As the dust settles following a heavy period of tier one economic data what are the key takeaways for monetary policy. It also seems as though the trade dispute is still key for driving direction. We consider the outlook for forex, indices and commodities for the coming days.
Despite a swathe of tier one data and announcements last week, the real move for markets was again around the US/China trade dispute, the escalation of which does not bode well for sentiment in the coming weeks. The G4 central banks have all announced monetary policy recently, none of which was met positively. The ECB did the grand sum of nothing, the euro fell. The Bank of Japan made the smallest of hawkish tweaks, but with expectations higher, the yen fell. The Bank of England hiked but markets questioned the move (could it be Carney’s “Trichet moment”?), sterling fell. The Fed quite predictably did all but nothing, only marginally tweaking the language of the statement to read economic activity as being “strong” rather than “solid”, the dollar barely budged. However, as traders switch off from central banks for the next few weeks (at least until Jackson Hole on 23rd August), one factor still able to move markets is the trade story. As rhetoric mounts and China responds, the on-going shift out of emerging markets, away from Asia, into the US and the dollar continues. Newsflow on the trade story will be the market mover in the coming weeks. Equities fell last week as it appeared that Trump’s administration is ready to really put the squeeze on China. For its part, the People’s Bank of China is, at least publicly, trying to defend the yuan as it raised the reserve requirement ratio back to 20% on FX forwards. However, if the market continues to pull out of EM then this may still just be a sticking plaster for the yuan and this would be dollar supportive.
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