Last week was a (relatively) quiet week for: economic calendar news and events, market moving Trump tweets, whilst the narrative causing tensions with North Korea, also appeared to recede. Perhaps it was that stability and a return to a focus on key data, which created an environment and the underpinning sentiment, allowing fundamentals to determine and propel the USA equity markets to new heights. Undoubtedly we witnessed a critical example of fundamental news moving the value of sterling last week, particularly in relation to GBP/USD, which has now recovered most of its losses, experienced since the U.K. referendum vote in June 2016.
However, it must be noted that sterling’s rise versus the U.S. dollar, was not necessarily as a consequence of the UK’s BoE’s statements and previous rumours, suggesting they may raise rates to combat inflation, cable has risen over several weeks due (in the main instance) to the weakness the dollar has experienced (versus nearly all its peers) since Trump’s election, a phenomena his administration has actively encouraged, as it promotes manufacturing and exporting opportunities.
At some stage the value of a low dollar becomes counter productive and destructive for a country whose economy is 80% supported by consumerism/services/imports. Therefore, there will come a turning point, at which the USA Fed/FOMC have to raise rates, in order to protect their own economy, not to primarily control inflation, but to protect the economic status quo. And it’s also inevitable that inflation will spike, if the dollar remains low and import prices/PPI input prices, continue to rise.
We could therefore witness a rise in the interest rate announcement on Wednesday at 18:00 GMT. Not only would this be in keeping with the FOMC’s commitment earlier in the year; that they’d raise the main interest rate by three times at least in 2017 (twice so far), it would also provide a relief to many USA hard pressed savers/workers, who are experiencing precious little wage inflation, or savings returns, unless they speculate on markets. We’ll deliver an email to our clients, covering the upcoming FOMC rate decision, on Tuesday.
Our cursory observation and analysis of the COT report published each Friday, reveals the following; despite still being net long on the euro, bullish bets were reduced by large institutional traders from a reading of approx 96k, to 86k. The overall short bets on sterling reduced from -53k to -46k. Short bets versus yen also reduced from -73k to -57k. Speculative positions on gold hardly changed, whilst long net positions on the SPX increased from 158k to 188k. Net long positions on WTI oil, fell from 382k to 374k.
Significant economic calendar events for September 17th, all times quoted are London (GMT) time
08:00, currency impacted CHF. Total Sight Deposits CHF (SEP 1st). Although listed as low impact, the release of both total and domestic sight deposits, can effect the value of CHF when the detail is revealed. The last reading was 579.0b.
09:00, currency impacted EUR. Euro-Zone Consumer Price Index (YoY) (AUG F). CPI inflation is forecast to rise to 1.5%, from the 1.3% registered in July.
14:00, currency impacted USD NAHB Housing Market Index (SEP). A slight fall to 67, from the previous reading of 68, is expected.
15:00, currency impacted GBP. BOE Governor Carney Speaks at IMF in Washington, DC. Despite being listed as high impact, it’s by no means certain that Carney’s speech will impact the markets for GBP or USD. However, it is a significant appearance.
22:00, currency impacted NZD. Westpac NZ Consumer Confidence (3Q). The Q2 reading was 113.4, the anticipation is that a similar reading will be reported for Q3.
