Daily Brief

Waiting for the Fed

Not lovin’ it

Yesterday’s price action was rather more coherent than Monday’s. Risky assets mostly lost ground while the safer ones moved higher. It was more drift than dash, and there was no particularly awful news upon which to pin the blame. The Swiss franc won the day and the Australian dollar came last.

Whilst it was easy enough to find reasons not to be cheerful, they were not new reasons. In Hong Kong protestors thronged the streets to mark a year of pro-democracy demonstrations. Britain’s government stuck to its guns about ending the EU transition period on 31 December, despite the risk of an economic double-whammy from the recession and a no-deal Brexit. The tragic Covid-19 pandemic continued to claim innocent lives, with Britain suddenly overtaken by Brazil following the Supreme Court’s order that Bolsonaro’s government must resume publication of the statistics.

So it was hard to disagree with investors’ decision to buy the franc (0.5% higher on the day) and gold (up 1.1%), while offloading the antipodean dollars (both down by about 0.5%), even if their timing was a little suspect. The US dollar lost two fifth of a cent and the euro was a quarter of a cent higher. Sterling was on average just about unchanged.


Negative numbers

In keeping with the current trend, most of Tuesday’s ecostats were either negative or not very positive. Although Euroland’s revised first quarter gross domestic product was a touch better than expected it still revealed a 3.6% contraction in Q1.

The other news from the euro zone centred on the Eurogroup of finance ministers. Its chairman, Portugal’s Mario Centeno, announced that he would step down on Thursday and he hopes to find a replacement within a month. Germany’s finance minister Olaf Scholz, expressed hope that he and his 26 counterparts will be able to reach agreement “within a short time” on the €750 billion recovery package touted by the European Commission.

Economic statistics were thin on the ground on Tuesday. In the United States NFIB’s index of small business optimism improved by three and a half points to 94.4 and wholesale inventories grew by a monthly 0.3%. Overnight New Zealand reported a 1.7% quarterly fall in manufacturing output and Australian consumer confidence was said to have recovered to pre-pandemic levels.


Fed expectations

This evening the US Federal Open Market Committee is expected to keep monetary policy unchanged. The key part of its announcement will be central bank’s economic projections, the first since March.

The centrepiece of the Fed’s economic projections is the famous “dot plot”, which sets out individual committee members’ personal expectations for interest rates. Last time out, they tentatively pencilled in one rate increase this year. Since then the Federal Funds Rate has been lowered to near-zero. So how long does the committee expect it to remain there?

Today’s ecostats do not promise much. Norway’s 1.3% inflation rate and France’s 20.1% monthly fall in industrial output, already out, are all Europe has to offer. US inflation, forecast to be 0.2%, is the only useful statistic from North America. Tonight’s RICS house price balance is expected to be negative.

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