21 August 2014
# NZ Visitor Arrivals
# China Flash Manufacturing PMI
# NZ Credit Card Spending
# Eurozone Flash Manufacturing PMI’s
# UK Retail Sales
# U.S. Weekly Unemployment Claims
# U.S. Flash manufacturing PMI
# U.S. Existing Homes Sales
# Philadelphia Fed Manufacturing Index
# European stocks ended largely unchanged after declining modestly in earlier trade, the Stoxx600 ending down a marginal 0.06%. The stable days trade coming after the biggest 2 day gain since April. U.S. equities meanwhile ground higher following the release of the Fed minutes, a good effort given the minutes continue to show a drift towards policy normalisation. After trading around par for most of the session a late rally took the S&P to a +0.25% close. Volumes were low again, the 3rd lowest volumes of the year.
# The Fed minutes revealed the ongoing shift underway amongst the board from Yellen’s optimal control theory to that of realising the Fed’s dual mandate. That is, a move away from ‘lower rates for longer’ to the need to normalise policy on the basis that the Fed’s mandated 2% inflation and full employment goals are getting ever closer. The relatively new statement “the likelihood of inflation running persistently below 2 percent has diminished somewhat” was maintained whilst many members thought that the assessment of the labour market may have to change soon if it continues to make faster progress than anticipated. Thus that particular camp noted “it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated”.
# The equity market rally was all the more impressive in that context given that the USD and treasuries responded with a definite hawkish interpretation. The USD surged again, most notably against the JPY which flew from 102.90 to 103.75. Likewise the EUR/USD pair fell to new 2014 lows at 1.3255 whilst the previously high flying ‘kiwi’ finds itself at 16 month lows of 0.8370. U.S 10 year yields edged up from 2.40% to 2.43%.
# Across the Atlantic the BOE saw 2 board members dissent in favour of higher interest rates, a move with parallels to the U.S. Fed’s Plosser’s dissention at the last meeting. “For two members, in particular, economic circumstances were sufficient to justify an immediate rise in bank rate,” the committee minutes said. “These members noted that the continuing rapid fall in unemployment alongside survey evidence of tightening in the labor market created a prospect that wage growth would pick up. GBP rose briefly but then fell back quickly on the news.
# West Texas Intermediate crude rose for the first time in three days as U.S. inventories dropped more than expected. Stockpiles decreased by 4.47 million barrels in the week ended Aug. Analysts had expected a drop of 1.75 million. The most actively-traded October WTI futures gained 59 cents, or 0.6%, to end at $93.45 a barrel.
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