Forexlive Americas FX news wrap: Core PCE comes in weaker but Amazon earnings/Covid worries dominate trader mindset
Forex news for North American traders on July 30, 2021.
- Major indices close lower led by Amazon and concerns about Covid variant
- US jobs report next week highlights the week's key events and releases
- Bitcoin heads into the weekend trading with the price staying just below its 100 day MA
- WTI crude oil futures settle at $73.95
- MUFG trade of the week: Sell EUR/GBP
- Gold fails at the July high, forming double top
- Baker Hughes oil rig count -2 at 385
- US 1 trillion infrastructure package gets enough votes to open the debate on the Senate floor
- European major indices end the week in the red for the day
- Atlanta Fed kicks of Q3 GDP tracker with a 6.1% estimate
- Canada extends pandemic wage and rent subsidies until Oct 23
- WTI crude oil nears $74 as major moving average crossover takes place
- U Mich final US consumer sentiment 81.2 vs 80.8 expected
- OPEC July output rose 610K bpd to 26.72 mbpd - poll
- Fed's Bullard says he still expects 7% growth this year
- US Q2 employment cost index +0.7% vs +0.9% expected
- Canada industrial product prices 0.0% versus -0.5% estimate
- US June PCE core inflation 3.5% y/y vs 3.7% expected
- Canada GDP for May -0.3% vs -0.3% estimate
- The EUR is the strongest and the AUD is the weakest as NA traders enter for the day
That key inflation data (a favorite of the Fed) came in better than expected with YoY inflation at 3.5% versus 3.7% expected. The monthly increase also came in less than expectations at 0.4% vs 0.6% expected. Phew!
Is the inflation peak in? Will inflation levels start to move back down?
Ford Motor came out today and forecasts car prices to move back down after the chip shortage is fixed. That makes sense as most carmakers have been building, but have a backlog of unfinished cars without chips. One can foresee, there would be a glut of auto's when the final chip piece is added.
This transient inflation sentiment continues to be one that Fed Chair Powell reiterated this week after the FOMC decision.
On the other end of the Fed spectrum is Fed's Bullard (St. Louis Fed President and hawk) who got back on his soapbox after the end of the "quiet period". He said today that he still expects 7% growth in 2021 and above trend growth for "quite some time". He added that he expects inflation to remain above the Fed target this year and next year, making up for the years below the level, and proposes tapering both government and MBS purchases at the same time - ending the taper process in early 2022. Bullard is a voting member in 2022 and is one of the Fed members who sees hikes in 2022.
It is too early to see how the cards play, but next week, employment statistics will be the major event that may further sway the markets. The expectations are for a solid gain of 925K versus 850K last month.
Other economic data today showed University of Michigan consumer sentiment rising to 81.2 versus 80.8 expected (that was the preliminary as well). Expectations rose to 79.0 from 78.4 - accounted for the gain versus the preliminary estimate. The inflation gauges dipped down to 4.7% from 4.8% for 1 year, and 2.8% from 2.9% for 5-year expectations.
The better data did not prevent a decline in equities today, and declines for the week (although the major indices did close higher for the month -see post here). The changes for today, had the NASDAQ index falling by -0.71%. The S&P fell by -0.54% and the Dow shed -0.42%. The NASDAQ was down as much as -1.1% at the session lows.
European shares also fell across the board with the UK FTSE 100 down -0.65% and Spain's Ibex down -1.26%.
Below are the summaries of the changes for the major US and European indices:
In the US debt market today, the yields along the yield curve are closing lower, helped by the weaker then expected core PCE. The 10 year yield was down -4.3 basis points and closed just off the lows at 1.226%.
The USD did not take is clues from the lower rates or lower inflation (and move lower). Instead it moved higher in reaction to flight to safety flows. The CHF and the USD are ending the day higher (traditional flight to safety currencies) and are the strongest of the majors. The AUD and NZD are the weakest. That is also consistent with flight to safety/move out of risk flows. Below are the rankings of the major currencies and the % changes of the majors vs each other.
As mentioned next week the US and Canada employment statistics will be released on Friday. Before then ISM/PMI data will dominate the economic releases in Europe and the US.
Thank you all for your support. Have a terrific weekend and look forward to next week's trading.