall, we anticipate that the changing of wording in the FOMC statement will signal that September is the likely timing for the first rate hike. Should the wording remain unchanged, it’s unlikely that a rate hike will occur in September. This Fed meeting will not include economic forecasts or press conference.
Currency Tech
EUR/USD
R 2: 1.1436
R 1: 1.1278
CURRENT: 1.0980
S 1: 1.0819
S 2: 1.0660
GBP/USD
R 2: 1.5930
R 1: 1.5803
CURRENT: 1.5511
S 1: 1.5330
S 2: 1.5171
USD/JPY
R 2: 135.15
R 1: 125.86
CURRENT: 123.89
S 1: 120.41
S 2: 118.89
USD/CHF
R 2: 1.0129
R 1: 0.9719
CURRENT: 0.9599
S 1: 0.9151
S 2: 0.9072