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Weekly Market Wrap: Yen falls on stimulus hopes. BoE holds policy steady

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This week was all about the speculative rally in the Japanese yen. Following the weekend elections in Japan which saw Shinzo Abe’s party win a majority in the upper house elections, the dollar gained against the yen as investors hoped for more stimulus expansion from Japan. Following his victory, Abe pledged more fiscal stimulus spending, and as the days go by, the markets expect to see a coordinated monetary and fiscal stimulus measures being unleashed by Japan. USDJPY surged on the news and closed the day higher at 102.79 recovering the declines from the previous four days. China’s inflation data was also released over the weekend which showed that consumer prices grew at the weakest pace in five years.

By Tuesday, the overnight political developments in the UK saw the conservative party elect a new leader in Theresa May. The succession was rather quicker than anticipated and helped to quell fears of prolonged uncertainty in the EU-UK relationship. The Sterling advanced on the news and managed to close above $1.32 following the developments.

In Europe, Germany’s Consumer prices were seen rising in June for the second month. Data showed that consumer price index increased 0.30% in June, up from 0.10% in May. Equity markets across the globe were also seen edging higher. The market rally was fuelled by speculation of action from the BoJ and Japan government and also expectations building up for a rate cut from the Bank of England’s meeting during the week.

The focus of the day was, however, the Bank of Canada’s meeting on Wednesday. It was widely expected that the BoC could be keeping rates unchanged. As expected the BoC’s meeting on Wednesday saw no change to interest rates and the BoC lowered its forecasts on some aspects.

Fed members, Esther George and James Bullard also spoke over the week. While Esther George maintained her view that interest rates were still low, James Bullard said that he expects to see one more rate hike over the course of the rest of the year.

“The policy rate would likely remain essentially flat over the forecast horizon to remain consistent with the current regime,” Bullard said.

With the equity markets rallying, gold prices took a step back steadily retreating off the $1350 handle. Prices briefly fell to 1327 by Friday before managing to find support and retracing some of the losses.

On Thursday, Australia’s unemployment report saw the unemployment rate rise to 5.80%. Full-time employment saw a modest increased while part-time jobs which were driving the numbers previously saw a modest pullback. Overall, the month of June saw the Australian economy add 7.9k jobs on the month. However, many see the unemployment data to be more robust than anticipated, which saw the Australian dollar extend its gains.

The markets were also focusing on the Bank of England’s monetary policy meeting later in the day. Heading into the event, there was a strong consensus that the BoE could cut rates at the Thursday’s policy meeting.

However, the Bank of England surprised by keeping rates unchanged at 0.50%. The central bank noted that it would, however, look at easing by the August meeting with the BoE’s MPC would complete a final assessment while also wait for economic data from the UK following the Brexit vote. The British pound gained on the surprise rising to $1.34.

In the US, producer price index data showed a strong increase in prices, with the PPI rising 0.50% on the month and underlining the fact that inflation was likely to seep into consumer prices as well. The US dollar was however little changed on the positive data.

On Friday, the economic data in focus included GDP data and retail sales from China. Beating estimates, China’s GDP increased 6.70%, against estimates of 6.60% increase. Still, the pace of economic growth was seen to be flat, rising at the same pace as the previous print of 6.70%. Retail sales numbers from China advanced 10.60% on a year over year basis, rising from 10.0% previously and beating estimates of a 9.90% increase. Industrial production was also seen stronger, rising 6.20% on the year compared to 6.0% previously. The broadly positive data continued to see the market supporting a risk on environment.

In the Eurozone, inflation data was confirmed at 0.10% on the headline CPI while core CPI increased 0.90% on the year. The Sterling was seen giving up some of its gains after BoE’s Chief Economist Andy Haldane said that material easing was required from the BoE in August. GBPUSD which rose to a session of 1.346 gave back its gains on the comments.

In the US, economic data on Friday saw the June inflation report showing consumer prices rising 0.20% on a month over month basis. Excluding food and energy, the core CPI was edged higher 0.20%, rising at the same pace as a month ago. Retail sales data released simultaneously continued to beat expectations. The headline retail sales jumped 0.60% on the month, above estimates of 0.10%, while the core retail sales surged 0.70%, more than the 0.40% expected increase.

Summary of Economic events this week

  • Japan core machinery orders m/m -1.40% vs. 3.10%
  • Japan M2 money stock y/y 3.40% vs. 3.40%
  • Australia home loans m/m -1.0% vs. -1.90%
  • Japan preliminary machine tool orders y/y -19.90% vs. -24.70% previously
  • Italy industrial production m/m -0.60% vs. 0.10%
  • Eurogroup meetings
  • Canada housing starts 218k vs. 192k
  • FOMC Member George speech
  • UK BRC retail sales monitor y/y -0.50% vs. 0.50% previously
  • Japan PPI y/y -4.20% vs. -4.10%
  • Australia NAB business confidence 6 vs. 3 previously
  • FOMC Member Mester speech
  • Japan tertiary industry activity m/m -0.70% vs. -0.70%
  • Germany final CPI m/m 0.10% vs. 0.10%
  • Germany wholesale price index m/m 0.60% vs. 0.30%
  • BoE releases FPC meeting minutes
  • China FDI ytd/y 5.10% vs. 3.80% previously
  • BoE Gov. Carney speech
  • US NFIB small business index 94.5 s. 94.1
  • FOMC member Bullard speech
  • US wholesale inventories 0.10% vs. 0.20%
  • Australia Westpac consumer sentiment -3.0% vs. -1.0%
  • Japan revised industrial production m/m -2.60% vs. -2.20%
  • France final CPI m/m 0.10% vs. 0.20%
  • China trade balance 311bn vs. 320bn
  • China trade balance (USD) 48.1bn vs. 46.0bn
  • Eurozone industrial production -1.20% vs. -0.80%
  • BoC keeps monetary policy unchanged
  • UK RICS house price balance 16% vs. 8%
  • Australia MI inflation expectations 3.70% vs. 3.50% previously
  • Australia employment change 7.9k vs. 10.1k
  • Australia unemployment rate 5.80% vs. 5.80%
  • Australia new motor vehicle sales m/m 3.10% vs. -1.0% previously
  • Switzerland PPI m/m 0.10% vs. 0.20%
  • BoE keeps interest rate unchanged at 0.50%
  • Canada NHPI m/m 0.70% vs. 0.20%
  • US PPI m/m 0.50% vs. 0.30%; core PPI m/m 0.40% vs. 0.10%
  • US unemployment claims 254k vs. 263k
  • China GDP ytd/y 6.70% vs. 6.60%
  • China industrial production y/y 6.20% vs. 5.90%
  • China fixed asset investment ytd/y 9.0% vs. 9.40%
  • China retail sales y/y 10.60% vs. 9.90%
  • UK construction output m//m -2.10% vs. -1.10%
  • Eurozone final CPI y/y 0.10% vs. 0.10%; final core CPI 0.90% vs. 0.90%
  • BoE Carney speech
  • Canada manufacturing sales m/m -1.0% vs. 1.0% previously
  • US CPI m/m 0.20% vs. 0.20%; Core CPI 0.20% vs. 0.20%
  • US retail sales m/m 0.60% vs. 0.10%; core retail sales m/m 0.70% vs. 0.40%
  • US empire state manufacturing index 0.6 vs. 5.1
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