ETX Capital Daily Market Bite, 1st August, 2013; Dovish FOMC Kicks Up Risk Tone/Over To BOE/ECB
August 1, 2013 9:20 am
August 1st, 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Comfort over the Federal Reserve’s dovish attitude on US monetary policy staying accommodative together with a surprise uptick in Chinese PMIs have buoyed risk assets in Europe. With the Bank of England and European Central Bank likely to announce uneventful policy decisions [no change on current measures expected], investors have kicked off the month of August in a rather chirpy manner. A pleasant surprise from the Chinese PMI manufacturing front as the official index rose to 50.3 in July from 50.1 in June –[readings above 50 signal expansion whilst readings below 50 signal contraction].
Continued dovish central bank activism is here to stay, at least for now, the US and euro area economies have improved since the start of the 2H and corporate earnings from both sides of the Atlantic have pleased the market. The Fed reassured markets overnight by sitting on its hands, keeping near-zero interest rates until unemployment rate drops below 6.5% and retaining QE with no indication of timeframe for withdrawal.
This statement did come hot off the heels of the smashing US 2Q GDP report which showed growth in the country rose 1.7% versus estimates of around 1%. At the same time, the ADP said that 200k jobs were generated by the US economy in July, gearing the market up for a stunning set of nonfarm payrolls due Friday. This however could hasten the Fed’s resolve to taper asset purchases as early as September as the growth figures and improving labour market conditions both depict an image of a resurging strength for the world’s largest economy.
Turning to the BOE and ECB meetings later, both are expected to remain on hold with policies with interest rates at record lows of 0.5% for both central banks. For the BOE, growth in the UK with an uptick in most measures of economic activity build a greater excuse for Mark Carney and co to refrain from using QE as a tool to stimulate the economy. Rather, the BOE will hammer home the message that monetary policy will remain accommodative for an extended period via forward guidance. The ECB also embarked on forward guidance, settling the markets’ nerves somewhat. That said, chief Draghi did hint that further interest rate cuts are not out of the question.
For now, the ECB will stay on hold but are expected to offer their view on the recent improvement we have seen in euro zone economic indicators at the monthly press conference. Ahead of that, we have PMI manufacturing data out of the euro zone which will be eagerly watched. After both central banks, attention will turn to a raft of US economic data; jobless claims, construction spending and the ISM manufacturing report.
August 1st, 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Comfort over the Federal Reserve’s dovish attitude on US monetary policy staying accommodative together with a surprise uptick in Chinese PMIs have buoyed risk assets in Europe. With the Bank of England and European Central Bank likely to announce uneventful policy decisions [no change on current measures expected], investors have kicked off the month of August in a rather chirpy manner. A pleasant surprise from the Chinese PMI manufacturing front as the official index rose to 50.3 in July from 50.1 in June –[readings above 50 signal expansion whilst readings below 50 signal contraction].
Continued dovish central bank activism is here to stay, at least for now, the US and euro area economies have improved since the start of the 2H and corporate earnings from both sides of the Atlantic have pleased the market. The Fed reassured markets overnight by sitting on its hands, keeping near-zero interest rates until unemployment rate drops below 6.5% and retaining QE with no indication of timeframe for withdrawal.
This statement did come hot off the heels of the smashing US 2Q GDP report which showed growth in the country rose 1.7% versus estimates of around 1%. At the same time, the ADP said that 200k jobs were generated by the US economy in July, gearing the market up for a stunning set of nonfarm payrolls due Friday. This however could hasten the Fed’s resolve to taper asset purchases as early as September as the growth figures and improving labour market conditions both depict an image of a resurging strength for the world’s largest economy.
Turning to the BOE and ECB meetings later, both are expected to remain on hold with policies with interest rates at record lows of 0.5% for both central banks. For the BOE, growth in the UK with an uptick in most measures of economic activity build a greater excuse for Mark Carney and co to refrain from using QE as a tool to stimulate the economy. Rather, the BOE will hammer home the message that monetary policy will remain accommodative for an extended period via forward guidance. The ECB also embarked on forward guidance, settling the markets’ nerves somewhat. That said, chief Draghi did hint that further interest rate cuts are not out of the question.
For now, the ECB will stay on hold but are expected to offer their view on the recent improvement we have seen in euro zone economic indicators at the monthly press conference. Ahead of that, we have PMI manufacturing data out of the euro zone which will be eagerly watched. After both central banks, attention will turn to a raft of US economic data; jobless claims, construction spending and the ISM manufacturing report.
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