Week Ahead – Return of Greek saga and BOE Super Thursday
Equities across the globe were on the back foot last week as central banks are not longer looking as dovish as they did a couple of months ago. Friday’s rally in DJIA ensured the index suffered only moderate weakness last week. UK’s mining heavy FTSE fell to its 100-SMA line before staging a minor rebound on Friday.
In currency markets, dollar regained poise against most majors. Commodity currencies were major losers after a surprise rate cut by RBA and the downward revision in the bank's inflation projections.
Friday’s non-farm payrolls report showed a sharp slowdown in the pace of job additions. That did trigger a knee jerk drop in the USD. However, as noted by us, the fate of the USD was more dependent on wage price inflation, which in annualized terms, did show a bigger spike. No wonder then, the dollar quickly recovered losses and scored gains against most major currencies.
In commodities space, Gold retreated from $1300-1303 levels, but managed to restrict losses around $1275 levels. Meanwhile, oil prices were largely consolidated.
June Fed a “live event” – Fed policymakers
Fed policymakers were out on the wires last week stating that a rate hike in June is an “option”. Once again, markets aren’t taking it seriously and rightfully so since there are too many issues that could destabilize markets. Brexit referendum is scheduled on June 23 and the Greek saga is making a comeback as well. Plus, US wage price inflation is yet to show sign of sustained strength.
The contradictory views held by markets and the Fed officials regarding the June rate hike may not result in dollar sell-off as dollar’s counterparts aren’t doing any good. UK’s PMI figures released over the last week showed a possibility of sharp slowdown in GDP in April. Plus, Brexit fears may come into play as well.
Meanwhile, there is very little the BOJ can do now, thus a sustained rally in USD/JPY could be seen only if the 10-yr treasury yield in the US moves above 2% along with a rise in 2-yr yield as well.
Greek saga Triquel
Also note, that Greek saga could flare up as well. Greek Prime Minister Alexis Tsipras has defended controversial new pension and tax reforms approved by parliament and said the Eurozone finance ministers meeting to be held today would be "a very important day" as debt relief for Greece is on the agenda. The group is expected to discuss new debt relief measures, with a view to avoiding the prospect of a default in July, when the nation is due to make huge repayments to the IMF and the ECB.
Greek bond yield curve stays inverted and a sharp spike in yields could trigger a drop in Euro. During last bouts of Greek crisis, Euro drop was led by rise in Greek and periphery yields along with drop in German bund yields. Greek crisis could further kill Fed rate hike bets, but not the dollar as treasuries are a safe haven asset and also offer relatively higher yield than its other global counterparts.
BOE ‘Super Thursday’
Bank of England (BOE) quarterly inflation report along with rate decision and policy minutes are due for release this Thursday. There is little possibility of a major shift in the policy stance. We may see a dissenting vote in favor of cutting rates, which may lead to Sterling weakness. However, Carney and Co. are unlikely to do anything that could trigger volatility in the markets ahead of June 23rd Brexit referendum.
In currency markets, dollar regained poise against most majors. Commodity currencies were major losers after a surprise rate cut by RBA and the downward revision in the bank's inflation projections.
Friday’s non-farm payrolls report showed a sharp slowdown in the pace of job additions. That did trigger a knee jerk drop in the USD. However, as noted by us, the fate of the USD was more dependent on wage price inflation, which in annualized terms, did show a bigger spike. No wonder then, the dollar quickly recovered losses and scored gains against most major currencies.
In commodities space, Gold retreated from $1300-1303 levels, but managed to restrict losses around $1275 levels. Meanwhile, oil prices were largely consolidated.
June Fed a “live event” – Fed policymakers
Fed policymakers were out on the wires last week stating that a rate hike in June is an “option”. Once again, markets aren’t taking it seriously and rightfully so since there are too many issues that could destabilize markets. Brexit referendum is scheduled on June 23 and the Greek saga is making a comeback as well. Plus, US wage price inflation is yet to show sign of sustained strength.
The contradictory views held by markets and the Fed officials regarding the June rate hike may not result in dollar sell-off as dollar’s counterparts aren’t doing any good. UK’s PMI figures released over the last week showed a possibility of sharp slowdown in GDP in April. Plus, Brexit fears may come into play as well.
Meanwhile, there is very little the BOJ can do now, thus a sustained rally in USD/JPY could be seen only if the 10-yr treasury yield in the US moves above 2% along with a rise in 2-yr yield as well.
Greek saga Triquel
Also note, that Greek saga could flare up as well. Greek Prime Minister Alexis Tsipras has defended controversial new pension and tax reforms approved by parliament and said the Eurozone finance ministers meeting to be held today would be "a very important day" as debt relief for Greece is on the agenda. The group is expected to discuss new debt relief measures, with a view to avoiding the prospect of a default in July, when the nation is due to make huge repayments to the IMF and the ECB.
Greek bond yield curve stays inverted and a sharp spike in yields could trigger a drop in Euro. During last bouts of Greek crisis, Euro drop was led by rise in Greek and periphery yields along with drop in German bund yields. Greek crisis could further kill Fed rate hike bets, but not the dollar as treasuries are a safe haven asset and also offer relatively higher yield than its other global counterparts.
BOE ‘Super Thursday’
Bank of England (BOE) quarterly inflation report along with rate decision and policy minutes are due for release this Thursday. There is little possibility of a major shift in the policy stance. We may see a dissenting vote in favor of cutting rates, which may lead to Sterling weakness. However, Carney and Co. are unlikely to do anything that could trigger volatility in the markets ahead of June 23rd Brexit referendum.