After the sluggish wages data yesterday, the pound was hit again this morning on news UK inflation remained flat in June, raising further doubts over an August rate hike from the Bank of England. But this was good news for the stock markets, with the commodity-heavy FTSE 100 extending its gains after a sizeable rally the day before and despite ongoing weakness in prices of crude oil and metals.
The biggest themes in the markets this week can be summarized as: U.S. dollar strength; weakness in foreign currencies – particularly where the central bank is still dovish such as the Japanese yen and Swiss franc; and positive sentiment in the markets.
It’s been a more positive start to trade on Thursday, with equity markets in the green and paring Wednesday’s losses as investors continue to weigh up what impact the latest trade tariffs will have on the global economy. While markets have typically reacted negatively to any escalation on trade, the overall impact has been relatively modest under the circumstances that suggest investors are far from panic mode right now.
It is Fed day and they are expected to raise interest rates a quarter point at 1:00 p.m. Central. What’s unknown though is the tone in which they will do such. There was a report yesterday that Fed Chair Powell wants to hold a press conference after each meeting. The Dollar jumped, Treasuries ticked down and equity markets hit a midday snag. Doing this would essentially make each meeting live, giving the FOMC additional opportunities to hike.
The G7 Summit comes into focus to finish out the week. One week after announcing tariffs on the EU, Canada and Mexico, President Trump will meet with leaders from Canada, France, Germany, Italy, Japan, the UK and the European Union. Tensions are due to run high, which also means the market’s low expectations should not create any surprise currency moves.
The markets have extended their winning streak for the fourth session, with Europe also trading higher. The Dow has crossed over the 25,000 mark again with the S&P 500 trading above 2760 at the time of writing.
Yesterday’s FOMC Minutes brought exactly the lightbulb moment we not only expected but discussed at length since their meeting earlier this month. The only problem, how poor Eurozone growth and sentiment data has been. Even though the Federal Reserve has telegraphed that they are willing to let inflation run past their 2% target without forcing a faster pace of rate hikes, the dollar remains elevated.
There have been some sharp moves in the markets in the first half of Wednesday’s session with global stock indices, Turkish Lira, euro and pound all tumbling and safe-haven yen, Swiss franc and to a lesser degree gold all rallying.