In an otherwise uneventful foreign exchange market, sterling’s slide for its fifth consecutive session is the highlight. It was pushed below $1.30 for the first time since July 12. Initial resistance for the North American session is seen near $1.3020, while the $1.2960 area corresponds to a minor retracement objective.
Sterling has been sold-off since the middle of last week. Today’s data may have simply provided a little more ammo for what the market was already doing.
Investors favor risk assets today. Global stocks are moving higher in the wake of the pre-weekend US rally that saw the S&P 500 close at record levels. Bond yields are mostly firmer, again with US move in response to the robust employment report setting the tone in Asia.
European bonds participated in most of the pre-weekend move and are consolidating today with a slightly heavier tone. UK Gilts are outperforming, with a new record low of 64 bp on the benchmark 10-year issue.
The drip-feed of high frequency economic data from the major economies slows in the week ahead. The data that is reported is unlikely to have much impact on the expectations of policy going forward.
The state of play is fairly straightforward. The Federal Reserve is finding it difficult to take the next step in the normalization of monetary policy. According to Bloomberg calculations, the Fed funds futures strip does not show greater than a 42% chance of a rate hike at any meeting through the end of next year.
The Republican and Democratic National Conventions have confirmed that each presidential candidate has very different foreign policy outlooks. At the heart of each platform are different fears, threat perceptions and understandings of the United States’ place in the world — including its commitment to its treaty allies.
The market’s angst over the underlying trend in the US labor market eases with the help of the second consecutive robust report. The 255k rise in non-farm payrolls was well above expectations, and the details were mostly favorable. There were upward revisions to the May and June reports.
Sterling has slumped two cents in the wake of the Bank of England’s announcement. It cut the base rate 25 bp and announced a resumption of its asset purchase program. It will buy GBP60 bln of Gilts and added corporate bonds to its purchase plan, which will be completed over the next six months. Corporate bonds will initially account for up to GBP10 bln asset purchase.
The focus is squarely on the US employment data today, ahead of which the capital markets are mostly consolidating yesterday’s Bank of England inspired moved. The Australian and New Zealand dollars, alongside sterling, which is up about half a cent after losing two yesterday.
The Bank of England owns today, though tomorrow will be about the US jobs report. The BOE disappointed the market last month by not immediately responding to the UK referendum. It had laid out a somber economic and financial scenario as a risk case if the UK chose to leave the EU. At the time, and even after the referendum, some accused Carney of being too partisan.
A recent release of confidential documents from WikiLeaks has finally relieved the silence surrounding the negotiations of an important but fairly obscure multilateral trade agreement.
Australia, the US and the European Union have been quietly negotiating the Trade in Services Agreement (TiSA) since 2013, but until now there has been silence around the process and substance of the negotiations.
The US dollar is consolidating yesterday’s losses. The greenback’s upticks have thus far been shallow and unimpressive, except perhaps against the New Zealand dollar, which is off 0.8% ahead of next week’s RBNZ meeting. Softer than expected labor cost increase reinforces the conviction that a 25 bp rate cut will be delivered next week.
