No More Easy Money?

30 June, 2017

On Thursday, the US Commerce Department released GDP (Annualized QoQ) showing a 1.4% annual rate compared to the 1.2% posted in the previous month. This slight increase shows that the US economy slowed less sharply in Q1 than expected, due to higher consumer spending and an increase in exports, which suggests a better growth outlook for the year. US Consumer spending rose to 1.1%, the weakest reading since Q2 of 2013 but almost double the 0.6% reported in May.
The underlying trend of a tightening labour market was reinforced by the latest US Labor Department report of the number of Americans filing for unemployment benefits last week rising slightly to 244K.

EUR surged to its highest in over a year on Thursday, whilst GBP, bond yields and global equities also climbed, as a plethora of hawkish comments from central bankers signaled the era of easy money might be coming to an end. EURUSD surged to as high as $1.1444 overnight, its strongest since May 2016. Currently EURUSD is trading around 1.1420. USD weakness against JPY continued with data showing Japanese core consumer prices rose 0.4% in May from a year earlier in its fifth straight month of gains, although inflation remains well below the central bank’s 2% target. USDJPY fell to 111.727 overnight, after losing 0.2 percent on Thursday. It was heading for a 1.2 percent gain for the month, but is down 4.2% this year. Currently USDJPY is trading just above 112.00.

Bank of England Chief Economist Haldane mirrored the comments made on Wednesday by BoE Governor Carney by stating “the BoE needs to look seriously at hiking rates”. These comments added to recent GBP strength pushing GBPUSD to 1.30292 in early trading today. This is the first time in 5 weeks that cable has been above 1.30 and close to its highest levels in 9 months. GBPUSD is currently trading around 1.3010.

Having slipped to a 10-month low last week Oil has rebounded more than 7% as a weekly decline in US production eased concerns of a deepening global over supply. WTI and Brent were both up over 0.5% on the day, touching highs of $45.42pb and $48.04pb respectively. In early trading WTI is currently trading around $45.34pb and Brent is currently trading around $47.92pb. Benefitting from USD weakness has seen Gold rise, hitting an early Friday high of $1,248.10 before retracing back to trade currently near $1,243.

U.S. inflation remains in focus today with the favorite Fed measure: the core PCE deflator. The markets are expecting the month-over-month number to ease to 0.1% for May and the annual rate slowing to 1.4%. Personal income and spending are also forecast to have grown more slowly than the 0.4% rise seen in April.


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