Fed Speeches Give Conflicting Signals

Analisi Giornaliera - 11/08/2015


The markets were very slow yesterday due to lack of any market-moving economic data. However the US trading session saw speeches from the Federal Reserve Vice-Chairman Stanley Fischer and the Atlanta Fed Governor, Dennis Lockart.

Fed’s Lockhart Optimistic on Rate Hikes while Fischer Wants Inflation

Combined, the speeches from both the influential Fed members were on the opposite ends of the scale. While Fischer noted that inflation needs to pickup from the current levels, he acknowledged a growth in the labour markets, but stressed that inflation must pick up before the Fed can hike rates. His rather dovish views were largely ignored by the markets. The Atlanta Fed Governor on the other hand, maintained his hawkish stance on rate hikes noting that the Fed was close to hiking interest rates with September being the most likely monetary policy action that could decide the fate of the Fed funds rate, which has been near historical lows. The S&P500 closed positive gaining close to 1.31% for the day or about 27.3 points to end the day near 2100.75.


US Dollar Gains in Early Sessions on China Weaken Yuan

The early Asian trading session today saw a surprise move from China which devalued the Yuan allowing it to fall to the lowest levels of 2012 in a bid to boost its exports sector. China set the midpoint for the Yuan at 6.23. USDCNH rallied to trade near 6.3477 at pixel time, lifting off from the lows just above 6.21 to gain over 2.15%. As a reaction to the news, the AUD and the NZD weakened significantly, considering that the AUD especially is seen as a proxy to China. Other regional currencies in Asia also came under significant pressure on the news. The US Dollar gained strongly, just one hour into the Asian trading session. AUDUSD was down -1.27% while the NZDUSD was also lower losing -0.98% at the time of writing. The currency devaluation from China comes after weak exports hit the country which was already plagued by sluggish inflation growth.


Germany ZEW Economic Sentiment in Focus

The move by China is expected to see the European markets trade lower alongside the German ZEW economic sentiment report due for release today. Expectations are for the German ZEW sentiment to remain strong with the median consensus pointing to a pickup from 29.7 to 31.7. A beat on the estimates could cement the view for an upbeat flash GDP estimates for the third quarter with a general expectation of a rise in third quarter flash GDP estimates to be at 0.5%. The Euro has been trading relatively stronger to the US Dollar posting four days of gains but came under pressure earlier today as the Dollar gained on the Yuan devaluation. The single currency managed to briefly test the 1.10 handle to test the highs to 1.1021 before falling back to trade at 1.0972.


Another Quiet Day in the Markets

There is not much of economic data to go by today albeit a few economic releases. After the German ZEW economic sentiment the markets will look to the US trading session which will see the release of the preliminary unit labor costs for the quarter. Expectations are for a flat reading after unit labour costs grew 6.7% previously, a very modest expectation that could easily beat the estimates and further support the USD's rally. The preliminary nonfarm productivity for the quarter is also on the agenda with the median consensus pointing to a 1.6% growth after falling -3.1% previously. The US session winds up with the release of the wholesale inventories report expected to see a slowdown from 0.8% from the month before to 0.4% last month. USDJPY has been largely bullish as the currency pair closed in the positive yesterday.


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