11 July: US$ lower, stocks/commodities firm, as Powell flags rate cut. Q+A session today. US/German CPI ahead too.

By | July 11, 2019

Markets have reacted to the statement of Fed Chair Powell at his testimony to Congress on Wednesday, at which he sent a strong signal that bank will cut interest rates later this month, while noting how the economic outlook has not improved in recent weeks. He said recent data showed little reason to expect improvement, despite last Friday’s strong US jobs report, and also noted that weaker inflation readings could prove more persistent than previously anticipated. Powell’s comments were underlined by the release of the FOMC Minutes, which leaned on the dovish side.

The US$ is weaker against all the other majors, stocks are higher, with the S+P reaching a record high (3007), and there have been decent rallies in oil and the metals. The chances of a 50bp cut have increased somewhat following Powell’s testimony, with a 25bp cut now fully priced in and we are likely to see further clarification of his intentions later today, at the Q+A session of the testimony. If a 50bp looks possible, then expect a continuation of the moves seen on Wednesday. The bond market reacted appropriately with the  US 2Y yield falling sharply in response to Powell, from 1.93% to 1.82%, while 10Y fell from 2.11% to 2.04%.

Earlier in the day, UK GDP grew 0.3% mm in May, meeting expectations, while the COC left Canadian rates unchanged at 1.75%.

Looking ahead, the calendar for Thursday kicks off with the Australian Housing data for May (Home Loans; Exp -0.3%mm for May) the July Consumer Inflation Expectation and a speech from the RBA’s Debelle. Next up is the German CPI (CPI, Ex F/E, exp 0.3%mm, 1.6%yy, HICP 1.3%yy) and the UK Financial Stability Report, while the US will then also have inflation data to focus on (CPI, Ex F/E, exp 0.2%mm, 1.6%yy; Core 2.0%yy). Jerome Powell will continue his testimony to Congress, while other Fed speakers will include Williams, Bostic, Kashkari and Barkin

Economic data highlights will include:

Thur: Australian Consumer Inflation Expectation, Home Loans, Investment Lending for Homes, Japan Trade Balance, Tertiary Industry Index, German CPI/HICP, UK BOE FCP Minutes, US CPI, Jobless Claims, Monthly Budget Statement  Fed Speakers; Powell, Williams, Bostic, Kashkari, Barkin

Market moves, in brief:

FX: DXY 97.13 (-0.38%)

Bonds: US10Y; 2.067% (-0.13%), German 10Y; -0.306% (+13.78%), UK 10Y; 0.757% (+5.59%), Australian 10Y1.364% (+2.48%), NZ 10Y; 1.550% (+0.65 %), China 10Y; 3.213% (-0.10%)

Stock Indices: DJI; +0.29%, S+P; +0.45%, NASDAQ; +0.75%, EUStoxx50; -0.23%, FTSE100; -0.08%, Shanghai Composite; -0.44%,

Metals: Gold $1417 oz (+0.41%), Silver $15.23 oz (+0.78%), Copper $2.694 lb (+2.63%), Iron Ore $120.85 per tonne (NYMEX) (-0.42%),

Oil: WTI $60.22 pb (+3.25%)

CURRENCIES
EURUSD: 1.1251
Res  1.1265  1.1280  1.1300
Sup  1.1235  1.1215  1.1195
USDJPY: 108.46
Res  108.70  109.00  109.30
Sup  108.30  108.00  107.65
GBPUSD: 1.2505
Res  1.2520  1.2540  1.2560
Sup  1.2485  1.2460  1.2440
USDCHF: 0.9895
Res  0.9920  0.9950  0.9980
Sup  0.9875  0.9845  0.9820
AUDUSD: 0.6959
Res  0.6970  0.6985  0.7000
Sup  0.6945  0.6930  0.6910
NZDUSD: 0.6642
Res  0.6655  0.6675  0.6695
Sup  0.6625  0.6605  0.6585
INDICES / COMMODITIES
S&P.fs: 2996.55
Res  3005.00  3020.00  3035.00
Sup  2985.00  2970.00  2955.00
DJ30.fs: 26860.50
Res  26990.00  27150.00  27300.00
Sup  26725.00  26600.00  26430.00
SPI200.fs: 6635
Res  6645  6655  6665
Sup  6625  6615  6605
XAUUSD: 1418.14
Res  1420.00  1430.00  1440.00
Sup  1410.00  1400.00  1390.00
XAGUSD: 15.23
Res  15.35  15.45  15.55
Sup  15.10  15.00  14.90
WTI.fs: 57.53
Res  60.55  61.40  62.10
Sup  59.75  59.00  58.10