Below trend growth to continue
It was the release this morning of the FOMC April Minutes that’s gotten the attention of the wires and a noticeable chunk of market reaction to boot in rates, currencies, equities and gold.
It was the release this morning of the FOMC April Minutes that’s gotten the attention of the wires and a noticeable chunk of market reaction to boot in rates, currencies, equities and gold. Recall that the outcome of that meeting was relatively uncontentious. The Fed seemingly relaxed, noting that while economic activity appeared to have slowed, the labour market continued to improved further, the Committee leaving the Fed funds rate steady and expecting the outlook would “warrant only gradual increases in the federal funds rate”.
Whether the Fed’s intentions were lost in translation to the meeting statement or clarified further as the Minutes were drafted, the phrase the market’s taken to heart has been comments in the Minutes that while rates were left steady in April they should be data dependent and leave “open the possibility of an increase in the federal funds rate at the June FOMC meeting”, “a few participants” judging it appropriate to hike in April. (Only George dissented though.)
The market has taken those comments to heart with a rise in the USD, a jump in Treasury yields along the curve, the edge taken off equities and a dip in the price of gold. All pretty much according to the market reaction playbook. Even though the market understands that the upcoming June 14-15 FOMC comes about a week before the June 23 Brexit poll, the Fed is still seriously considering enacting some further “gradual” removal of monetary accommodation.
The Bloomberg spot DXY index jumped around 0.5% as Minutes headlines hit the screens, with accompanying spill-over to the other FX majors. AUD sits this morning at 0.7230/35, having been in the 0.7260-90 region in the lead up to the Minutes, benefiting from a mild USD sell-off before their release. US 2 year Treasury yields have risen 6bps to 0.892% for the day, while 10s jumped 8bps to 1.852%. July Fed funds rose 4½bps with the market now pricing in a 50/50 chance of a hike at the July 27 meeting after a 30% chance by June. Among the non-USD majors, Sterling has stood out, a short squeeze coming after an Evening Standard/Ipsos poll revealed a 49% Bremain vote against 40% for Brexit. Cable sits on 1.46 this morning with AUD/GBP around 0.4950.
It’s pretty much all about the April Labour Force report today at 11.30, but before then we have NZ Job Ads at 8.00 am AEST and second tier Japanese releases, housing loans and machine orders, both at 9.50 AEST. Japan’s machine tool orders is being released at 16.00 pm AEST. NZ’s ANZ Consumer Confidence is out at 11.00 am AEST.
As for the AU jobs report, NAB’s somewhat higher than consensus employment pick of 16K (cf consensus of 12K) is constructed from forward indicators of the labour market such as the NAB Survey employment index and SEEK’s Job Ads indicators. There is no known risk to employment from sample rotation effects. NAB’s forecast for the unemployment rate for April is 5.7%, unchanged from March whereas the consensus is picking a 5.8% rate from a somewhat lower employment growth. The RBA’s monthly FX transactions report is being released as well at 11.30.
Tonight, there’ll be some interest in UK retail sales for April with only limited payback of +0.6% tipped after the 1.6% drop in March. That could provide scope for a further squeeze up in sterling should larger growth payback be unveiled. In the US there’s weekly jobless claims, the Philly Fed Survey, the US Leading Index, while Fed Vice-Chair Stanley Fischer and NY Fed President Bill Dudley are both speaking, both regarded as close to Yellen’s thinking and of course then speakers the markets pay close attention to.
The G7 Finance Ministers/Central Bankers meet in Sendai, Japan from tomorrow, so opportunities for sound grabs, even starting with formal press opportunities from later today.
On global stock markets, the S&P 500 was +0.00%. Bond markets saw US 10-years +8.15bp to 1.86%. On commodity markets, Brent crude oil -1.62% to $48.48, gold-1.5% to $1,258, iron ore +1.8% to $56.78. AUD is at 0.7223 and the range was 0.7222 to 0.7332.
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