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RBI’s policy stance to turn softer
31 July 2015, 04:43
The Reserve Bank of India (RBI) is expected to keep the key policy rates
unchanged next week. However, the RBI's monetary policy stance will likely turn
softer as the risk of one more repo rate cut in H2 15 is rising. In its previous
round of policy announcements in early June, the RBI lowered the repo rate by
25bp, as expected, but maintained a cautious policy stance. The three key risks
that the central bank highlighted were: (1) below normal monsoon rains, (2)
firming crude oil prices, and (3) volatility in external environment.
Developments on most of these fronts are seen since early-June as
reassuring.
Cumulative rainfall during June-July stands at 96% of normal, better than the 88% projected by the India Meteorological Department (IMD) for the season (June-September) in earlyJune. Brent crude oil price has softened to c.US$54/barrel currently from c.US$65/barrel in early-June. The eventual liftoff by the US Fed remains an impending external uncertainty. The first Fed rate hike is expected to take place in September. However, given India's generally sound macroeconomic parameters, the impact on India will likely be relatively limited. Accordingly, a case for further easing is expected in the coming months by the RBI.
The monsoon outcome will be largely clear by September and the initial impact of a potential Fed hike - if indeed takes place in mid-September - on INR assets would be visible before the RBI's end-September policy meeting.
"We look to the RBI's commentary and guidance next week to firm our views in this regard. However, given the ongoing soft inflation backdrop, the risk of a 25bp repo rate cut by the RBI in H2 15 is rising, in our view," notes Barclays.
Cumulative rainfall during June-July stands at 96% of normal, better than the 88% projected by the India Meteorological Department (IMD) for the season (June-September) in earlyJune. Brent crude oil price has softened to c.US$54/barrel currently from c.US$65/barrel in early-June. The eventual liftoff by the US Fed remains an impending external uncertainty. The first Fed rate hike is expected to take place in September. However, given India's generally sound macroeconomic parameters, the impact on India will likely be relatively limited. Accordingly, a case for further easing is expected in the coming months by the RBI.
The monsoon outcome will be largely clear by September and the initial impact of a potential Fed hike - if indeed takes place in mid-September - on INR assets would be visible before the RBI's end-September policy meeting.
"We look to the RBI's commentary and guidance next week to firm our views in this regard. However, given the ongoing soft inflation backdrop, the risk of a 25bp repo rate cut by the RBI in H2 15 is rising, in our view," notes Barclays.
Japan rates: Weekly review
31 July 2015, 03:50
Markets continue to walk a tightrope between two contrasting scenarios: 1)
the possible start of a JGB bear trend over an extremely long cycle; or 2) the
potential for further BoJ easing in October. The risk of an abrupt swing is seen
in sentiment and positioning toward one of these scenarios depending on data in
the next one to two months.
"We maintain our neutral stance direction-wise and continue to recommend a pay JPY 5yf5y swap + buy 20y JGB and a futures/20y flattener," notes Barclays.
The JGB market has shown very little movement in the second half of this month, but yields have come down ever so slightly from their peak on 14 July. It appears that buying demand in anticipation of a summer rally during the quiet period following the 15 July BoJ MPM and Fed Chair Yellen's congressional testimony provided a slight downward push.
That said, the weak result at BoJ buying operation on 29 July suggests there may be heavy selling demand with 10y JGB yield levels near 0.4%. That led to a modest correction. If data on exports to Asia and domestic consumption remain weak, the BoJ could still ease further in October on the prospect of two consecutive quarters of GDP contraction in Q2 and Q3. But if the market is not quite so pessimistic and the economy starts to turn up a bit, it would probably be difficult to expect a typical summer rally at a time when the US and UK appear poised to raise rates.
The mild bull flattening trend in overseas yield curves appears to have reversed course following the FOMC meeting on Wednesday. This, particularly the flattening in the futures curve (low contango), suggests that market participants largely do not expect the decline in oil prices, seen as one factor behind the flattening, to give way to a sudden rebound as with January's oil downturn. The BoJ uses the Brent futures curve in its inflation forecast. That said, global bond market participants will remember all too well events in the first half of this year, when investors buying bonds on the assumption of a sustained downtrend in oil prices were badly burned when prices subsequently shot upward.
"We maintain our neutral stance direction-wise and continue to recommend a pay JPY 5yf5y swap + buy 20y JGB and a futures/20y flattener," notes Barclays.
The JGB market has shown very little movement in the second half of this month, but yields have come down ever so slightly from their peak on 14 July. It appears that buying demand in anticipation of a summer rally during the quiet period following the 15 July BoJ MPM and Fed Chair Yellen's congressional testimony provided a slight downward push.
That said, the weak result at BoJ buying operation on 29 July suggests there may be heavy selling demand with 10y JGB yield levels near 0.4%. That led to a modest correction. If data on exports to Asia and domestic consumption remain weak, the BoJ could still ease further in October on the prospect of two consecutive quarters of GDP contraction in Q2 and Q3. But if the market is not quite so pessimistic and the economy starts to turn up a bit, it would probably be difficult to expect a typical summer rally at a time when the US and UK appear poised to raise rates.
The mild bull flattening trend in overseas yield curves appears to have reversed course following the FOMC meeting on Wednesday. This, particularly the flattening in the futures curve (low contango), suggests that market participants largely do not expect the decline in oil prices, seen as one factor behind the flattening, to give way to a sudden rebound as with January's oil downturn. The BoJ uses the Brent futures curve in its inflation forecast. That said, global bond market participants will remember all too well events in the first half of this year, when investors buying bonds on the assumption of a sustained downtrend in oil prices were badly burned when prices subsequently shot upward.
UK rates: Weekly review
31 July 2015, 03:25
The market has pared back expectations of BoE tightening ahead of the August
policy vote, which may well be split. Short-dated GBP rates have room to cheapen
should the Inflation Report be hawkish, but this would be hard to reconcile with
soft core inflation.
Thursday 6 August will be a significant day for UK markets, as it will see the MPC policy decision, minutes and the latest quarterly Inflation Report (QIR) published concurrently at noon for the first time. The press conference that previously began shortly after the publication of the QIR at 10:30 under the old regime will now be held at 12:45. For the market, the release of the minutes alongside the policy decision is probably the most significant change as market participants will no longer have to wait several weeks to find out how individual MPC members voted. This could prove particularly relevant at the forthcoming meeting, which may see the first split vote since December.
The July MPC meeting minutes noted that for "a number" of members, the balance of risks to medium-term inflation relative to the 2% target was becoming more skewed to the upside at the current level of Bank Rate and that for them the decision was finely balanced but for developments in Greece. In June, the decision was reported as finely balanced for only two members. Martin Weale is expected to vote for a rate hike at the August meeting, with risks of other members following suit. Other potential candidates to vote for a rate hike include Ian McCafferty and possibly either David Miles or Kristin Forbes. A vote for a hike by Mr Miles would likely be discounted by the market given this will be his last MPC meeting.
The main change since the July meeting has been the resolution of significant uncertainty related to Greece. From a global perspective, the volatility in China equity markets remains a potential source of concern. From a purely domestic perspective, the need to tighten policy does not appear especially pressing. UK core inflation fell to 0.8% y/y in June, the lowest print since 2001.
"While the set of y/y CPI prints since May has been consistent with the BoE near-term forecast, we see risks that the QIR CPI projections for 2015 will move lower to reflect the 20% fall in GBP-denominated oil prices since May," notes Barclays.
Thursday 6 August will be a significant day for UK markets, as it will see the MPC policy decision, minutes and the latest quarterly Inflation Report (QIR) published concurrently at noon for the first time. The press conference that previously began shortly after the publication of the QIR at 10:30 under the old regime will now be held at 12:45. For the market, the release of the minutes alongside the policy decision is probably the most significant change as market participants will no longer have to wait several weeks to find out how individual MPC members voted. This could prove particularly relevant at the forthcoming meeting, which may see the first split vote since December.
The July MPC meeting minutes noted that for "a number" of members, the balance of risks to medium-term inflation relative to the 2% target was becoming more skewed to the upside at the current level of Bank Rate and that for them the decision was finely balanced but for developments in Greece. In June, the decision was reported as finely balanced for only two members. Martin Weale is expected to vote for a rate hike at the August meeting, with risks of other members following suit. Other potential candidates to vote for a rate hike include Ian McCafferty and possibly either David Miles or Kristin Forbes. A vote for a hike by Mr Miles would likely be discounted by the market given this will be his last MPC meeting.
The main change since the July meeting has been the resolution of significant uncertainty related to Greece. From a global perspective, the volatility in China equity markets remains a potential source of concern. From a purely domestic perspective, the need to tighten policy does not appear especially pressing. UK core inflation fell to 0.8% y/y in June, the lowest print since 2001.
"While the set of y/y CPI prints since May has been consistent with the BoE near-term forecast, we see risks that the QIR CPI projections for 2015 will move lower to reflect the 20% fall in GBP-denominated oil prices since May," notes Barclays.
Euro area rates: Weekly review
31 July 2015, 02:53
Most of the long-duration-biased EUR rates trades have done well lately.
While risks are seen towards further bullish moves, risk/reward is no longer as
compelling after reaching the profit-taking targets and considering that
illiquidity in August can complicate market moves.
"We recommend closing long outright 10y Bund and 5y5y fwd Italy trades, as well as long the Bund ASW versus EONIA trade," notes Barclays.
The lack of summer activity has started affect the rates market gradually. The FOMC meeting was the most important event of the week. However, with the Fed leaving all options on the table for September meeting, there was no striking market movement triggered either. Overall, 10y Bund yields rallied another 4bp to 62bp (DBR 0.5% Feb 2025), and 10y Treasuries sold off c.5bp on the week.
On the data front, the IFO business confidence index in Germany came in better than expectations in Europe. Euro area July flash HICP will be released on 31 July; 0.1pp lower than consensus is expected in both headline and core (Barclays headline/core 0.1%/0.7%; consensus headline/core 0.2%/0.8%). The recovery in euro area inflation will likely be much slower than ECB projections indicate for 2016 and 2017. Indeed, as part of its latest Economic Bulletin, the ECB released a box article titled "Has underlying inflation reached a turning point?", which acknowledges the pick-up in headline and core inflation since February. However, it concludes that it is too early to interpret this as euro area inflation having turned the corner from a statistical point of view. This conclusion, if anything, reinforces the argument that the ECB is likely to be fully committed to completing its QE programme and will stay ready to do more if necessary.
"We recommend closing long outright 10y Bund and 5y5y fwd Italy trades, as well as long the Bund ASW versus EONIA trade," notes Barclays.
The lack of summer activity has started affect the rates market gradually. The FOMC meeting was the most important event of the week. However, with the Fed leaving all options on the table for September meeting, there was no striking market movement triggered either. Overall, 10y Bund yields rallied another 4bp to 62bp (DBR 0.5% Feb 2025), and 10y Treasuries sold off c.5bp on the week.
On the data front, the IFO business confidence index in Germany came in better than expectations in Europe. Euro area July flash HICP will be released on 31 July; 0.1pp lower than consensus is expected in both headline and core (Barclays headline/core 0.1%/0.7%; consensus headline/core 0.2%/0.8%). The recovery in euro area inflation will likely be much slower than ECB projections indicate for 2016 and 2017. Indeed, as part of its latest Economic Bulletin, the ECB released a box article titled "Has underlying inflation reached a turning point?", which acknowledges the pick-up in headline and core inflation since February. However, it concludes that it is too early to interpret this as euro area inflation having turned the corner from a statistical point of view. This conclusion, if anything, reinforces the argument that the ECB is likely to be fully committed to completing its QE programme and will stay ready to do more if necessary.
US rates: Weekly review
31 July 2015, 02:27
The July FOMC statement upgraded the assessment of the labor market, noting
that "some" further improvement is needed before beginning the hiking cycle.
Separately, the Fed staff's expected path of the hiking cycle looks more
realistic than what the market is pricing in and maintain the view that the
front end is vulnerable to a modest repricing higher in yields.
"We maintain our recommendation of ffz5-z6 curve steepeners, long 6m3y risk reversals, and 3m5y-3m30y conditional bear-flatteners," says Barclays.
US Treasury yields were largely unchanged over the week, as economic data were broadly in line with expectations, equity markets stabilized and the July FOMC statement did little to sway investor perception about the start date of the hiking cycle.
As expected, the July FOMC meeting statement did not provide a clear signal regarding the start of the hiking cycle. With key data in the form of the Q2 ECI print and the two employment and PCE inflation reports still to come before the next meeting, a September hike is clearly on the table and is a good base case if data continue to track what is viewed as fairly modest expectations. However, the decision to hike is clearly data dependent, and there is little reason for the Fed to commit to a September hike right now. The market is now pricing in a slightly greater than 50% probability of a September hike, which is reasonable as the Fed statement did suggest that normalization is getting close.
"We maintain our recommendation of ffz5-z6 curve steepeners, long 6m3y risk reversals, and 3m5y-3m30y conditional bear-flatteners," says Barclays.
US Treasury yields were largely unchanged over the week, as economic data were broadly in line with expectations, equity markets stabilized and the July FOMC statement did little to sway investor perception about the start date of the hiking cycle.
As expected, the July FOMC meeting statement did not provide a clear signal regarding the start of the hiking cycle. With key data in the form of the Q2 ECI print and the two employment and PCE inflation reports still to come before the next meeting, a September hike is clearly on the table and is a good base case if data continue to track what is viewed as fairly modest expectations. However, the decision to hike is clearly data dependent, and there is little reason for the Fed to commit to a September hike right now. The market is now pricing in a slightly greater than 50% probability of a September hike, which is reasonable as the Fed statement did suggest that normalization is getting close.
RBI Policy Preview: More easing in H2 2015
31 July 2015, 02:09
The Reserve Bank of India (RBI) will announce its monetary policy decision on
4 August. The central bank is expected to hold the key policy rates unchanged
next week. However, the RBI's monetary policy stance is likely to turn softer in
August as the probability of another 25bp repo rate cut later in H2 2015 is
rising.
In its previous round of policy announcement on 2 June, the RBI had lowered the repo rate by 25bp, as expected, but had maintained a cautious policy stance. The three key risks that the central bank had highlighted were: 1) below-normal monsoon rains; 2) firming crude oil prices; and 3) volatility in external environment. While these risks cannot be completely ignored, developments on most of these fronts since early June had been somewhat reassuring.
1) Monsoon: In early June, the India Meteorological Department (IMD) had projected monsoon season (June-September) rains in India to be below normal, at 88% of the country's long period average (LPA). Against that, the cumulative rainfall to date - half-way into the monsoon season - stands normal at 96% of the LPA. The geographical distribution of rainfall has so far been a mixed bag - of the 36 meteorological sub-divisions in the country, the IMD suggests that 17 have received normal rains, six have received excess, while the remaining 13 have witnessed deficient rains so far. Thus, admittedly, while the geographical distribution of rainfall has not been ideal, the overall monsoon picture appears considerably better than was suggested by the IMD in early June. Nevertheless, clarity on the monsoon front ahead of the August meeting is only partial, but it will be considerably clearer by the RBI's next monetary policy meeting, scheduled on 29 September.
2) Crude oil price: Commodity prices in general have softened further since the RBI's June monetary policy meeting. The softening in oil prices had been particularly noteworthy - Brent crude oil price is c.US$54/barrel currently, versus c.US$65/barrel on 1 June. A flare-up in commodity prices, including in oil prices, is not expected in the near term.
3) International environment: Volatility in international financial markets had indeed been on the rise in early July, driven by escalated uncertainly in the euro area following the Greek referendum. However, developments in the euro area later in July assuaged financial market volatility considerably. A likely hike in interest rates by the US Fed in the coming months remains an impending uncertainty. The first Fed rate hike is expected to take place in September. However, given India's generally sound macroeconomic parameters, the effect of a Fed hike on India will likely be relatively limited. The relative stability of INR and INR assets in general earlier in July, amid the heightened uncertainties in the euro area, remains a case in point in this context.
Accordingly,unless the monsoons turn markedly unfavourable during August-September or the effect of a Fed lift-off on India turns out to be considerably worse than current expectations, there is a case for further easing in H2 2015 by the RBI. The monsoon outcome will be largely clear by September, and the initial effect of a potential Fed hike - if indeed takes place in mid-September - on INR assets would be visible before the RBI's end-September policy meeting. The RBI's commentary and guidance next week will firm the views in this regard.
"Given the ongoing soft inflation backdrop, the probability of another 25bp repo rate cut by the RBI in H2 15 is rising, in our view," says Barclays.
In its previous round of policy announcement on 2 June, the RBI had lowered the repo rate by 25bp, as expected, but had maintained a cautious policy stance. The three key risks that the central bank had highlighted were: 1) below-normal monsoon rains; 2) firming crude oil prices; and 3) volatility in external environment. While these risks cannot be completely ignored, developments on most of these fronts since early June had been somewhat reassuring.
1) Monsoon: In early June, the India Meteorological Department (IMD) had projected monsoon season (June-September) rains in India to be below normal, at 88% of the country's long period average (LPA). Against that, the cumulative rainfall to date - half-way into the monsoon season - stands normal at 96% of the LPA. The geographical distribution of rainfall has so far been a mixed bag - of the 36 meteorological sub-divisions in the country, the IMD suggests that 17 have received normal rains, six have received excess, while the remaining 13 have witnessed deficient rains so far. Thus, admittedly, while the geographical distribution of rainfall has not been ideal, the overall monsoon picture appears considerably better than was suggested by the IMD in early June. Nevertheless, clarity on the monsoon front ahead of the August meeting is only partial, but it will be considerably clearer by the RBI's next monetary policy meeting, scheduled on 29 September.
2) Crude oil price: Commodity prices in general have softened further since the RBI's June monetary policy meeting. The softening in oil prices had been particularly noteworthy - Brent crude oil price is c.US$54/barrel currently, versus c.US$65/barrel on 1 June. A flare-up in commodity prices, including in oil prices, is not expected in the near term.
3) International environment: Volatility in international financial markets had indeed been on the rise in early July, driven by escalated uncertainly in the euro area following the Greek referendum. However, developments in the euro area later in July assuaged financial market volatility considerably. A likely hike in interest rates by the US Fed in the coming months remains an impending uncertainty. The first Fed rate hike is expected to take place in September. However, given India's generally sound macroeconomic parameters, the effect of a Fed hike on India will likely be relatively limited. The relative stability of INR and INR assets in general earlier in July, amid the heightened uncertainties in the euro area, remains a case in point in this context.
Accordingly,unless the monsoons turn markedly unfavourable during August-September or the effect of a Fed lift-off on India turns out to be considerably worse than current expectations, there is a case for further easing in H2 2015 by the RBI. The monsoon outcome will be largely clear by September, and the initial effect of a potential Fed hike - if indeed takes place in mid-September - on INR assets would be visible before the RBI's end-September policy meeting. The RBI's commentary and guidance next week will firm the views in this regard.
"Given the ongoing soft inflation backdrop, the probability of another 25bp repo rate cut by the RBI in H2 15 is rising, in our view," says Barclays.
Continuing claims data pulls US July employment forecast lower
31 July 2015, 01:48
For the July employment report, scheduled for release on Friday, August 7,
the nonfarm payrolls are expected to rise by 200k, a downward revision from the
forecast of 250k. Private payrolls are expected expand by 200k, and government
payrolls will remain unchanged.
"The rise in continuing claims pushed the median output from our forecast models substantially lower, and we felt the need to feed some of that weakness through to our official forecast. Continuing claims returned to the level of the last survey week, and our models took substantial signal from this change," says Barclays.
The unemployment rate is likley to remain unchanged at 5.3%. Underlying the view on the unemployment rate is the expectation that employment in the household survey will rebound off of last month's decline, which is seen as anomalous and inconsistent with other labor market data. If so, this would likely coincide with a modest rebound in participation and forestall a decline in the unemployment rate in this survey period. Elsewhere, average hourly earnings are expected to rise by 0.3% on the month, partially reversing the flat reading observed in June. This would leave average hourly earnings up 2.3% y/y. Finally, average weekly hours are expected to remain unchanged at 34.5.
"We still view our forecast as pointing to only a modest slowing in the rate of employment growth, and the forecast remains near the 225k mark, which we expect to prevail on average through the end of this year. In addition, at 200k, our forecasted pace of payroll growth for July is well above that needed to keep up with labor force growth, and we expect the unemployment rate to resume its downward trend in coming months," added Barclays.
The FOMC takes into consideration a broad array of labor market indicators, and the headline number is only one proxy for broader strength. The labor market is in near normal levels and expect it to continue to improve going forward. Given the improvements in the labor market so far this year, a July employment report consistent with the forecasts will keep the FOMC on track for a rate hike by the end of this year.
"We maintain our call for a September start to the hiking cycle. As with each hurdle on the way to normalization, an employment report substantially weaker than we forecast would raise the bar for a rate hike," continued Barclays.
"The rise in continuing claims pushed the median output from our forecast models substantially lower, and we felt the need to feed some of that weakness through to our official forecast. Continuing claims returned to the level of the last survey week, and our models took substantial signal from this change," says Barclays.
The unemployment rate is likley to remain unchanged at 5.3%. Underlying the view on the unemployment rate is the expectation that employment in the household survey will rebound off of last month's decline, which is seen as anomalous and inconsistent with other labor market data. If so, this would likely coincide with a modest rebound in participation and forestall a decline in the unemployment rate in this survey period. Elsewhere, average hourly earnings are expected to rise by 0.3% on the month, partially reversing the flat reading observed in June. This would leave average hourly earnings up 2.3% y/y. Finally, average weekly hours are expected to remain unchanged at 34.5.
"We still view our forecast as pointing to only a modest slowing in the rate of employment growth, and the forecast remains near the 225k mark, which we expect to prevail on average through the end of this year. In addition, at 200k, our forecasted pace of payroll growth for July is well above that needed to keep up with labor force growth, and we expect the unemployment rate to resume its downward trend in coming months," added Barclays.
The FOMC takes into consideration a broad array of labor market indicators, and the headline number is only one proxy for broader strength. The labor market is in near normal levels and expect it to continue to improve going forward. Given the improvements in the labor market so far this year, a July employment report consistent with the forecasts will keep the FOMC on track for a rate hike by the end of this year.
"We maintain our call for a September start to the hiking cycle. As with each hurdle on the way to normalization, an employment report substantially weaker than we forecast would raise the bar for a rate hike," continued Barclays.
USD holds gains on GDP
31 July 2015, 01:16
Large revisions to the US GDP series saw some mixed interpretation and choppy
price action in markets. After the dust settled though, the net interpretation
was modestly more optimistic, and USD is generally outperforming as a
result.
There were significant historical revisions to the GDP series, so while the headline print for Q2 was a slight miss at 2.3%q/q ann. (est. 2.5%), the upward revisions to recent quarters were taken as offsetting, even though nominal growth for the entire series was reduced slightly. Overall, the report was quite mixed, but not too far off of expectations.
The positive slant on the report is that recent quarter growth was revised higher, with Q1 up to 0.6% (from -0.2%), and growth for 2014 as a whole lifted to 2.7% from 2.5%. There was an important revision to the composition of growth over the past four quarters-particularly for consumption. Spending is now shown as growing at 3.4% vs 3.1% on average. Inflation-wise, it's also notable that core PCE was stronger than expected.
"With US equities up 2.2% MTD, our model suggests selling USD against GBP, AUD, CAD, and NOK at the overnight NY close," notes RBC Capital Markets.
There were significant historical revisions to the GDP series, so while the headline print for Q2 was a slight miss at 2.3%q/q ann. (est. 2.5%), the upward revisions to recent quarters were taken as offsetting, even though nominal growth for the entire series was reduced slightly. Overall, the report was quite mixed, but not too far off of expectations.
The positive slant on the report is that recent quarter growth was revised higher, with Q1 up to 0.6% (from -0.2%), and growth for 2014 as a whole lifted to 2.7% from 2.5%. There was an important revision to the composition of growth over the past four quarters-particularly for consumption. Spending is now shown as growing at 3.4% vs 3.1% on average. Inflation-wise, it's also notable that core PCE was stronger than expected.
"With US equities up 2.2% MTD, our model suggests selling USD against GBP, AUD, CAD, and NOK at the overnight NY close," notes RBC Capital Markets.
Mexico monetary policy: The road is paved, just waiting for the Fed
31 July 2015, 00:58
Banxico decided to keep its policy rate unchanged at 3.00%. The press release
keeps a neutral tone and the balance of risks for global growth and inflation
remains unchanged from the previous meeting. The meeting minutes will be
important to confirm the external and local conditions of the economy and
support the view that Banxico is prepared to raise rates just after the
Fed.
Heightened volatility in markets demands a prudent monetary policy stance. Long-term rates remained unchanged despite the increase in short- and medium-term rates, and the board acknowledged that volatility in markets has grown incrementally in recent days, without discarding a further deterioration due to the uncertainty around the timing of the Fed tightening. Banxico explains that it is necessary to consolidate the recent efforts in the fiscal scope and adjust opportunely the monetary policy stance in order to maintain confidence in Mexico's economy and the risk premia at low levels.
Pressures from the domestic economy dynamics are muted. The press release mentioned that growth continues to moderate, with investments and exports decelerating, whereas consumption has picked up pace some, but mainly due to the stabilization of inflation. In that regard, the central bank says that the effects from a weaker currency in domestic inflation are quite contained, which then points to a positive balance of risks for inflation.
"We think that the statement from the board confirms our call that most likely they will react to the upcoming Fed's move, and thereafter we continue to expect them to increase the overnight interest rate in the next meeting (September 21), as long as the Fed also starts to hike in the previous days," says Barclays.
Neither growth nor the inflation outlook would require a tightening of interest rates already in this quarter, should the contained FX pass-thru assumption stand. That said, any move from Banxico would be aimed at stabilizing financial conditions following a liftoff in Fed policy rates.
The Mexican Treasury and central bank's FX commission announced some measures to provide liquidity in FX markets.
These measures signal the discomfort of the Mexican Treasury and the central bank regarding the recent MXN weakness. Even though USDMXN volatility remains contained and the cross has not underperformed most of its LatAm peers, the FX commission's concerns have likely increased as the timing for a lift-off in Fed policy rates draws near.
These measures are meant to act as partial substitutes for the rate hikes already priced into the short-end of the TIIE curve. These add to recent moves by Banxico to adjust its monetary policy meeting calendar so as to take decisions right after the FOMC meetings. Although rate hikes will be deployed, authorities are reminding the markets that it has other tools available to tackle FX market instability.
The disappointing performance of the Mexican economy, along with very low inflation and muted pass-through, could be a few reasons the central bank may not want to tighten monetary conditions as fast as implied in the term structure of the interest rate curve.
"USDMXN has reached our target of 16.50 a few months too early (this was forecast for end-2015). The FX commission's announcement and heavy short positioning in MXN argue for staying on the sidelines. We see 15.85-90 as a good entry point to go long USDMXN once again," notes Barclays.
Heightened volatility in markets demands a prudent monetary policy stance. Long-term rates remained unchanged despite the increase in short- and medium-term rates, and the board acknowledged that volatility in markets has grown incrementally in recent days, without discarding a further deterioration due to the uncertainty around the timing of the Fed tightening. Banxico explains that it is necessary to consolidate the recent efforts in the fiscal scope and adjust opportunely the monetary policy stance in order to maintain confidence in Mexico's economy and the risk premia at low levels.
Pressures from the domestic economy dynamics are muted. The press release mentioned that growth continues to moderate, with investments and exports decelerating, whereas consumption has picked up pace some, but mainly due to the stabilization of inflation. In that regard, the central bank says that the effects from a weaker currency in domestic inflation are quite contained, which then points to a positive balance of risks for inflation.
"We think that the statement from the board confirms our call that most likely they will react to the upcoming Fed's move, and thereafter we continue to expect them to increase the overnight interest rate in the next meeting (September 21), as long as the Fed also starts to hike in the previous days," says Barclays.
Neither growth nor the inflation outlook would require a tightening of interest rates already in this quarter, should the contained FX pass-thru assumption stand. That said, any move from Banxico would be aimed at stabilizing financial conditions following a liftoff in Fed policy rates.
MXN: Near-term stability on more intervention
31 July 2015, 00:45
The Mexican Treasury and central bank's FX commission announced some measures to provide liquidity in FX markets.
- Daily auction without minimum price: increase from 52mn to 200mn
USDMXN.
- Daily auction with minimum price: decrease in the minimum price from 1.5% to 1.0% above last FIX.
These measures signal the discomfort of the Mexican Treasury and the central bank regarding the recent MXN weakness. Even though USDMXN volatility remains contained and the cross has not underperformed most of its LatAm peers, the FX commission's concerns have likely increased as the timing for a lift-off in Fed policy rates draws near.
These measures are meant to act as partial substitutes for the rate hikes already priced into the short-end of the TIIE curve. These add to recent moves by Banxico to adjust its monetary policy meeting calendar so as to take decisions right after the FOMC meetings. Although rate hikes will be deployed, authorities are reminding the markets that it has other tools available to tackle FX market instability.
The disappointing performance of the Mexican economy, along with very low inflation and muted pass-through, could be a few reasons the central bank may not want to tighten monetary conditions as fast as implied in the term structure of the interest rate curve.
"USDMXN has reached our target of 16.50 a few months too early (this was forecast for end-2015). The FX commission's announcement and heavy short positioning in MXN argue for staying on the sidelines. We see 15.85-90 as a good entry point to go long USDMXN once again," notes Barclays.
MXN: Near-term stability on more intervention
31 July 2015, 00:43
The Mexican Treasury and central bank's FX commission announced some measures
to provide liquidity in FX markets.
These measures are meant to act as partial substitutes for the rate hikes already priced into the short-end of the TIIE curve. These add to recent moves by Banxico to adjust its monetary policy meeting calendar so as to take decisions right after the FOMC meetings. Although rate hikes will be deployed, authorities are reminding the markets that it has other tools available to tackle FX market instability.
The disappointing performance of the Mexican economy, along with very low inflation and muted pass-through, could be a few reasons the central bank may not want to tighten monetary conditions as fast as implied in the term structure of the interest rate curve.
"USDMXN has reached our target of 16.50 a few months too early (this was forecast for end-2015). The FX commission's announcement and heavy short positioning in MXN argue for staying on the sidelines. We see 15.85-90 as a good entry point to go long USDMXN once again," notes Barclays.
- Daily auction without minimum price: increase from 52mn to 200mn
USDMXN.
- Daily auction with minimum price: decrease in the minimum price from 1.5% to
1.0% above last FIX.
- Both measures will be in place starting tomorrow until September 30, when the FX commission would reassess the parameters of such auctions. It is worth keeping in mind that they could step in at any time.
These measures are meant to act as partial substitutes for the rate hikes already priced into the short-end of the TIIE curve. These add to recent moves by Banxico to adjust its monetary policy meeting calendar so as to take decisions right after the FOMC meetings. Although rate hikes will be deployed, authorities are reminding the markets that it has other tools available to tackle FX market instability.
The disappointing performance of the Mexican economy, along with very low inflation and muted pass-through, could be a few reasons the central bank may not want to tighten monetary conditions as fast as implied in the term structure of the interest rate curve.
"USDMXN has reached our target of 16.50 a few months too early (this was forecast for end-2015). The FX commission's announcement and heavy short positioning in MXN argue for staying on the sidelines. We see 15.85-90 as a good entry point to go long USDMXN once again," notes Barclays.
31 July 2015, 00:25
CORRECTED-GREECE'S SYRIZA PARTY COMMITTEE BACKS TSIPRAS CALL FOR EMERGENCY
CONGRESS, NOT MEMBERSHIP BALLOT ON BAILOUT TALKS
Asia-Pacific: Foreign exchange outlook
31 July 2015, 00:25
The Australian dollar (AUD) decline is anticipated to continue into year-end,
before stabilizing through 2016 on the back of a shift in its balance of risks.
While any further benchmark interest rate cuts are not expected by the Reserve
Bank of Australia, the country's monetary authorities continue to stress their
preference for currency weakness.
"JPY weakness is expected to take place through the end of our forecast profile, as we look to the maintenance of an aggressively accommodative monetary policy stance by the Bank of Japan," says scotiabank.
Developing Asian currencies are facing a strong depreciation bias, reflecting shifts in investor risk appetite for emerging market assets ahead of the approaching monetary policy normalization in the US. Moreover, volatility in the Chinese equity market is adversely affecting sentiment across the region. China's monetary authorities are keeping the Chinese yuan (CNY) stable ahead of the forthcoming exchange rate reform that is expected to widen the currency's trading band to ±3% (from ±2%) around the People's Bank of China's central parity for USDCNY. This would give market forces a substantially more influential role in determining the currency's valuation; the CNY will function as an important shock absorber when Chinese authorities move ahead with their interest rate and capital account liberalization agenda.
The South Korean won (KRW) has been one of the weakest currency performers in the region over the past month; its depreciation against the JPY will be a welcome development for South Korean exporters who have felt the adverse impact from the substantial yen weakness evidenced over the past few years. In Thailand, further decline in the value of the Thai baht (THB) will likely play a larger role as economic growth supporter than additional monetary policy accommodation.
"JPY weakness is expected to take place through the end of our forecast profile, as we look to the maintenance of an aggressively accommodative monetary policy stance by the Bank of Japan," says scotiabank.
Developing Asian currencies are facing a strong depreciation bias, reflecting shifts in investor risk appetite for emerging market assets ahead of the approaching monetary policy normalization in the US. Moreover, volatility in the Chinese equity market is adversely affecting sentiment across the region. China's monetary authorities are keeping the Chinese yuan (CNY) stable ahead of the forthcoming exchange rate reform that is expected to widen the currency's trading band to ±3% (from ±2%) around the People's Bank of China's central parity for USDCNY. This would give market forces a substantially more influential role in determining the currency's valuation; the CNY will function as an important shock absorber when Chinese authorities move ahead with their interest rate and capital account liberalization agenda.
The South Korean won (KRW) has been one of the weakest currency performers in the region over the past month; its depreciation against the JPY will be a welcome development for South Korean exporters who have felt the adverse impact from the substantial yen weakness evidenced over the past few years. In Thailand, further decline in the value of the Thai baht (THB) will likely play a larger role as economic growth supporter than additional monetary policy accommodation.
31 July 2015, 00:12
GREECE'S RULING SYRIZA PARTY COMMITTEE BACKS TSIPRAS CALL FOR EMERGENCY
CONGRESS
Europe: Foreign exchange outlook
31 July 2015, 00:06
The path of the British pound (GBP) is one of relative performance, softening
vs. the USD while climbing against its peers in light of the Bank of England
whose normalization is expected to lag the Fed's in both timing and scope. Risk
for the EUR remains biased to further weakness as we look to greater divergence
between the Fed and the European Central Bank, with the passing of Greece-driven
uncertainty providing for a renewed focus on fundamentals. This dynamic has been
most clearly evident in the value of the Swiss franc (CHF), its accelerated
depreciation observed in response to the moderation in investor risk
aversion.
"We expect CHF to weaken vs. both USD and EUR throughout our forecast profile. The Swedish krona (SEK) and the Norwegian krone (NOK) are most vulnerable into year-end, and we look to their stabilization over the course of 2016," notes scotiabank.
"We expect CHF to weaken vs. both USD and EUR throughout our forecast profile. The Swedish krona (SEK) and the Norwegian krone (NOK) are most vulnerable into year-end, and we look to their stabilization over the course of 2016," notes scotiabank.
Americas foreign exchange outlook
30 July 2015, 23:52
US dollar (USD) gains are expected to intensify into year-end as market
participants await the commencement of monetary policy normalization by the US
Federal Reserve. Fed policymakers have become increasingly confident in the
labor market outlook, with preference to an early and gradual path for monetary
tightening; the first benchmark interest rate increase is expected to take place
in September. A differentiated foreign exchange performance is expected to take
place through 2016, with stabilization and modest strength anticipated for most
currencies with the exception of the Japanese yen (JPY) and the euro
(EUR).
The Canadian dollar (CAD) is expected to weaken in the near term, its greatest vulnerability arising from the path for oil prices and their implications for monetary policy at the Bank of Canada. CAD is expected to stabilize from its third quarter lows, with a retracement that is largely predicated on the gradual and modest rise in oil prices.
The Mexican peso (MXN) remains on the defensive in connection with the beginning of the US monetary tightening cycle and the potential for capital repatriation flows by foreign (primarily based in the US) holders of Mexican securities. However, the currency should find some support from attractive interest rate differentials and a domestic monetary policy tightening path that is expected to follow that of the US Federal Reserve.
Latin American currencies remain on the defensive, yet some differentiation dynamics are evident. At the very negative end of the spectrum, both the Brazilian real (BRL) and the Colombian peso (COP) have experienced the sharpest depreciation versus the USD. The BRL has been severely hit by the combined negative impact of sustained recession, high inflation (in the high single digits), widening fiscal and current account deficits, and poor market sentiment affecting emerging-market assets.
Moreover, Brazil remains vulnerable to multiple downward revisions to its sovereign credit ratings. The COP has been associated with the oil price shock and the ensuing economic impact from sizable CAPEX reductions in the energy sector, with the Peruvian (PEN) and Chilean (CLP) currencies receiving adverse headwinds from still-correcting commodity prices.
The Canadian dollar (CAD) is expected to weaken in the near term, its greatest vulnerability arising from the path for oil prices and their implications for monetary policy at the Bank of Canada. CAD is expected to stabilize from its third quarter lows, with a retracement that is largely predicated on the gradual and modest rise in oil prices.
The Mexican peso (MXN) remains on the defensive in connection with the beginning of the US monetary tightening cycle and the potential for capital repatriation flows by foreign (primarily based in the US) holders of Mexican securities. However, the currency should find some support from attractive interest rate differentials and a domestic monetary policy tightening path that is expected to follow that of the US Federal Reserve.
Latin American currencies remain on the defensive, yet some differentiation dynamics are evident. At the very negative end of the spectrum, both the Brazilian real (BRL) and the Colombian peso (COP) have experienced the sharpest depreciation versus the USD. The BRL has been severely hit by the combined negative impact of sustained recession, high inflation (in the high single digits), widening fiscal and current account deficits, and poor market sentiment affecting emerging-market assets.
Moreover, Brazil remains vulnerable to multiple downward revisions to its sovereign credit ratings. The COP has been associated with the oil price shock and the ensuing economic impact from sizable CAPEX reductions in the energy sector, with the Peruvian (PEN) and Chilean (CLP) currencies receiving adverse headwinds from still-correcting commodity prices.
Americas Roundup: Canadian dollar softens as US dollar rallies on Fed outlook, GDP data- July 31st, 2015
30 July 2015, 23:43
Market Roundup
EUR/USD is supported around 1.0865 levels and currently trading at 1.0907 levels. It has made session high at 1.0956 and lows at 1.0892 levels. Euro continued to decline against US dollar on Thursday, after US GDP data and Initial Jobless claims came slightly positive. US GDP data came slightly low at 2.3% against actual forecast of 2.6%. Meanwhile, Initial Jobless claims printed better than expected figures at 267k against the 270k forecast. The euro shed 0.5 percent against the US dollar at $1.0925. The euro faced further selling pressure after, International Monetary Fund (IMF) said in a report that, it couldn't officially join bailout talks with Greece until the debt-laden nation agrees to comprehensive reforms. The decision means that an IMF decision on any further bailout for Greece could stretch for months and possibly into 2016 and raises questions about whether it will ultimately join euro zone efforts, according to the newspaper's report. To the upside, immediate resistance can be seen at 1.0965. To the downside, major support level is located at 1.0820 levels.
GBP/USD is supported around 1.5490 levels and currently trading at 1.5585 levels. It has made session high at 1.5630 and low at 1.5560 levels. Sterling hit a one-week high on a trade-weighted basis on Thursday, bucking a broad dollar rally on expectations that the Bank of England is likely to follow the U.S. Federal Reserve in raising interest rates in the coming months. The pound was the only major currency to remain steady versus the greenback on Thursday, which was boosted by data that showed U.S. economic growth accelerated in the second quarter as consumer spending picked up, encouraging bets on a September U.S. rate hike. Against the dollar, sterling was flat on Thursday at $1.5592. Recent data out of Britain has been robust, with consumer demand holding up well and the pace of growth accelerating in the second quarter, while BoE Governor Mark Carney has indicated a decision on rates will come around the turn of the year. To the upside, immediate resistance can be seen at 1.5670. To the downside, major support level is located at 1.5460 levels.
USD/JPY is supported around 124.18 levels and currently trading at 124.31 levels. It has made session high at 124.57 and low at 123.14 levels. US dollar inched higher against Japanese yen on Thursday pair accelerated to higher level, even though, the US GDP figures came slightly below expectations at 2.3% against the forecast of 2.6%. The US dollar appreciated 0.3 percent against yen at 124.33 levels. The dollar rose to its highest in a week against a basket of currencies on Thursday as news of faster U.S. economic growth in the second quarter supported expectations that the U.S. Federal Reserve will raise interest rates as early as September. To the upside, immediate resistance can be seen at 124.50. To the downside, major support level is located at 123.70 levels.
USD/CAD is supported around 1.2910 levels and currently trading at 1.3000 levels. It has made session high at 1.3042 and low at 1.2963 levels. The Canadian dollar softened against a rallying greenback on Thursday, but was off session lows, as markets cheered the Federal Reserve's relatively upbeat outlook for the U.S. economy and solid U.S. economic growth data. Data showed accelerating U.S. growth in the second quarter and a large upward revision of the first quarter, supporting the view that the Federal Reserve is set to raise interest rates this year. The U.S. dollar's strength offset the impact on the loonie of a rebound in prices for crude, a major Canadian export. U.S. GDP expanded at a 2.3 percent annual rate in the second quarter, a solid rebound from the first quarter, which was revised to a 0.6 percent gain versus the previously reported 0.2 percent decline. To the upside, immediate resistance can be seen at 1.3040. To the downside, major support level is located at 1.2940 levels.
Equities Recap
European stocks closed higher on Thursday after encouraging corporate earnings. UK's benchmark FTSE 100 gained 0.7 percent at close, the pan-European FTSEurofirst 300 closed down, up by 0.6percent, Germany's Dax closed up by 0.3 percent, France's CAC closed up at 0.5 percent, Italy's FTSE MIB up closed up by 0.6 percent at 23,396.09 points. Meanwhile, Spain's IBEX 35 slipped down 0.6 percent at close.
US Stocks ended flat on Thursday after positive corporate earnings and slightly better US economic data. Dow Jones closed down by 3.87 points, or 0.02 percent, at 17,747.52, S&P 500 closed up 0.43 points, or 0.02 percent, at 2,109.00, Nasdaq closed up 18.02 points, or 0.35 percent, at 5,129.76.
Treasuries Recap
U.S. Treasuries prices were mixed on Thursday and the yield curve turned flatter following strong U.S. economic growth data that led to gains for longer-dated debt and stable short-end prices as expectations of a September U.S. rate rise heightened.
In the wake of the data, the 10-year Treasury price turned positive, rising 2/32 of a point in price to pull the yield, which moves in the opposite direction, down to 2.26 percent.
The 30-year bond rose 23/32 of a point in price, pushing the yield down to 2.95 percent. Before the data the 30-year bond was trading at a yield of 3.00 percent.
On the shorter-end of the yield curve, two-year Treasuries were off just 1/32 of a point in price, yielding 0.7275 percent. Before the data the yield was up to 0.7354 percent.
Commodities Recap
Gold fell 1 percent on Thursday to a near a 5-1/2-year low as the dollar rose after data showed the U.S. economy improved in the second quarter, supporting views that the Federal Reserve would lift rates by year-end.
Spot gold dropped as much as 1.3 percent to a session low of $1,081.85 an ounce in earlier trading, not far from its cheapest since February 2010 at $1,077 hit after a selloff on July 20. It was down 0.7 percent at $1,089.11 by 2:07 p.m. EDT (1807 GMT).
U.S. gold for August delivery slipped 0.4 percent to settle at $1,088.40 an ounce.
Crude futures settled down on Thursday, pressured by a rally in the dollar which countered bullish sentiment from a drawdown in U.S. stockpiles that was much steeper than expected.
Oil has slid more than $10 a barrel over the past month. Global benchmark Brent neared a six-month trough earlier this week and U.S. futures neared four-month lows, pressured by a global glut, a resurgent dollar and China's tumbling stock market.
Brent settled down 7 cents, or 0.1 percent, at $53.31 a barrel.
U.S. crude closed lower by 27 cents, or 0.6 percent, at $48.52.
- China vows more targeted policy steps to lift economy.
- IMF won't participate in Greek bailout at this stage (FT), EUR/USD to session lows.
- Greek official dismisses FT report says IMF participating in talks.
- Banxico sells USD 200 million in auction after peso hits record low.
- Banxico holds Mexico rate steady will focus on exchange rate and relative to US monetary policy stance, raises daily intervention to USD 200 million from 52 million to support peso USD/MXN moves dramatically lower.
- US GDP Advance Q2 2.3%, f/c 2.6%, 0.6%-previous.
- US GDP Cons Spending Advance Q2 2.9%, 1.8%-previous.
- US GDP Deflator Advance Q2 2%, f/c 1.5%, 0.1%-previous.
- US Core PCE Prices Advance Q2 1.8%, f/c 1.6%, 1%-previous.
- Janus' Gross: Fed recognizing 0% interest rates increasingly have negative consequences.
- 23:30 Japan All Household Spending YY* Jun f/c 1.7%, 4.8%-previous
- 23:30 Japan All Household Spending MM* Jun f/c -0.5%, 2.4%-previous
- 23:30 Japan CPI, Core Nationwide YY Jun f/c 0%, 0.1%-previous
- 23:30 Japan CPI, Overall Nationwide* Jun 0.5%-previous
- 23:30 Japan CPI Core Tokyo YY* Jul f/c 0%, 0.1%-previous
- 23:30 Japan CPI, Overall Tokyo* Jul 0.3%-previous
- 23:30 Japan Unemployment Rate Jun f/c 3.3%, 3.3%-previous
- 05:00 Japan Construction Orders YY Jun -7.4%-previous
- 05:00 Japan Housing Starts YY Jun f/c 2.9%, 5.8%-previous
- 01:00 New Zealand NBNZ Business Outlook Jul -2.3%-previous
- 01:00 New Zealand NBNZ Own Activity Jul 23.6%-previous
- 01:30 Australia PPI QQ* Q2 0.5%-previous
- 01:30 Australia PPI YY* Q2 0.7%-previous
- 01:30 Australia Private Sector Credit* Jun f/c 0.5%, 0.5%-previous
- 01:30 Australia Housing Credit* Jun 0.5%-previous
- No Significant Events
EUR/USD is supported around 1.0865 levels and currently trading at 1.0907 levels. It has made session high at 1.0956 and lows at 1.0892 levels. Euro continued to decline against US dollar on Thursday, after US GDP data and Initial Jobless claims came slightly positive. US GDP data came slightly low at 2.3% against actual forecast of 2.6%. Meanwhile, Initial Jobless claims printed better than expected figures at 267k against the 270k forecast. The euro shed 0.5 percent against the US dollar at $1.0925. The euro faced further selling pressure after, International Monetary Fund (IMF) said in a report that, it couldn't officially join bailout talks with Greece until the debt-laden nation agrees to comprehensive reforms. The decision means that an IMF decision on any further bailout for Greece could stretch for months and possibly into 2016 and raises questions about whether it will ultimately join euro zone efforts, according to the newspaper's report. To the upside, immediate resistance can be seen at 1.0965. To the downside, major support level is located at 1.0820 levels.
GBP/USD is supported around 1.5490 levels and currently trading at 1.5585 levels. It has made session high at 1.5630 and low at 1.5560 levels. Sterling hit a one-week high on a trade-weighted basis on Thursday, bucking a broad dollar rally on expectations that the Bank of England is likely to follow the U.S. Federal Reserve in raising interest rates in the coming months. The pound was the only major currency to remain steady versus the greenback on Thursday, which was boosted by data that showed U.S. economic growth accelerated in the second quarter as consumer spending picked up, encouraging bets on a September U.S. rate hike. Against the dollar, sterling was flat on Thursday at $1.5592. Recent data out of Britain has been robust, with consumer demand holding up well and the pace of growth accelerating in the second quarter, while BoE Governor Mark Carney has indicated a decision on rates will come around the turn of the year. To the upside, immediate resistance can be seen at 1.5670. To the downside, major support level is located at 1.5460 levels.
USD/JPY is supported around 124.18 levels and currently trading at 124.31 levels. It has made session high at 124.57 and low at 123.14 levels. US dollar inched higher against Japanese yen on Thursday pair accelerated to higher level, even though, the US GDP figures came slightly below expectations at 2.3% against the forecast of 2.6%. The US dollar appreciated 0.3 percent against yen at 124.33 levels. The dollar rose to its highest in a week against a basket of currencies on Thursday as news of faster U.S. economic growth in the second quarter supported expectations that the U.S. Federal Reserve will raise interest rates as early as September. To the upside, immediate resistance can be seen at 124.50. To the downside, major support level is located at 123.70 levels.
USD/CAD is supported around 1.2910 levels and currently trading at 1.3000 levels. It has made session high at 1.3042 and low at 1.2963 levels. The Canadian dollar softened against a rallying greenback on Thursday, but was off session lows, as markets cheered the Federal Reserve's relatively upbeat outlook for the U.S. economy and solid U.S. economic growth data. Data showed accelerating U.S. growth in the second quarter and a large upward revision of the first quarter, supporting the view that the Federal Reserve is set to raise interest rates this year. The U.S. dollar's strength offset the impact on the loonie of a rebound in prices for crude, a major Canadian export. U.S. GDP expanded at a 2.3 percent annual rate in the second quarter, a solid rebound from the first quarter, which was revised to a 0.6 percent gain versus the previously reported 0.2 percent decline. To the upside, immediate resistance can be seen at 1.3040. To the downside, major support level is located at 1.2940 levels.
Equities Recap
European stocks closed higher on Thursday after encouraging corporate earnings. UK's benchmark FTSE 100 gained 0.7 percent at close, the pan-European FTSEurofirst 300 closed down, up by 0.6percent, Germany's Dax closed up by 0.3 percent, France's CAC closed up at 0.5 percent, Italy's FTSE MIB up closed up by 0.6 percent at 23,396.09 points. Meanwhile, Spain's IBEX 35 slipped down 0.6 percent at close.
US Stocks ended flat on Thursday after positive corporate earnings and slightly better US economic data. Dow Jones closed down by 3.87 points, or 0.02 percent, at 17,747.52, S&P 500 closed up 0.43 points, or 0.02 percent, at 2,109.00, Nasdaq closed up 18.02 points, or 0.35 percent, at 5,129.76.
Treasuries Recap
U.S. Treasuries prices were mixed on Thursday and the yield curve turned flatter following strong U.S. economic growth data that led to gains for longer-dated debt and stable short-end prices as expectations of a September U.S. rate rise heightened.
In the wake of the data, the 10-year Treasury price turned positive, rising 2/32 of a point in price to pull the yield, which moves in the opposite direction, down to 2.26 percent.
The 30-year bond rose 23/32 of a point in price, pushing the yield down to 2.95 percent. Before the data the 30-year bond was trading at a yield of 3.00 percent.
On the shorter-end of the yield curve, two-year Treasuries were off just 1/32 of a point in price, yielding 0.7275 percent. Before the data the yield was up to 0.7354 percent.
Commodities Recap
Gold fell 1 percent on Thursday to a near a 5-1/2-year low as the dollar rose after data showed the U.S. economy improved in the second quarter, supporting views that the Federal Reserve would lift rates by year-end.
Spot gold dropped as much as 1.3 percent to a session low of $1,081.85 an ounce in earlier trading, not far from its cheapest since February 2010 at $1,077 hit after a selloff on July 20. It was down 0.7 percent at $1,089.11 by 2:07 p.m. EDT (1807 GMT).
U.S. gold for August delivery slipped 0.4 percent to settle at $1,088.40 an ounce.
Crude futures settled down on Thursday, pressured by a rally in the dollar which countered bullish sentiment from a drawdown in U.S. stockpiles that was much steeper than expected.
Oil has slid more than $10 a barrel over the past month. Global benchmark Brent neared a six-month trough earlier this week and U.S. futures neared four-month lows, pressured by a global glut, a resurgent dollar and China's tumbling stock market.
Brent settled down 7 cents, or 0.1 percent, at $53.31 a barrel.
U.S. crude closed lower by 27 cents, or 0.6 percent, at $48.52.