Markets Update

U.S. job growth surged more than expected in June and employers increased hours for workers, with signs of a labor market strengthening that is likely to keep the Federal Reserve on course for a 3rd interest rate increase this year, despite lackluster inflation. Non-farm payrolls increased by 222,000 jobs in June beating expectations for a 179,000 gain. Data for April and May was revised to show 47,000 more jobs were created than previously reported. US unemployment rose to 4.4%, from a 16-year low of 4.3%, because more people were looking for work; a sign of confidence in the labor market. The jobless rate has dropped 0.4% this year and is close to the most recent Fed median forecast for 2017.

UK data released on Friday showed output by British factories unexpectedly fell in May, indicating that the UK economy has struggled to gain any momentum after a slow start to 2017 and further raising questions about the likelihood of the Bank of England raising interest rates this year. Markets were expecting an increase of 0.5% in Manufacturing Production (MoM) but were surprised with a very poor reading of -0.2%. GBPUSD reacted immediately dropping from 1.2955 to 1.28664 (-0.7%) whilst EURGBP climbed from 0.87964 to 0.88602 (+0.55%). GBPUSD is currently trading around 1.2905 and EURGBP around 0.8840.

The G20 meeting in Hamburg over the weekend had little to no impact on the markets. The highlights were the first-time meetings of Trump, Putin & Xi Jinping. The general undertone was that this was the G19 plus 1 meeting as the US was not a particularly welcome attendee.
USDJPY initially dropped by 0.6% on Friday, to trade as low as 113.148, before rebounding higher following the NFP to reach a high of 114.176 – a 0.8% increase on the day. In early trading USDJPY is around 114.15.

EURUSD had a similar story reaching a high of 1.14393 after the data release before retracing down to a low of 1.13791 a relatively small loss of 0.2% on the day. Currently EURUSD is trading around 1.1410.

Gold had heavy selling pressure, dropping 1% on Friday to trade as low as $1,207.17 – close to a 4-month low. Gold is down over 1.6% on the week resulting in its worst performance since May. Currently Gold is trading around $1,212.

WTI closed down 4% on the week as the decline in US inventories did not convince traders that global production was anywhere near rebalancing. On Friday WTI traded down 1.8% to hit a low of $43.88pb. Currently WTI is trading around $44.65pb.

Today & Tomorrow is light on impactful economic data releases – traders are focusing on Wednesday July 12 when, at 09:30 BST, the UK will release its Average Earnings Index followed, at 15:00 BST, by the Bank of Canada interest rate decision and Fed Chair Yellen’s Testimony.

Cheerio,

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

 

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Feddy Steady

U.S. central bankers stuck to their outlook for gradual monetary-policy tightening after they left interest rates unchanged and showed no alarm over recent economic weakness.

Federal Reserve officials were unusually explicit in their statement, released Wednesday following a two-day meeting in Washington, indicating that a disappointing first quarter wouldn’t knock the committee off its path to raise rates two more times this year after a hike in March.

“The committee views the slowing in growth during the first quarter as likely to be transitory,” the Federal Open Market Committee said. “Near-term risks to the economic outlook appear roughly balanced.”

The widely expected decision contained no concrete commitment to the timing of the next rate increase. Even so, investors increased bets on a move in June after absorbing the Fed’s sanguine assessment of the outlook and its encouraging observations on inflation, following data showing first-quarter economic growth of 0.7 percent and monthly price declines in March.

“Nothing in the statement today, which was voted unanimously by the FOMC, leads me to believe that the Fed is even close to changing its mind on rates,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington, wrote in a note to clients. “Base case is for a couple more rate hikes this year — probably in June and September — and for the beginning of balance sheet shrinkage in December.”

The Fed didn’t signal any change to its balance sheet policy. It is discussing how to begin shrinking its $4.5 trillion in holdings, and officials have said they hope to release a plan this year. They may start unwinding by the end of 2017, though that hinges on economic conditions.

The jobless rate has fallen to a level officials see as consistent with their maximum-employment mandate, and inflation is near the Fed’s 2 percent goal, even if price gains slowed in March. A core measure that strips out food and fuel was 1.6 percent on an annual basis, based on Commerce Department data, and headline inflation stood at 1.8 percent.

“Inflation measured on a 12-month basis recently has been running close to the committee’s 2 percent longer-run objective,” the Fed said. Household spending rose “only modestly” but the fundamentals underpinning consumption growth “remained solid.”

“The statement makes it very clear that the Fed does not take the reported slowdown in first-quarter growth seriously,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., wrote in an email to clients.

Fed-Speak Friday

The decision to leave the target federal funds rate unchanged in a range of 0.75 percent to 1 percent was unanimous and in line with forecasts. Fed Chair Janet Yellen did not have a press conference after this meeting. But she and at least five other Fed officials are scheduled to speak on Friday, giving policy makers a chance to explain their decision more fully.

Employers continued to hire at the start of 2017, averaging 178,000 net new jobs a month in the first quarter, and signs of labor-market tightness suggest wage growth will pick up further. The unemployment rate was 4.5 percent in March, near or below most estimates for its longer-run sustainable level. April’s figures are due Friday from the Labor Department.

The Fed’s next meeting will take place June 13-14 in Washington. That decision will come alongside officials’ updated quarterly economic projections and will be followed by a press conference with Yellen.

Investors increased the likelihood of a move next month to around 65 percent, according to pricing in federal funds futures contracts, compared to 60 percent before the FOMC decision was announced.

“This glass-half-full statement leaves the door wide open to a June hike, provided, of course, that the recent data letdowns are indeed transitory,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., wrote in a note to clients. “We expect this will be the case.”

Cheerio.

The Pinstripe and Bowler club shares information with MF Solutions Ltd.

The Fed 2017

As expected, Yellen & Co. raised interest rates by 25 basis points this week. Turns out, the Fed is the only major central bank among the global “developed” economies whose last policy move was a rate hike.

US policy seems to be normalising.

Central bank madness is still in full swing worldwide. Some developed countries with negative rates are still cutting them further. The

We have three possible scenarios on our hands. If the Fed raises rates three times this year, markets will likely go down. But if the rate hikes don’t come as often or as furious as expected, markets could go higher. Lastly, if we get more than three rate hikes this year, we’ll see bonds drop, commodities drop, and currencies against the dollar weaken.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.