Fed week opens with lower equities, haven currencies better

  • FOMC meeting due Wednesday – will they or won’t they?
  • Chinese PMI disappoints to 3 month low
  • JPY strong as Tankan survey rises to 6yr high.

 

We are finally getting to the end of the data calendar for this year’s markets with Wednesday’s FOMC meeting the obvious highlight. Those economists surveyed on their thoughts of whether Ben Bernanke and the rest of the Fed will taper its asset purchases has risen from around 20% to around 35% since the most recent meeting. We remain reticent to forecast a decision to cut stimulus this week despite recent economic data surprises.

 

This month has seen a better than expected payrolls number, a 5 year low in the unemployment rate, a surprisingly strong retail sales number and, possibly most surprisingly, a deal in Washington around a Budget as we head into 2014. Our fears over tapering remain over two aspects of the US economy.

 

Firstly growth, while currently running at the fastest level in the G10, is largely driven by inventories that may struggle to be sold in through Q4. As Vice Chair Yellen remarked before the Senate Banking Committee in November, “we have seen meaningful progress in the labor market, and what the committee is looking for is signs that we will have enough growth that’s strong enough to promote continued progress.” As it stands at the moment, we would expect that the majority of the FOMC would rather wait for indicators of Q4 GDP, due late January, before deciding to reduce its asset purchases.

 

Second is the country’s inflation picture which shows little fight following weakness in headline and core measures. Inflation will increase when wages start to improve, a function of a healing jobs market that is forthcoming. PCE at half of the Fed’s target is hardly a box checked though.

 

The combination of tapering fears have combined with a poor Chinese PMI overnight to wobble markets lower as we open up the week. Chinese ‘flash’ manufacturing PMI this morning missed expectations of 50.9, falling to 50.5. This was the lowest in 3 months and comes after warnings from the central government that Chinese growth will remain under “downward pressure” as we head into 2014.

 

The euro and pound have had relatively quiet opens to the week given a lack of real news over the weekend. Once again, their movements will be a large function of what happens in Washington on Wednesday but today’s PMI numbers from Germany, France and the Eurozone expanded a little bit faster than last month.

 

JPY has been the main mover over the weekend following a strong Tankan survey overnight. Larger companies are expected to increase spending by 4.6% in the year up to March 2014 with sentiment rising to the highest since 2007. The reading comes before the Bank of Japan’s meeting on 19/20th of this month and, although we are looking for further easing from the Bank of Japan soon, this month’s meeting may come too soon.

Have a great day.

Indicative Rates

Sell

Buy

GBPEUR

1.1864

1.1885

GBPUSD

1.6314

1.6335

EURUSD

1.3737

1.3758

GBPJPY

167.89

168.11

GBPAUD

1.8231

1.8255

GBPNZD

1.9706

1.9733

GBPCAD

1.7254

1.7277

NZDUSD

0.8271

0.8285

GBPZAR

16.83

16.88

USDZAR

10.3173

10.3429

GBPPLN

4.9518

4.9749

EURJPY

141.37

141.57

Please note these rates are “interbank” rates i.e. they indicate where the market is currently trading and are not indicative of the rates offered by World First.  Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time. The rate you will receive will depend on the amount and currency you require. Please call 0808 115 5821 or 020 3393 7836 for a live quote.

Sectors: Banking and Foreign Exchange
Topics: Currency Exchange and Finance
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