Central bankers are certainly front and centre at the moment and even though the US was out for the 4th of July holiday there was still plenty to get your teeth into.
The farcical situation of the RBA Governor delivering the joke that no one got the other day which knocked the Aussie down more than a cent and drove interest rate futures and stocks higher was sought to be unwound by RBA Deputy Governor Phil Lowe yesterday saying that his boss’s remarks were meant to be light hearted and were taken out of context. This had the impact of driving the Aussie a little higher and it hit 0.9180 last night about 140 points off the low of the previous night. That is a lot of money lost by people who took the Governor at his word.
I am always a defender of central bankers trying to do their very best and I firmly believe they try to do least harm when dealing with the economy and the circumstances it faces and I steadfastly believe that the RBA is one of the best of the best globally. But do we really believe Glenn Stevens is such a neophyte that he didn’t understand the import of the words he used? I doubt it but the RBA is signalling it was a joke so we must take them at their word.
Which of course the ANZ did as well as they felt compelled to change their view that a rate cut was coming in August which they made in the wake of Stevens comments.
As I noted yesterday the Aussie looked like it might have found a bottom and while the high at 0.9180 looks like it might be prior to whatever catalyst non-farm payrolls provides tonight with support on the day around 0.9110/15
In Europe it was a central banker fest as well with Mario Draghi and Mark Carney putting their stamp on overnight proceedings as both the ECB and BoE sort to fight the impact on interest rates and markets in their jurisdictions from the Fed’s taper talk.
Turning first to the Bank of England in an unusual move it released a statement even though rates didn’t move and in it the BoE dealt directly with the Fed induced increase in interest rates and unsurprisingly given this is new Governor mark Carney’s first meeting also signaled that his beloved forward guidance would or could commence soon. The statement said,
Since the May Inflation Report, market interest rates have risen sharply internationally and asset prices have been volatile…
The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.
The latest remit letter to the MPC from the Chancellor had requested that the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds.
This knocked Sterling for six and it has broken near term support and head back down toward 1.48 it seems.
Across the Channel ECB President Draghi also left rates unchanged but he too at the Presser after the meeting reiterated that rates would be low for some time. From Reuters this morning:
“The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time,” Draghi told a news conference after the ECB left interest rates at 0.5 percent, calling it a “very significant step”.
“50 basis points is not the lower bound,”
Clearly both Central Bank heads recognise their own internal problems economically and that their economies are not on the same path as the US economy appears to be at the moment and are seeking to quieten the horses. the Euro also came under pressure falling to a low of 1.2882 before rallying a little back above 1.2900. Euro looks biased to support at 1.2805 and if that breaks 1.2740, 1.2625. If this lower level breaks then it is 1.21.
My view is both GBP and EUR are headed lower.
In hosing down expectations in the UK and Europe that the respective central banks were on a similar path to the Fed both the BoE and the ECB lit a rocket under the bourses of Europe. The FTSE was 3.08% higher, the DAX rose 2.10%, the CAC was 2.89% higher while stocks in Milan and Madrid rose 3.44% and 3.07% respectively.
But all of this could be washed away, or not, by this time tomorrow morning given the importance that non-farm payrolls still holds in the global economic and trading psyche. FX Street’s survey shows an expectation of 170k for tonight’s release which given the strong ADP Private sector survey two nights ago just might be so
Commodities were largely unchanged. Oil still above $100 Bbl, gold around $1250 oz and copper at $3.15 lb.
Data
Today we all await the non-farm payrolls in the US but before that we have AiG Performance of Construction and ANZ Job ads in Australia, French Trade and German factory orders.
Twitter: Greg McKenna