Weekly market review on June 19 - 23

RBA Meeting Minutes Reveals Concerns over Australian Economy

The RBA Meeting’s Minutes revealed on June 20th that some RBA members were concerned about the weaker level of consumption, which can put pressure on the second quarter GDP reading. The Australian economy grew by 1.7% during the first quarter of 2017 beating the market consensus of 1.5%.

The RBA has also outlined the key factors in maintaining the benchmark interest rate at historically low levels of 1.5% namely, low wedge growth which is at a low level only posting a 0.5% increase. But, the unemployment rate has dropped to 5.5% showing a strong labour market. The AUD/USD exchange rate remained firm consolidating its recent gains above the psychological number 0.7500.

British Pound Annihilated by Mark Carney dovish remarks

Another important risk event in the previous week was Mark Carney speech at the Mansion House. The BOE governor Mark Carney erased investors’ hopes of an imminent rate hike by suggesting that the UK economy can’t handle higher interest rates. However, the BOE members are split on the interest rate issue as 3 dissidents were voting in favor of an interest rate hike; the actual BOE vote was 5-3 in favor of maintaining interest rates at current levels.

BOJ Kuroda Keeps Accommodative Monetary Policy Stance

The BOJ governor Kuroda has reiterated his views that the central bank’s easing efforts will continue because inflation is still weak and far away from the 2% inflation target. The Japanese consumer price inflation remains at a modest 0.4% reading. The current BOJ stimulus bond buying program has grown to $4.49 trillion, which is equal to the size of Japan GDP. The BOJ dovish tone has helped push the USD/JPY to a 4-week high.

RBNZ Signals No Rate Hike Until 2018

The RBNZ has kept the interest rate at record low levels of 1.75%, but it also signaled the rates will remain on hold until 2018. The New Zeeland economic slowdown during the first quarter of 2017 was the main concern as the NZ economy only grew by 0.5% versus a 0.9% forecasted by the RBNZ.

While the unemployment rate fell to 4.9% the wedge inflation remains subdued. The private sector labour cost index only increased by 0.4%. According to the latest COT report, we can also note a big shift in the market positioning as commercial participants have switched to the short time by accumulating the biggest short beats in the last 4 years.

US Manufacturing Activity Slowdowns

The US Markit manufacturing PMI missed market expectation of 53.0 falling to a 9-month low at 52.1. Despite the soft reading, we’re still above the 50 mark reading which shows expansion in the manufacturing sector. On the other hand, the Flash Services PMI figures fell to a 3-month low of 53 versus 53.7 forecasted.
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