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Great Expectations

by Sean Coakley | July 27, 2016

As news out of Japan permeates markets and traders bide their time till the Federal Reserve’s rate announcement later today an optimistic mood has returned to the market equity gauges across the world see green.  Much of the positivity relates to expectations of a renewed fiscal and monetary push out of Japan in an effort to combat the deflation that has plagued the economy for over two decades. These expectations were realized in part after today’s announcement of a 265 Billion USD fiscal stimulus measure and with the Bank of Japan meeting later this week traders remain hopeful that more will come. Accordingly, today saw a bump in the Nikkei exchange while the yen itself saw a 1% decline, looking southwards the Australian and New Zealand dollars slid as well as broad-based weakness in the commodity complex dragged them lower.

Looking to Europe, the trend continues with equities up while Brent crude slides to multi-month lows and British GDP growth came in better than expected.  As German bond yields move closer to positive, sentiment remains constructive while the common currency trades flat against the dollar while gaining against a British pound which has seen a return to weakness.

In North America, we see that equity futures suggest that the good mood struck in Asia and Europe will continue as trading commences in New York.  As the mighty US dollar sees a return to form the DXY index continues to move upward, indicating that the current round of loonie weakness is not solely attributable to weakening crude prices. Today may serve as a further setback for Canadian dollar bulls as the Federal Reserve is set to make their latest announcement today against a backdrop of diminished Brexit fear and better than expected employment, wage and confidence data.  While it is unlikely that we will see any movement on the rate front today, it does look like the market is increasingly setting itself up for a repeat of 2015 with the potential rate increase later in the year. Either way, today is set to be eventful with the tone of the Fed set to outline the sentiment that has been driving the market as of late.

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