June 19, 2015

Markets Today: Progress (no, silly, not on Greece)

A fairly big slug of US economic data last night – admittedly not all of its top drawer – collectively added up to progress, on the real economy at least, towards the commencement of Fed tightening in coming months.

A fairly big slug of US economic data last night – admittedly not all of its top drawer – collectively added up to progress, on the real economy at least, towards the commencement of Fed tightening in coming months.  The weekly jobless claims number – and their current trend – fell to a level fully consistent with 250k+ monthly payrolls gains, the leading economic indicator rise by a stronger than expected 0.7%, and the Philadelphia Fed Business Outlook came in at 15.2, well up on May’s 6.7 and the 8.0 exposed.

The counterpoint was the May CPI release, which shows the core annual rate slipping back to 1.7% from the 1.8% seen in both March and April. However, after the ‘low 0.3%’ monthly print last month and which cause a lot of market volatility (higher bond yields and a stronger US dollar) last night’s was a ‘high 0.1%’ monthly print (0.145%).  Annualised, core inflation is continuing to run close to 2.5% so far this year.   This, together with the aforementioned better activity readings, meant that the data failed to correct the rising trend in US Treasury yields underway ahead of the data.

Okay, so that was your Greece-free paragraph for the day.  Much of the volatility in market elsewhere (and also in part in US Treasuries) stemmed from the latest outpourings of red headlines on Greece. Before this scribe retired for the night, the ‘word’ was that Germany was close to folding and that a deal offering Greece debt relief was being drafted.  Another was that the current Greek aid package was going to be extended until year-end.  EUR/USD made a new 1-month  high on these headlines, jumping to 1.1436.

Fast forward six hours, and we learn that the meetings of Euro group Finance Ministers underway at the time had ended without any progress, and that EU President Donald Tusk had called a meeting of EU Leaders (prime ministers – not just Finance Ministers) for Monday evening (7pm Brussels time). This is now looking like the forum in which either an outline deal on Greece will be struck that will allow the ECB to keep the banking system afloat while detail are thrashed out, or a political decision is taken at the highest level to effectively boot Greece out of the club.  In the meantime, we’ve just learned that the ECB is holding an unscheduled call on Friday to discuss the Greek ELA situation. The meeting look to have been convened following news that deposit outflow from the Greek banking system have been well over €1bn in the past few days.

This latter news has served to partially reverse some of the earlier back up in US Treasury yields and strength in the EUR.  The latter, incidentally, has earlier pulled the AUD/USD rate up on to a 0.78 handle for the first time since 3 June (high has been 0.7849).

The other strong performer overnight in currencies has been Sterling, drawing fresh support from an upside surprise on UK retail sales (+0.2% vs. -0.2% expected) and some hawkish comments from BoE MPC member Kristin Forbes.

Coming Up

With US markets have settled on the view that this week’s FOMC outcomes have reduced the chances of more than one rate hike from the Fed before year end, we might hope to get a bit of the flavour of this week’s meeting when we hear from San Francisco Fed President John Williams and Cleveland Fed President Loretta Mester both towards the end of the London trading day Friday.  We won’t be holding our breath however, since the one thing we’ll be hearing for sure is that Fed ‘lift-off’ is highly data dependent.  That said, it wouldn’t surprise if one or both them, if asked, rebuff the suggestion that the inner circle of the FOMC has tilted towards a December ‘lift-off’.

In our time zone, one point of interest will be the Bank of Japan’s latest policy pronouncement (boy they come around fast). We won’t be getting any policy change, but the ensuing press conference from governor Kuroda might hold some interest. But having backtracked on his prior remarks about the yen not weakening further (and which evidently irked the government) we probably  won’t hear much other than that policy is working and that the BoJ ‘won’t hesitate’ to adjust policy if necessary.


On global stock markets, the S&P 500 was +1.00%. Bond markets saw US 10-years +1.44bp to 2.33%. On commodity markets, Brent crude oil +0.44% to $64.15, gold+2.1% to $1,202, iron ore +0.4% to $61.77. AUD is at 0.78 and the range was 0.7711 to 0.7849.(For more market prices, please see p.2 of the pdf).

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