Inflation still the banks major target

August 10, 2016

FX News Today

European Outlook: Asian stocks were mixed, with Hong Kong seeing the highest levels since November last year, amid hopes of a pick up in China’s economy. Nikkei and ASX close down, as did  China’s CSI 300, although other Chinese indices are higher. Oil prices are slightly down on the day and the front end WTI future is holding below USD 43 per barrel, U.K. and U.S. stock futures are down, which on balance points to opening losses in Europe, after broad gains yesterday, as a report from Niesr suggesting economic activity in the U.K. contracted in July with an even chance of a technical recession this year, saw bond futures rising in tandem with stocks on stimulus hopes. Today’s European calendar is pretty quiet, with only French production data as well as inflation numbers from Norway and Portugal.

RBA Stevens: Inflation still the banks major target: Undershooting inflation target with reasonable economic growth might be “least bad” option. Current inflation target regime has flexibility, still useful. Need realism on what monetary policy can do, including pushing up inflation quickly. Hard for monetary policy to revive demand when households so indebted and there is a case for governments to borrow for investment assets that yield economic return. He appears to calling for fiscal stimulus and a slower rates cutting path ahead. AUD continues to rise on comments AUDUSD broke 0.7700 before retracing to 0.7689.

The BoE will make a statement at 8 GMT to explain the shortfall at yesterday’s reverse auction. The Old Lady had attempted to buy GBP 1.17 bln of long-dated Gilts, but only managed to purchase GBP 1.12 bln. Officials have already emphasized that the shortfall was small and occurred in a thin summer market, and Reuters and other media are reporting that The BoE will make a statement at 8 GMT to explain the shortfall at yesterday’s reverse auction. The Old Lady had attempted to buy GBP 1.17 bln of long-dated Gilts, but only managed to purchase GBP 1.12 bln. Officials have already emphasized that the shortfall was small and occurred in a thin summer market, and Reuters and other media are reporting that the central bank is expected to proceed today with the next GBP 1.17 bln tranche of Gilt purchases with 7-15 maturities..the central bank is expected to proceed today with the next GBP 1.17 bln tranche of Gilt purchases with 7-15 maturities.  Low demand not good for GBP.

US Data Reports: US reports revealed robust June wholesale trade figures but a weak Q2 productivity report that was good news on net. For wholesale trade, we saw a 1.9% June sales surge and a firm 0.3% inventory rise after upward May revisions that beat estimates. We still expect a downward Q2 GDP growth revision to 1.0% from 1.2%, but with a $3 bln boost in wholesale inventories that mostly offsets a $4 bln downward factory inventory bump, followed by a 2.6% growth clip in Q3. We saw a surprising 0.5% Q2 productivity contraction rate thanks to firmness in Q2 hours-worked, after revisions back to 2007 that lifted productivity growth in recent years but with hits to productivity, output, and compensation growth in recent quarters.

Main Macro Events Today        

US JOLTS Job Openings   Expected to rise to 5.52 million from 5.50 million. An important data point as it was created by Governor Yellen whist she was deputy Governor and is close to her heart and one she follows.  JOLTS – (Job Openings and Labor Turnover Summary).

RBNZ Rate Decision  21:00 GMT – Widely expected to reduce rates by 25 bps to 2.00%, Policy Statement and Press Conference to follow.

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