Investors on the sidelines

11 July, 2017

With the absence of any top tier news and the markets waiting for further indications on the Fed’s policy when Janet Yellen testifies before Congress on Wednesday, investors and traders are currently in a ‘wait and see’ mode. The week kicked off with most major asset classes moving in tight ranges. The S&P 500 closed 0.1% higher on Monday, while U.S. Treasury yields fell slightly after rallying on Friday’s Non-Farm Payrolls report and the dollar index remained stuck in a very narrow trading range.

It seems we will have to wait for another day for volatility to resume. The two key events on Wednesday are Yellen’s semi-annual testimony and Bank of Canada’s monetary policy announcement. Dollar bulls are counting on the Fed Chair’s continued hawkishness and whether she will provide more details on monetary policy becoming tighter. So far, she is still convinced that inflation weakness is temporary and expects that the sub5% unemployment rate will eventually boost prices. However, it has been more than one year since the unemployment rate dipped below 5% and wage growth is still anemic, making it difficult for many investors to believe that interest rates will increase at the pace suggested by monetary policy makers. It will require more than retracting her latest FOMC statement to encourage bulls to jump in again, such as more specific timing to unwind the $4.5 trillion balance sheet.

Given that other central banks have shifted towards a tighter stance, Bank of Canada’s meeting on Wednesday is going to be of great interest to traders. 13 out the 30 economists recently surveyed by Reuters expect the central bank to hike rates by 25 basis points tomorrow. If BoC joins the Fed this will not only boost the Lonnie but other major currencies as well, as investors will start to anticipate similar moves by the European Central Bank, Riksbank and Bank of England. I suggest keeping a close eye on yield differentials as they will be the major factor impacting currencies for the foreseeable future.

Pound traders will get the chance to hear again from Andrew Haldane, BoE’s Chief Economist, later today. The economist who was usually on the dovish end of policymakers surprised the markets on 21 June when he joined the Hawks. Given that inflation in the U.K. breached the 2% target and the economy did not fall into recession, he thinks that beginning the process of withdrawing some of the stimulus measures provided last year would be reasonable. If he ignores the recent bunch of weak economic releases and continued supporting the idea of policy normalization, the pound will likely make another attempt towards 1.3, but a break above this psychological resistance requires strong labor data on Wednesday.


Source link  
More bad news for Sterling as EURGBP

Backlash - that would be the word used to sum up the investor reaction from the latest attempt by UK Prime Minister Theresa May to push forward her...

EURJPY sinks to flash crash levels

A wave of risk aversion engulfed global equity and foreign exchange markets on Thursday after Donald Trump accused China of breaking...

US corporate earnings to drive global stock markets

Asian stocks, excluding Japan, are mixed on Monday, even after US stocks posted new record highs following the United States GDP report released at...


Mixed US corporate earnings reaction

Asian equities fluctuated mostly into the red on Friday, following the trend seen in their US counterparts on Thursday. As the latest US corporate earnings...

Brexit stalemate deepens

The drama, confusion and sheer uncertainty over Brexit intensified yesterday evening, after British MPs rejected all eight options aimed at...

Brexit chaos deepens

The British Pound fell yesterday afternoon, after the House of Commons Speaker John Bercow essentially banned Theresa May's Brexit deal from getting a third vote.


Rand gains on GDP but outlook clouded

Buying sentiment towards Rand has unexpectedly brightened today after official reports showed South Africa's economic growth cooled during...

US-China trade deal, ECB meeting and NFP

Asian equity markets entered the trading week on a front foot, following news that the United States and China were close to a breakthrough deal that...

Fed patience adds to the Dollar woes

Will the Federal Reserve raise interest rates at all in 2019? This was a question even Fed officials were unable to answer, as the minutes from the FOMC’s January policy meeting revealed.

  


Share it on:   or