Expect the Unexpected
On the tails of the UK referendum vote perhaps it’s best to expect the unexpected from Central Banks. Overnight, the anticipated interest rate cut from the BOE failed to materialize, sending the Pound rocketing higher and making the Capital Market landscape that much more difficult to navigate. While shading the MPC statement extremely dovish, the consistent policy stance surprised the markets, as a rate-cut had been factored.
Anticipation of a massive stimulus package continues to drive investor sentiment and the ensuing divergence in monetary policy between the Federal Reserve and BoJ continues to weigh on the YEN. Unlike previous Abenomic measures, the combination of both fresh monetary and fiscal stimulus is hoped to wake Japan’s economy up from its decade-long slumber.
However, major headwinds emanating from the Brexit fallout, not to mention the US presidential election, are more likely to turn investors guarded, despite Japan’s stimulus efforts. So expect a bumpy road ahead.
Very few major concerns regarding the Yuan depreciation as the current fixing mechanism is more market oriented, providing investors with a much needed level of transparency
In addition, policy makers have been more forthcoming with their forward guidance, which in the past has been a closely guarded secret, and investors continue to vote thumbs up.
Heading into the week’s end, CNH is trading with an offered tone, testing 6.6900 trendline as some jitters are mounting regarding the sudden spike on overnight funding costs of short Yuan positions.
Bond Bulls continue to drive sentiment. In the wake of BNM’s surprise interest rate cut, investors continue flocking into Malaysian Capital markets as the chase for yield dominates investors psyche. I think investors are also happy with the confidence the BNM governor Muhammad Ibrahim exudes , the rate cut surprised investors but certainly left and impressionable mark on sentiment.
The Australian dollar continued to enjoy the lofty heights above .7600 as overall risk appetite remained incredibly supportive despite the sidelined BOE while adding another level of unwanted suspense to the BOE August meeting.
On the data front , the China Q2 GDP provided a lift to Australin dollar after comoing in above market expectations. ( 6.7 % vs 6.6% expected)
However, most local attention fell on the NZD which fell off the ledge after he RBNZ’s announcement that it would provide an unscheduled “Economic Update” on 21 July raising concerns raising concerns that Brexit economic headwinds my spur the RBNZ to provide a dovish forward guidance based on the current level economic uncertainly