U.S. equity markets rallied with oil prices on Thursday following the FOMC meeting minutes from June on Wednesday that showed participants were split over their view on the economy following strong job gains but weak inflation and business investment. This lack of unity suggests the Fed will not hike rates anytime soon. That helped weaken the U.S. dollar by -0.58% on Thursday and boosting equities with both the S&P500 & Nasdaq100 gaining +0.72% & +0.07% respectively. Initial jobless claims for August 13th was slightly lower than forecast at 262,000 vs 265,000 while continuing claims increased to 2.175m vs 2.145m prior and expectations of 2.16m.
The European Central Bank released the minutes from its June meeting overnight, referring to the Brexit that it was “too early to assess with any certainty the possible implications of these headwinds for the euro area economy”. Members felt it was premature to discuss any possible monetary reaction at this stage but reaffirmed its readiness to act if warranted. The ECB is in “wait and see” mode as it assesses the implications of a Brexit on the Euro-zone economy as well as the impact of its record monetary stimulus.
Over the past few months we have seen some stabilisation in data out of the EU recently with CPI inflation overnight (YoY Jul) remained flat at 0.2% against expectations of a decline to 0.1%. Core inflation for the same period remained stable as forecast at 0.9% while prices dropped month-on-month from June by -0.6% with forecasts for a -0.5% decline. The Euro gained +0.59% on Thursday on a combination of the less divergent policy expectations between the Fed & ECB while key European equity benchmarks were higher across the board led by the Euro Stoxx 600 & DAX30 up +0.72% & +0.62% respectively.
Further U.K. data was released overnight for U.K. retail sales following slightly better than expectations inflation & unemployment figures earlier this week. Retail sales was also stronger than anticipated, year-on-year for July increasing 5.4% against expectations to remain unchanged at 3.9%. The Pound gained +0.94% as did the FTSE100 up +0.14% shown on the first chart below.
This week has been the first hard data we have seen following the June 23rd referendum and it has certainly been better than expected, while encouraging it is too soon brush off the potential headwinds from the Brexit and we will need to assess the incoming data. Either way expectations are still for further easing from the Bank of England later this year having signalled its willingness to look through higher inflation in the medium-term.
The Australian dollar jumped +0.42% shown on chart 2 below, on Thursday following data that showed the unemployment rate declined to 5.7% (MoM Jul) with forecasts to remain unchanged at 5.8%. 26,200 new jobs were added against expectations of a 10,000 increase when seasonally adjusted and while this is a positive headline figure looking deeper into the data is a little disappointing. Trend data showed jobs gains were once again from an increase in part time work up 10,600 while full time employment only increasing 1,200. Since January part time work has added 82,600 jobs while full time employment has decreased by 21,600 over the same period. While any decline in the unemployment rate is positive we would prefer to see full time employment increasing as a sign of a strengthening labour market.
The ASX200 closed -0.49% weaker however the market is set for a stronger open this morning with ASX SPI200 futures up 15 points. I
f you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account.
Data releases:
- U.K. Public Finances (MoM Jul) 6:30pm AEST
- Canadian CPI (MoM & YoY Jul) 10:30pm AEST
- U.S. Baker Hughes Rig Count (Aug 19) 3:00am AEST