The US Fed have done as was widely expected and cut interest rates by 25bps —the first cut since 2008—in a pre-emptive strike to cushion the economy from any global slowdown and in light of the escalating trade tensions. It was also announced that the Fed would end the runoff of their $3.8 trillion asset portfolio on Thursday, two months earlier than previously planned. The policy statement has left open the door for the Fed to cut rates again in the months ahead, indicating that the bank “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion”. In the press conference, Fed Chair, Powell, did suggest the and downside risks are really coming from abroad and we’re concerned about inflation rather than from the domestic US economy and indeed, 2 members of the FOMC did vote to keep rates on hold. Powell added that this is not the beginning of a long term policy of reducing interest rates, which is really what got the markets on edge and certainly Donald Trump did not like it, by tweeting that “as usual Powell let us down”, because he wanted a 50bp cut.
The outcome has seen the US$ move sharply higher, with the DXY at 2 year highs (98.68) and the Euro trading at 2 year lows, while US stocks are down by around 1.0/1.25%. The US10Y is hanging in at just above 2.0%, but note that the German 10Y bund yield dived to an all time low on Wednesday, currently at -0.439%. WTI has been relatively steady although it is ending the day down by 0.5%, and the precious metals are also lower, by 1.3%/1.8%.
Ahead of the FOMC, the US ADP private employment figures were released and they grew by 156k in July, slightly above expectation of 150k. The previous month’s figure was revised up from 102k to 112k and this possibly bodes well for Friday’s official jobs report.
Earlier, in Europe, the Eurozone CPI slowed to 1.1% yy in July, down from 1.2%, matching expectation, while the Core CPI slowed to 0.9% yy, down from 1.1% yy, missing expectation of 1.0% yy. EU GDP grew by 0.2% qq in Q2, down from Q1’s 0.4% qq and matched expectations. Annualised Eurozone GDP grew 1.1%. The Eurozone unemployment rate dropped to 7.5% in June, down from 7.6% in May, matching expectations.
Thursday will be another busy one, especially for Sterling, with the BOE Meeting due to take place. No change to policy is expected and it will be Mark Carney’s statement that will be the focus. Before then, the Aud$ will be the centre of attraction, with the release of the AIG Australian Performance of Mfg Index, CBA Mfg PMI, the Caixin China Manufacturing PMI, New Home Sales and the Import/Export Index. Later in the day it will be the US ISM Mfg PMI/Prices Paid and the Markit Manufacturing/Services/Composite PMIs Mfg PMI that will provide the direction.
Economic data highlights will include:
Thur: AIG Australian Performance of Mfg Index, CBA Mfg PMI, Caixin China Manufacturing PMI, New Home Sales, Import/Export Index, Japan Nikkei Mfg PMI, Caixin China Manufacturing PMI, EU Mfg PMIs, BOE Meeting/Statement/Minutes/Vote Count/APP Facility, Mark Carney Speech, US Manufacturing PMI, ISM Mfg PMI/Prices Paid, Total Vehicle Sales, Construction Spending
Market moves, in brief:
FX: DXY 98.65 (+0.60%)
Bonds: US10Y; 2.010% (-2.24%), German 10Y; -0.439% (-10.31%), UK 10Y; 0.616% (-3.19%), Australian 10Y; 1.199% (-1.40%), NZ 10Y; 1.450% (-2.03 %), China 10Y; 3.184% (+0.06%)
Stock Indices: DJI; -1.23%, S+P; -1.10%, NASDAQ; -1.20%, EUStoxx50; +0.12%, FTSE100; -0.78%, Shanghai Composite; -0.67%,
Metals: Gold $1413 oz (-1.22%), Silver $16.26 oz (-1.82%), Copper $2.666 lb (-0.47%), Iron Ore $115.50 per tonne (NYMEX) (-1.36%),
Oil: WTI $58.00 pb (-0.50%)
| CURRENCIES | |||
|---|---|---|---|
| EURUSD: 1.1076 | |||
| Res | 1.1100 | 1.1130 | 1.1160 |
| Sup | 1.1060 | 1.1030 | 1.1000 |
| USDJPY: 108.75 | |||
| Res | 108.85 | 109.00 | 109.15 |
| Sup | 108.65 | 108.50 | 108.35 |
| GBPUSD: 1.2158 | |||
| Res | 1.2195 | 1.2245 | 1.2290 |
| Sup | 1.2120 | 1.2080 | 1.2040 |
| USDCHF: 0.9939 | |||
| Res | 0.9950 | 0.9975 | 1.0000 |
| Sup | 0.9925 | 0.9900 | 0.9875 |
| AUDUSD: 0.6847 | |||
| Res | 0.6865 | 0.6890 | 0.6915 |
| Sup | 0.6830 | 0.6815 | 0.6800 |
| NZDUSD: 0.6563 | |||
| Res | 0.6580 | 0.6600 | 0.6620 |
| Sup | 0.6545 | 0.6525 | 0.6505 |
| INDICES / COMMODITIES | |||
|---|---|---|---|
| S&P.FS: 2973.78 | |||
| Res | 2980.00 | 2990.00 | 3000.00 |
| Sup | 2965.00 | 2955.00 | 2945.00 |
| DJ30.FS: 26789.00 | |||
| Res | 26890.00 | 27030.00 | 27160.00 |
| Sup | 26690.00 | 26600.00 | 26500.00 |
| SPI200.FS: 6722 | |||
| Res | 6735 | 6750 | 6765 |
| Sup | 6715 | 6700 | 6685 |
| XAUUSD: 1412.56 | |||
| Res | 1415.00 | 1420.00 | 1425.00 |
| Sup | 1410.00 | 1405.00 | 1400.00 |
| XAGUSD: 16.26 | |||
| Res | 16.35 | 16.50 | 16.65 |
| Sup | 16.20 | 16.05 | 15.90 |
| WTI.FS: 57.89 | |||
| Res | 59.00 | 59.95 | 60.90 |
| Sup | 57.35 | 56.60 | 55.65 |
By August 1, 2019
Source: FXCharts