Good morning. With a little more than twenty-four hours until the Jackson Hole symposium, global equities are wilting and the broad markets are quietly grinding to a halt. Foreign exchange has kept a very narrow path overnight with very little to chew on during the Asian and European sessions. As is usually the case before important policy decisions, the markets are currently adrift, eagerly awaiting tomorrow’s remarks from Fed Chairman Yellen. Although Ms. Yellen is not expected to enact any new policy, her words should carry a lot of weight, and set the table for American monetary policy for the 2016 sprint.
On Thursday, it was a very quiet Asian session. Some central bank chatter was largely ignored, as the yen continues to grind lower with the Nikkei, which finished the day down 0.25%. Japanese inflation data for the month if July is released on Friday – another important marker as Japanese policymakers conduct an assessment of their strategies and the impact on the real economy. The BoJ will be concluding their studies and presenting to the public on September 20th. More analysts believe another round of easing is in the cards for the stagnant economy. The Australian dollar was a bit lower, dragged down by crumbling crude prices but helping were some comments from Treasurer Morrison. Making a major economic speech, Australian Treasurer Scott Morrison declared an “earnings problem” for his country, insisting that wild spending has hurt the local economy – not falling revenue. The Aussie dollar slid lower on these remarks by about 0.5%, falling against both the US dollar and New Zealand dollar.
Turning towards Europe, it was similarly tight with little data to guide price action. The Ifo economic institute said German business confidence declined this month, which could suggest business leaders are becoming a little more concerned in the wake of the Brexit vote. Despite the figures, the euro climbed higher by about 0.25%. Sterling was a touch more stable, although good buyers of EUR/GBP made it difficult for the pound to grind higher with the single currency. There was no data on the UK front this Thursday, as important Q2 GDP revisions will be released overnight on Friday. It is expected that economic activity is revised higher to 0.6% from 0.4%, as originally reported.
The big dollar is sitting pretty this Thursday morning. On the docket we have weekly jobless claims and durable goods orders for the month of July. Always a volatile number, durable goods are forecast to jump 3.1% last month, after a steep 4% decline in June. On the employment front, it is expected that 265k Americans filed first-time unemployment claims for the week ending August 19th. The greenback has enjoyed a nice bounce over the last twenty-four hours as traders continue to take profits before tomorrow’s Jackson Hole symposium. In one of Yellen’s most anticipated speeches of 2016, “The Federal Reserve’s Monetary Policy Toolkit” may offer some much-needed clarity on where the Fed stands at the moment concerning procedure in 2016. The market currently gives a 20% chance for a September hike, but that could change quickly should Ms. Yellen present an optimistic view for the rest of the year. Prior to Ms. Yellen’s remarks, the Street will get a look at second quarter GDP growth revisions. It was originally reported the American economy grew annually by 1.2% from April through June.
The Canadian dollar continues to give back recent gains, falling in tandem with oil which was down by another 3% yesterday. On Wednesday, it was reported that crude oil stocks in the US rose by 2.5 million barrels, following a 2.5 million barrel decline the previous week. The Loonie has lost about 1% in value this week versus the greenback and is poised for its first weekly loss since early August. On the docket next week for Canada, we have producer prices, Q2 GDP figures and trade balance. Coupled with US non-farm payrolls and month-end rebalances, the unofficial final week of the summer could provide a lot of volatility.
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