FED stalls and ECB denies bonds

The Fed dominated this week, or at least it tried to until Friday’s EUR meltdown when Spanish yields imploded to the topside and the weakening Chinese Yuan put investors on the back foot. The markets had been monitoring helicopter Ben’s semi-annual Monetary Policy Report mid-week to Congress for any strong indication of an imminent shift in favor of another round of asset purchases, particularly in light of the latest weak retail sales data. The cautious approach towards further easing that emerged was disappointing. In reality, Ben was very unlikely to send a strong signal on the Committee’s intentions for the August meeting. What we got was an inconclusive testimony that has allowed the dollar to gain some of its lost round.

Below are some other highlights of the week:


  • USD: Two year dollar highs printed last Friday seem a long time ago.
  • CAD: Net foreign investments jumped by +$26.1b vs. +$10.16b in May and the largest monthly increase in 13-years. Demand for a second tier reserve currency remains strong, despite the loonies’ temporary correlation break with commodities. Investment in Canadian Government products gave the month’s its push. Aiding the demand for bonds is the US/CAD rate differential where Canadian long term interest rates exceed their counterparty by the largest spread in 10-months.
  • USD: June Retail sales fell -0.5%, well below the consensus call for a +0.2% gain. Ex-autos sales were down -0.4%. It was the first time that sales fell for three consecutive months.
  • USD: NY Fed July Manufacturing index came in at +7.39, up from +2.29 in June. This marks a modest rebound after June’s -14.8 plunge, and continues to indicate that manufacturing sector growth in the region has slowed significantly.
  • USD: US consumer prices were flat last month as energy costa continued to fall, keeping inflation at bay and allowing the Fed some wriggle room. The rate of inflation remained at +1.7%, well off last Septembers high of +4%. Core-prices on the other hand climbed +0.2% for the fourth consecutive month.
  • USD: In the tic data, China was the largest US treasury holder in May (+$5.2b to +$1.1t), but with Japan ($1.01t ) looking to take over the no one spot. Amongst foreign investors, net purchases of notes and bonds totaled +$49.9b, compared with net buying of +$38.7b in April.
  • BoC: The Bank of Canada, as expected, left rates unchanged at +1%. In Carney’s following communiqué he left in “modest withdrawal of stimulus may be needed,” certainly a tad more dovish than anticipated.
  • CAD: The BoC lowered growth forecasts (2012 to -0.3%, +2.1%; 2013 -0.1% to +2.3%).
  • BoC: seems economy at full capacity at 6-months later than previous.
  • BoC: see housing at activity slowing from record levels and that exports will not reach previous peak until early 2014 due to weak demand and a stronger loonie.
  • Fed: Bernanke’s SA-MPR offered a bleak assessment of the US economy this week. He ended providing no new clues as to whether the Fed would take fresh steps to support the fragile economic recovery. His wait and see approach will be next tested in two-weeks at their next FOMC meeting.
  • USD: Industrial production (IP) picked up last month (+0.4%), as a rebound in manufacturing activity offset declining output in the utilities sector. Capacity utilities also increased as well, climbing to 78.9% from 78.7% the previous month. Analysts have noted that US manufacturing has been a major pillar of the recovery, but factory output has showed signs of stalling I recent months.
  • USD: Housing starts rose +6.9% to +760k from May’s +711k, marking a new high for the benchmark in four years. However, permits were a bit below the expected +765k. Analysts note that the turnaround in housing appears to have been resilient so far to four months of slowing labor market growth.
  • USD : The Beige Book found that overall economic activity expanded “at a modest to moderate pace reported in June.” Some positives saw loan demand increasing and the real estate strengthening, however, employment remains “tepid.”
  • CAD: Canadian wholesales improves +0.9% in May, to +CAD49.8b. Four of the seven subsectors accounted for +70% of the month’s sales number.
  • USD: US initial claims shot up +34k to +386k last week and well above expectations of +365k. It is the continuing effects from the auto plant layoff season. The market expects a volatile few weeks as the trend reverts back to the top of the year-to-date range.
  • USD: Existing home sales fell to +4.37m last month from +4.62m. However, prices rose, with the median up +$9.1k to +$489.4k and the average up +$9.2k to +$232.8k. But again disappointing was the supply of inventory rising to +6.6 months wholly due to the slower pace of sales.
  • USD: The US Philly Fed manufacturing conditions improved from -16.6 to -12.9 this month. Most of the internals did better than the overall headline, but the overall picture is still a sector that is contracting in the Philly Fed district. The most disappointing sector was employment. The index fell from +1.8 to -8.4, the weakest level in nearly three-years.
  • CAD: Canadian CPI rose +1.5% in the 12 months to June, following a +1.2% gain in May. The increase was led by higher prices for the purchase of passenger vehicles and, to a lesser extent, for electricity. M/M, CPI fell -0.4% from May to June. Ex- CPI increased +1.7% in the 12 months to June. While this matched the year-over-year change recorded in May, the CPI ex-energy continued to increase at a faster rate than the All-items CPI.


ASIA Week in FX




  • Inflation data come from down-under in AUD
  • Retail Sales are delivered from CAD
  • Growth numbers and housing data is released in USD and GBP
  • The EUR releases Business climate conditions in Germany
  • The Kiwis have a monetary policy review and
  • CNY will get the ball rolling with Flash Manufacturing PMI


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell