Fedspeak, Positions Confirmed

April 7, 2016

FX News Today

BOJ Koruda and Japan Finance Ministry: A reiteration of the Japanese economic approach was emphasized overnight as both the BOJ Governor and the finance ministry chief (Mr Suga) pledged more of the same and that they “Will take steps in FX market if needed”. The YEN continued its surge against its major competitors USDJPY is current trading at 108.8, EURJPY 124.50 and GBPJPY 154.00. The Nikkei 225 was understandably subdued on the news and is currently the lagging Asian stock market.

European Outlook: The bounce back in oil prices, which have risen above USD 38 per barrel, is keeping equity markets underpinned and things continued to improve in Asia overnight, with most markets outside of mainland China in positive territory, although gains have been modest, compared to the rise in the U.S. and the U.K. The Fed minutes, which on balance favoured caution added support, while the rise in the Yen is keeping a lid on Japanese equities. U.K. stock futures are also higher, pointing to opening gains in Europe, with Eurozone markets likely to continue to underperform amid ongoing EUR strength and concerns about the economic and political outlook for the Eurozone as Grexit fears flare up again and push out spreads. The calendar is relatively quiet, with a focus on the ECB, which publishes the minutes to the March meeting and holds a conference on “The ECB and its watchers”.

FOMC minutes: They showed “several” officials argued for a cautious approach regarding the potential for an April hike, which was debated at the March meeting. As Yellen commented in her recent speech, and in her press conference, many participants thought the current rate asymmetry made it prudent to wait for more information on the underlying strength of economic activity or inflation before taking another step to reduce accommodation. The minutes revealed global concerns remained very relevant — the word “global” was used 13 times in the participants’ discussion of current conditions (“risks,” or some variation, appeared 16 times). Again the FOMC reiterated the next move would be data, not calendar, dependent. We’re not seeing anything really new in the minutes versus what we knew from the policy statement, the SEP, and subsequent Fedspeak.

Fedspeak, Positions Confirmed: Fed hawk Mester expects “gradual” rate hikes this year in a repeat of previous missives on the topic, in discussing the economy and monetary policy from Cleveland. Bullard also stated his expectation that inflation will overshoot the 2% target and that 2.2% inflation is better than 1.5% inflation and that all meetings are “live”. So more of the same from the Presidents.

Main Macro Events Today

ECB’s Draghi Speech   

Due to speak about the economic and financial situation in Europe at the Portuguese President’s Council, in Lisbon. The eloquent and reserved Mr Draghi is always one to listen too carefully. Portuguese Bonds were dragged down yesterday along with Grexit talk. Interesting location for his latest speech.

Fed’s Yellen Speech   

In New York the four latest Chairs (Volcker, Greenspan, Bernanke and Yellen) of the FOMC are meeting and Mrs Yellen is due to speak. As the incumbent Chair she is unlikely to use the occasion to utter anything new or indeed controversial. The words from her predecessors on the other hand could prove more interesting.

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