Daily Market Outlook 4 August
The British pound edged up on Thursday as investors counted on the Bank of England to cut interest rates to a record low, while a rebound in oil prices from four-month lows lifted Asian stocks. The expected BoE cut to a record low 0.25 percent later on Thursday would be the first since 2009 as Britain's economy teeters on the brink of recession. Britain's economy is slowing at the fastest pace since the financial crisis, based on Markit's monthly all-sector Purchasing Managers' Index on Wednesday, which recorded the steepest month-on-month decline on record. Many market players also believe the BoE may resume its multi-billion-pound quantitative easing program of government bond purchases.
The euro held steady at $1.1149 EUR=EBS, slipping from 5-week high of $1.1234 touched on Monday. Oil, which jumped more than 3 percent on Wednesday, extended gains in Asian trade on Thursday, arresting its almost constant fall since early June, after a larger-than-expected gasoline draw eased concerns about global supply glut. Bank of Japan Deputy Governor Kikuo Iwata said on Thursday that a comprehensive review of the central bank's monetary policy next month would focus on the transmission mechanism and obstacles to its monetary policy. However, it is not meant to offer a specific direction for future monetary policy, he said. Japanese government bonds, which suffered their worst sell-off in more than three years this week on worries the Bank of Japan may be running out of realistic easing options, remained under pressure.
The dollar bounced back 0.6 percent from Monday's five-week low against a basket of six major currencies as investors looked to July payrolls data on Friday. A report from payrolls processor ADP showed on Wednesday U.S. private employers added 179,000 jobs in July, a tad above market expectations and bolstering hopes that Friday's data could show moderate growth in employment. Soft second-quarter U.S. GDP data and some other mixed data have dented the dollar as they reduced expectations that the Federal Reserve will raise rates this year. The near-term focus for the dollar is whether U.S. jobs data due on Friday will revive expectations for the Federal Reserve to raise interest rates later this year.
U.S. interest rate futures suggest investors now see a 40 percent chance of a Fed rate hike by December. Analysts say that a better-than-expected U.S. nonfarm payrolls report would give the dollar traction against the resurgent Japanese yen, which firmed after the Bank of Japan's modest monetary easing last week disappointed investors expecting more drastic stimulus steps. Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 170,000 jobs in July, down from 265,000 the month before. Total non-farm employment is expected to have risen by 180,000.
Low inflation allows the Federal Reserve to keep U.S. interest rates lower for longer in order to boost the economy and jobs, a top Federal Reserve official said on Wednesday. "If we can keep creating jobs while inflation is in check, let's do that," Minneapolis Fed President Neel Kashkari said at a meeting with community activists and members of the black community in Minneapolis who were airing their concerns about low pay and high unemployment. "We can do our best to make the job market as strong as possible." Chicago Federal Reserve Bank President Charles Evans said Wednesday one rate increase might be appropriate this year, despite his worry that inflation is undershooting the Fed's 2 percent target, because "the real economy is doing quite well." Oil prices jumped more than 3 percent on Wednesday, with U.S. crude futures returning to above $40 a barrel, after a larger-than-expected gasoline draw offset a surprise build in crude stockpiles in the No. 1 oil consumer. U.S. crude inventories rose for a second week in a row, gaining 1.4 million barrels last week, compared with analysts' expectations for a decrease of 1.4 million barrels, EIA data showed. Gasoline stocks slumped by 3.3 million barrels, versus forecasts for a 200,000-barrel drop. The large draw assuaged some market participants' worry of a gasoline glut amid the peak U.S. summer driving season. "The bottom line is the Street in the second quarter got a little ahead of itself in calling for rebalancing of supply-demand after Canadian and Nigerian supply disruptions. We are going into the third and fourth quarters with those supplies back online and refinery maintenance coming up." But a worldwide oversupply since in motor fuels and other refined products has stymied the rebound. Worries about slowing economies in Asia - the driver of oil demand growth - and Europe have weighed, along with near record-high OPEC output and signs of a new price war by Saudi Arabia for crude. Goldman Sachs held its 2017 forecast of $52.50 and near-term range of $45-$50 for WTI.
The British pound edged up on Thursday as investors counted on the Bank of England to cut interest rates to a record low, while a rebound in oil prices from four-month lows lifted Asian stocks. The expected BoE cut to a record low 0.25 percent later on Thursday would be the first since 2009 as Britain's economy teeters on the brink of recession. Britain's economy is slowing at the fastest pace since the financial crisis, based on Markit's monthly all-sector Purchasing Managers' Index on Wednesday, which recorded the steepest month-on-month decline on record. Many market players also believe the BoE may resume its multi-billion-pound quantitative easing program of government bond purchases.
The euro held steady at $1.1149 EUR=EBS, slipping from 5-week high of $1.1234 touched on Monday. Oil, which jumped more than 3 percent on Wednesday, extended gains in Asian trade on Thursday, arresting its almost constant fall since early June, after a larger-than-expected gasoline draw eased concerns about global supply glut. Bank of Japan Deputy Governor Kikuo Iwata said on Thursday that a comprehensive review of the central bank's monetary policy next month would focus on the transmission mechanism and obstacles to its monetary policy. However, it is not meant to offer a specific direction for future monetary policy, he said. Japanese government bonds, which suffered their worst sell-off in more than three years this week on worries the Bank of Japan may be running out of realistic easing options, remained under pressure.
The dollar bounced back 0.6 percent from Monday's five-week low against a basket of six major currencies as investors looked to July payrolls data on Friday. A report from payrolls processor ADP showed on Wednesday U.S. private employers added 179,000 jobs in July, a tad above market expectations and bolstering hopes that Friday's data could show moderate growth in employment. Soft second-quarter U.S. GDP data and some other mixed data have dented the dollar as they reduced expectations that the Federal Reserve will raise rates this year. The near-term focus for the dollar is whether U.S. jobs data due on Friday will revive expectations for the Federal Reserve to raise interest rates later this year.
U.S. interest rate futures suggest investors now see a 40 percent chance of a Fed rate hike by December. Analysts say that a better-than-expected U.S. nonfarm payrolls report would give the dollar traction against the resurgent Japanese yen, which firmed after the Bank of Japan's modest monetary easing last week disappointed investors expecting more drastic stimulus steps. Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 170,000 jobs in July, down from 265,000 the month before. Total non-farm employment is expected to have risen by 180,000.
Low inflation allows the Federal Reserve to keep U.S. interest rates lower for longer in order to boost the economy and jobs, a top Federal Reserve official said on Wednesday. "If we can keep creating jobs while inflation is in check, let's do that," Minneapolis Fed President Neel Kashkari said at a meeting with community activists and members of the black community in Minneapolis who were airing their concerns about low pay and high unemployment. "We can do our best to make the job market as strong as possible." Chicago Federal Reserve Bank President Charles Evans said Wednesday one rate increase might be appropriate this year, despite his worry that inflation is undershooting the Fed's 2 percent target, because "the real economy is doing quite well." Oil prices jumped more than 3 percent on Wednesday, with U.S. crude futures returning to above $40 a barrel, after a larger-than-expected gasoline draw offset a surprise build in crude stockpiles in the No. 1 oil consumer. U.S. crude inventories rose for a second week in a row, gaining 1.4 million barrels last week, compared with analysts' expectations for a decrease of 1.4 million barrels, EIA data showed. Gasoline stocks slumped by 3.3 million barrels, versus forecasts for a 200,000-barrel drop. The large draw assuaged some market participants' worry of a gasoline glut amid the peak U.S. summer driving season. "The bottom line is the Street in the second quarter got a little ahead of itself in calling for rebalancing of supply-demand after Canadian and Nigerian supply disruptions. We are going into the third and fourth quarters with those supplies back online and refinery maintenance coming up." But a worldwide oversupply since in motor fuels and other refined products has stymied the rebound. Worries about slowing economies in Asia - the driver of oil demand growth - and Europe have weighed, along with near record-high OPEC output and signs of a new price war by Saudi Arabia for crude. Goldman Sachs held its 2017 forecast of $52.50 and near-term range of $45-$50 for WTI.
Daily Market Outlook By PYX Markets
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