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I. Market focus:
A relative calm prevailed in the foreign exchange markets at the beginning of Wednesday's session. During the morning trading, the major currency pairs moved in narrow ranges. Market participants were focused on the reports set to be published later today.
The main events of the first half of the day will be the statistics on the UK labor market (08:30 GMT) and the revised assessment of the Eurozone’s GDP the second quarter (09:00 GMT).
British data are not expected to be very different from the previous month's figures. The unemployment rate is likely to remain at 4.5 percent, while claimant count will show a slight increase. At the same time, the growth rate of average earnings will continue to be subdued, staying below 2.0 percent.
As for the European data, the GDP growth rates are expected to remain at previously estimated levels, - up 0.6 percent q-o-q and up 2.1 percent y-o-y.
In the second half of the day, volatility in the markets may rise after the release of statistics on the U.S. housing market (housing starts and building permits), which will be released at 12:30 GMT. In recent months, data on the housing market has been somewhat disappointing, so there are chances that market expectations may not be justified.
An important event also will be the publication of the data on crude oil inventories in the US (14:30 GMT).
At 18:00 GMT, attention will be paid to the minutes of the FOMC latest meeting. Recall, the regulator made no changes to the parameters of its monetary policy at this gathering, but paid much attention to inflationary dynamics, saying that “inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term.” It is not anticipated that the minutes will provide any new information regarding the Fed’s future actions.
In addition, attention should be given to the data on the producer price index in New Zealand, set to be released at 22:45 GMT. Recently, New Zealand has been experiencing a weakening of inflationary pressures, but the forecasts for today's reading imply that this trend may change.
II. The market highlights are:
The Commerce Department announced Tuesday that sales at U.S. retailers increased 0.6 percent m-o-m in July after a revised 0.3 percent m-o-m gain in June (originally a 0.2 percent fall). That was the largest monthly increase since December 2016, led by higher sales at miscellaneous store retailers and motor vehicle and parts dealers. Meanwhile, the so-called core retail trade, which excludes automobiles, gasoline, building materials and food services, retail sales surged 0.6 percent m-o-m last month after a revised 0.1 percent m-o-m gain in June (originally a 0.1 percent drop). Economists had expected total sales would rise 0.4 percent m-o-m in July. In y-o-y terms, the U.S. retail sales surged 4.2 percent in July, accelerating growth pace from June’s unrevised increase of 3.4 percent (originally 2.8 percent).
The U.S. Labor Department reported Tuesday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, edged up 0.1 percent m-o-m in July after a 0.2-percent m-o-m decrease in June. That was the first gain in import prices since April. Economists had expected prices to go up 0.1 percent m-o-m last month. According to the report, the July increase was led by higher fuel prices (+0.5 percent m-o-m), which more than offset lower prices for nonfuel imports (-0.1 percent m-o-m). Over the 12-month period ended July, import prices rose 1.5 percent. At the same time, the price index for U.S. exports increased 0.4 percent m-o-m in July following a 0.2-percent m-o-m fall in June. That was the largest monthly gain since December 2016. Higher prices for both agricultural (+2.1 percent m-o-m) and nonagricultural (+0.3 percent m-o-m) exports contributed to the July advance. The U.S. export prices grew over the past year, surging 0.8 percent.
The report from the New York Federal Reserve showed Tuesday that manufacturing activity in the New York region rose solidly in August. According to the data, NY Fed Empire State manufacturing index stood at 25.2 in this month compared to an unrevised 9.8 in July. Economists had expected the index to come in at 10. Anything below zero signals contraction. The new orders index rose to 20.6 from 13.3, and the shipments index increased to 12.4 from 10.5, suggesting that orders and shipments continued to expand this month at a faster pace than in the prior month. The unfilled orders index remained in contraction territory, coming in at -4.7 (flat m-o-m). The delivery time index was little changed at 5.4 (+0.7 points m-o-m), pointing to somewhat longer delivery times, and the inventories index fell to -3.1 (from 2.4), indicating that inventory levels were slightly lower. Labor market indicators pointed to an increase in employment (the index for a number of employees rose two points to 6.2) and hours worked (the average workweek index advanced to 10.9).
The Commerce Department revealed Tuesday that business inventories increased 0.5 percent m-o-m in June after gaining 0.3 m-o-m in May. That was the biggest advance in inventories since November 2016 and exceeded economists’ forecast for a 0.4 percent m-o-m gain. The June surge in inventories was mainly driven by a jump in inventories at manufacturers (+0.2 percent m-o-m in June from -0.2 percent m-o-m in May), as well as higher stocks at retailers (+0.6 percent m-o-m, the same as in May) and wholesalers (+0.7 percent m-o-m from +0.6 percent m-o-m). Motor vehicle inventories grew 0.7 percent m-o-m in June after climbing 1.2 percent m-o-m in May. Retail inventories excluding autos, which go into the calculation of GDP, rose 0.5 percent m-o-m in June after gaining 0.2 percent m-o-m in May.
The National Association of Homebuilders (NAHB) reported Tuesday its housing market index (HMI) rose four points to 68 in August from an unrevised July reading of 68. Economists forecast the HMI to increase to 65. A reading over 50 indicates more builders view conditions as good than poor. All three HMI components recorded gains in August. Current sales measure rose four points to 74, while the indicator charting sales expectations in the next six months increased six points to 78. Meanwhile, the buyer traffic went up one point to 49. NAHB Chairman Granger MacDonald said, “Our members are encouraged by rising demand in the new-home market. This is due to ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence.” At the same time, NAHB Chief Economist Robert Dietz noted that “The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market. GDP growth improved in the second quarter, which helped sustain housing demand. However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.”
The Australian Bureau of Statistics (ABS) reported on Wednesday its wage price index (WPI) rose 0.5 percent q-o-q in the second quarter of 2017, decelerating slightly from an upwardly revised 0.6 percent q-o-q increase in the first quarter (originally +0.5 percent). According to the report, private sector wages rose 0.4 percent q-o-q, and public sector wages grew 0.6 percent q-o-q in the second quarter. Through the year to the June quarter, the WPI advanced 1.9 percent, equaling the record low wages growth registered in the prior two quarters. Economists had expected the WPI would rose by 0.5 percent q-o-q in the second quarter and 1.9 percent through the year. ABS Chief Economist Bruce Hockman noted: "Low wages growth continued in the June quarter 2017, with annual wages growth continuing to hover around 2 percent. This low wages growth reflects, in part, ongoing spare capacity in the labour market. Underemployment, in particular, is an indicator of labour market spare capacity and a key contributor to ongoing low wages growth."
III. Market Situation
The currency pair EUR/USD consolidated near the opening level, as investors were cautious ahead of key events of today's session, - the publication of revised data on Eurozone’s GDP, the announcement of statistics on the U.S. housing market, and the release of the minutes from the Fed’s July meeting. As for the Eurozone’s data, economists forecast the economy grew by 0.6 percent q-o-q and by 2.1 percent y-o-y in the second quarter after expanding by 0.5 percent q-o-q and 1.9 percent q-o-q in the first quarter. Regarding the U.S. statistics, analysts expect to see a decrease in the number of building permits to 1,250,000 in July from 1,275,000 in June, and an increase in the number of housing starts to 1,220,000 from 1,215,000. However, taking into account the fact that statistics on the U.S. housing market has been somewhat disappointing in recent months, there are chances that economists’ expectations may not be justified. Turning to the minutes of the Fed’s latest meeting, market participants hope that this document will provide new signals about the pace of future rate increases and the Fed’s assessments of the U.S. inflation outlook. At the moment, Fed fund futures price in a 49.3 percent probability of the Fed hiking rates at its December meeting compared to 43.7 percent recorded on Monday. Resistance level - $1.1908 (high of August 2). Support level - $1.1687 (low of August 15).
The currency pair GBP/USD traded near the opening level, as traders took a breath after yesterday's sharp decline while awaiting the UK labor market data. Recall, yesterday's dynamics of the pair reflected investors’ reaction to the weak inflationary data in Britain, as well as the broad strengthening of the American currency in response to the statistics on retail sales. The Office for National Statistics (ONS) reported that the consumer price index (CPI) remained steady at 2.6 percent in July, compared to expectations of an increase to 2.7 percent, as falling motor fuel prices were offset by higher prices for clothes, utilities and food. Excluding energy, food, alcoholic beverages and tobacco, core inflation also was stable, at 2.4 percent in July. On a monthly basis, consumer prices edged down 0.1 percent in July, while they were forecast to remain flat. As for the British labour market data, they are not expected to be very different from the previous month's figures. The unemployment rate is likely to remain at 4.5 percent, while claimant count will show a slight increase. At the same time, the growth rate of average earnings will continue to be subdued, staying below 2.0 percent. Resistance level - $1.3058 (high of August 7). Support level - $1.2810 (low of July 12).
The currency pair AUD/USD increased moderately, recovering from the low of July 18, due to partial profit-taking, a downward correction in the U.S. dollar, and the release of positive statistical data in Australia as well. Westpac Bank reported Wednesday its leading index for the Australian economy rose 0.1 percent in July, following a revised 0.2 percent drop in June (originally -0.1 percent). That was the first time an increase was recorded since March. Meanwhile, the six-month annualized growth rate in the index, which indicates the likely pace of economic activity three to nine months into the future, rose to -0.1 percent in July from -0.54 percent in June. The Australian Bureau of Statistics (ABS) reported its wage price index (WPI) rose 0.5 percent q-o-q in the second quarter of 2017, decelerating slightly from an upwardly revised 0.6 percent q-o-q increase in the first quarter (originally +0.5 percent). According to the report, private sector wages rose 0.4 percent q-o-q, and public sector wages grew 0.6 percent q-o-q in the second quarter. Through the year to the June quarter, the WPI advanced 1.9 percent, equaling the record low wages growth registered in the prior two quarters. Economists had expected the WPI would rose by 0.5 percent q-o-q in the second quarter and 1.9 percent through the year. Resistance level - AUD0.7918 (high of August 14). Support level - AUD0.7785 (low of July 18).
The currency pair USD/JPY stabilized near the opening level as investors awaited new drivers. With an empty economic calendar in Japan ahead, the focus will be on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Recall, the pair demonstrated growth in the previous two sessions, reacting to a decrease in the demand for safe-haven assets, as the concerns over a possible military confrontation between North Korea and the U.S. abated. A North Korean state media reported yesterday that the leader of the DPRK, Kim Jong-un, delayed a decision on firing missiles towards the U.S. military bases in Guam and said he would watch the actions of the United States for a while. At the same time, Kim Jong-un warned that he could change his mind and ordered the military to be ready to attack Guam at any moment. Resistance level - Y111.05 (high of August 4). Support level - Y108.72 (low on August 11).
U.S. stock indexes closed little changed on Tuesday amid better-than-expected retail sales data and an abating tensions between the U.S. and North Korea. The Commerce Department reported that sales at U.S. retailers increased 0.6 percent m-o-m in July after a revised 0.3 percent m-o-m gain in June (originally a 0.2 percent fall). That was the largest monthly increase since December 2016, led by higher sales at miscellaneous store retailers and motor vehicle and parts dealers. Meanwhile, the so-called core retail trade, which excludes automobiles, gasoline, building materials and food services, retail sales surged 0.6 percent m-o-m last month after a revised 0.1 percent m-o-m gain in June (originally a 0.1 percent drop). Economists had expected total sales would rise 0.4 percent m-o-m in July. In y-o-y terms, the U.S. retail sales surged 4.2 percent in July, accelerating growth pace from June’s unrevised increase of 3.4 percent (originally 2.8 percent). The upbeat retail sales data forced investors to rethink their rate-hike expectations.The National Association of Homebuilders (NAHB) announced its housing market index (HMI) rose four points to 68 in August from an unrevised July reading of 68. Economists forecast the HMI to increase to 65. A reading over 50 indicates more builders view conditions as good than poor. All three HMI components recorded gains in August. Current sales measure rose four points to 74, while the indicator charting sales expectations in the next six months increased six points to 78. Meanwhile, the buyer traffic went up one point to 49.
Asian stock indexes closed mixed on Friday, as investors were cautious ahead of the release of the latest Fed’s minutes. The minutes will be parsed closely for indications that the Fed may announce plans to reduce the central bank’s balance sheet in September and then potentially hike interest rates again this year. The Australian equities rose, reacting to upbeat data releases in the country. The Japanese stock market demonstrated a slight decline, correcting after yesterday’s solid gain.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 2.27% (0 basis points)
Yields of German 10-year bonds hold at 0.44% (+1 basis points)
Yields of UK 10-year gilts hold at 1.08% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in September settled at $47.78 (+0.48%). The crude oil prices rose, helped by the latest report from the American Petroleum Institute (API), which showed that the U.S. crude supplies fell 9.2 million barrels for the week ended Aug. 11, compared to analyst expectations of a draw of 3.6 million barrels. The API data also revealed an increase of 301,000 barrels in gasoline supplies, while inventories of distillates were down 2.1 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).
Gold traded at $1272.70 (+0.10%). Gold prices rose as the U.S. currency demonstrated weakening. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.03 percent to 93.83. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important news that are expected (time GMT0)
Average earnings ex bonuses
ILO Unemployment Rate
Foreign Securities Purchases
Crude Oil Inventories
FOMC meeting minutes
Trade Balance Total
|remaining time till the new event being published|
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