Ian Dobbs

Market News

FX Update: 

The Reserve Bank of Australia left their benchmark Cash Rate unchanged Tuesday at 0.10% with expectations they won’t be hiking until well into 2024. This is a small change from the line “at least 2024” The Central Bank confirmed they will start to taper their QE bond buying program from September this year to 4B per month from 5B currently, with predictions that the purchase pace will be slowed further from November 2021 much quicker than expected. This outcome was clearly hawkish, sending the Australian Dollar higher across the board post release. We think it’s highly likely the central bank could hike interest rates prior to 2024 at the current rate of economic expansion. 

The Federal Reserve Bank minutes released yesterday, confirmed they will ramp up considerations of decreasing their 120B per month treasury purchases in the July 28th FOMC meeting.  In the latest meeting 13 of the 18 Fed members projected they would raise rates from zero by 0.5% by the end of 2023. We expect inflation to rise further from 4.1% as the economy will struggle to meet supply and services demands. Interestingly the Fed made calls in 2020 that 3 factors would need to be met for them to consider raising rates, the first was inflation reaching 2%, second inflation to run moderately above 2% and the third, the economy needed to be at around maximum employment. It’s unclear what “maximum” employment is exactly but given its a healthy target nonetheless, this itself will bring about further inflationary pressures. So with all of the above 3 points arguably satisfied, why is the Fed still holding the view that this period is “transitory”? A debacle perhaps. Letting inflation run higher is insanely risky which could spark souring prices that could ultimately derail the recovering economy. Read more

Non Farm Payroll weakens big dollar

Market Overview

The US economy added 850,000 jobs to the labor market excluding the farming industry Friday when the US Non-Farm Payroll figures for June were released. Expectations were for 725,000, the release showing solid signs of demand for workers. The Unemployment Rate rose to 5.9% from 5.8% in May after predictions were for a print of 5.6%. With May and April job numbers down, job growth has lagged behind broader economic growth with just 852,000 jobs being added over the past two months. Rising vaccination rates, easing government restrictions have meant workers are slowly coming back to work, also helping is that the fear of the pandemic seems to be easing.  The US Dollar fell sharply on the headline news as the finer details came through on the wires, the US Dollar Index falling half a percent and all USD Dollar crosses were sharply pushed higher. The report was overall dovish, missing market expectations which ultimately means the US Federal Reserve’s tapering plans won’t be adjusted forward any time soon. Read more

FX Update

As the second quarter came to an end the US Dollar extended recent gains and bond yield prices dropped lower. Equity Indices still remain at close to record levels and as well as many commodities, gold is back at 1,770 per ounce looking like it wants to make up early June losses.

Inflation is a hot topic of conversation at the moment around the world as central banks grapple with trying to decide how to respond to rising CPI and manage inflation targets, not just in Western economies but in countries which don’t usually make mainstream headlines.

Economies around the world have made extraordinary shifts to monetary policy. This time last year we were talking about how to build economic growth and return global economies to full employment, now the challenge is about how to stop inflation from running to crazy high levels in the current chaos. The notion that inflation is nothing to worry about and is only “transitory” is a dangerous perception. Once inflation becomes a “deep-seated” real problem, populations become poorer, unemployment rises and creates division in society, before too long everyone is blaming someone else for the ongoing carnage unfolding. Read more

FX Update: Markets Await Fed Cues

Market Overview

• Worldwide coronavirus cases surpass 182.179 million with over 3.945 million official
deaths.
• Crude Oil rallies Monday on supply chain uncertainty in Iran.
• Fed officials say that the temporary inflation surge may last longer than first thought.
• Bank of England warns against hiking rates too soon as inflation surges.
• The coronavirus “Delta” variant has mutated again to a “Delta Plus” strain, this has been discovered in India and is worrying experts as it could be more transmissible.
• The S&P Index has climbed to a new record Friday, the biggest weekly rise since February.
• Wellington has lowered its covid alert level to 1 from midnight tonight. Read more

Economic Releases

Wednesday 30/06
2am, USD, CB Consumer Confidence
Forecast 118.9
Previous 117.2
1pm, CNY, Manufacturing PMI
Forecast 50.9
Previous 51

Thursday 01/07
12:15am, USD, ADP Non Farm Employment Change
Forecast 555K
Previous 978K
12:30am, CAD, GDP m/m
Forecast -0.80%
Previous 1.10%
2am, USD, Pending Home Sales m/m
Forecast -1.10%
Previous -4.40%
2:30am, USD, Crude Oil Inventories
Previous -7.6M
7:55pm, EUR, German Final Manufacturing PMI
Forecast 64.9
Previous 64.9
9pm, GBP, BOE Gov Bailey Speaks
All Day, All, OPEC-JMMC Meetings Read more

FX Update

Key Points:

  • Worldwide coronavirus cases surpass 180.748 million with over 3.915 million official deaths.
  • The Real Estate Institute of New Zealand’s House Price Index measuring changes in house prices has reported a 28% rise on a year-on-year basis, the highest rise in decades. 
  • New Zealand Trade Balance for May- NZD 469M prior- NZD 388M.
  • Fed’s Barkin says the rise in inflation is “clearly” due to temporary factors.
  • Nasdaq and S&P both close at record highs this morning.
  • The New Zealand Dollar is the strongest currency over the last two days of trading with the English Pound the weakest post a less than hawkish Bank of England policy decision.
Ian Dobbs

Fed Dominates Markets

Market Overview

World Central Banks, what’s been going on…

Federal Reserve
Cash Rate 0.10%
Inflation target 2.0%, currently this is 4.99% y/y  (highest read since 2008) The Fed believe recent inflation rises are “transitory”.
Interest Rate rises are not predicted to start rising until 2023- 2024 at the earliest.
Bond buying program: USD 120 billion per month- the Fed however has finally said yesterday they will start talking pulling back on asset buying, this will depend entirely on progress and not calendar dependant.
“Economic Impact Payments” have been made over the past few months totalling approximately USD 391 billion.
Federal Reserve officials indicated they expect higher interest rates by late 2023, sooner than previously projected, lifting the benchmark rate by 0.6% by the end of 2023. Read more

Economic Releases

Tuesday 22/06
2:15am, EUR, ECB President Lagarde Speaks

Wednesday 23/06
6am, USD, Fed Chair Powell Testifies
7:30pm, EUR, German Flash Manufacturing PMI
Forecast 63
Previous 64.4
7:30pm, EUR, German Flash Services PMI
Forecast 55.4
Previous 52.8 Read more

World Central Banks…

FX Update: 

World Central Banks, what’s been going on…

Federal Reserve

Cash Rate 0.10%

Inflation target 2.0%, currently this is 4.99% y/y (highest read since 2008) The Fed believe recent inflation rises are “transitory”

Interest Rate rises are not predicted to start rising until 2023- 2024 at the earliest. 

Bond buying program: USD 120 billion per month- the Fed however has finally said yesterday they will start talking pulling back on asset buying, this will depend entirely on progress and not calendar dependant. 

“Economic Impact Payments” have been made over the past few months totalling approximately USD 391 billion.  

Federal Reserve officials indicated they expect higher interest rates by late 2023, sooner than previously projected, lifting the benchmark rate by 0.6% by the end of 2023. Read more