He noted the intervention of the yen, inflation in the US By Reuters
A look ahead at European and global markets from Wayne Cole.
It’s been a rough start to the week with many stock indexes in the red, the dollar rising and the Treasury easing a touch, although nothing is causing a move.
The dollar hit 159.94 yen in early trade that prompted frequent warnings from Japanese officials against “excessive” volatility, shorthand for the intervention alarm. The level of 160.00 is considered a red line for the Japanese given to enter in late April when the dollar reaches 160.245.
The yen’s weakness is adding to inflation in other countries and putting pressure on the Bank of Japan (BoJ) to continue easing its ultra-easy policies. Minutes of the central bank’s last meeting confirmed that there was much discussion about lowering its purchase rates and senior bonds.
The yen’s continued decline is also affecting emerging markets, putting Asian currencies under pressure as they need to depreciate to maintain export competitiveness. It’s up more than 10% against the yen so far this year and is at its closest since 1992, a big reason analysts suspect Beijing is massaging its currency over time.
Geopolitics also loomed large, with the first US presidential debate on Thursday and the first round of voting in the French election over the weekend.
Weekend opinion polls showed France’s National Rally (RN) party and its allies leading the first round of national elections with 35.5% of the vote.
The biggest data block for the week will be the US personal consumption expenditure (PCE) price index on Friday which is expected to be mild to keep the market betting on a September rate cut.
The core appears to have slowed to a three-year decline of 2.6% y/y, from 2.8%, with a range of 2.5% to 2.8%. Correct CPI/PPI reports have the market reading mostly at 2.6% or less, so the surprise could be very painful.
Analysts also note that the run of very soft PCE numbers from the second half of last year will decline in the coming months making it difficult to overcome the underlying effect. Fed chief Powell cited that factor as to why the median dot plot saw core PCE still at 2.8% at the end of this year.
Key developments that could impact markets on Monday:
– Germany’s Ifo business climate survey, United Kingdom’s CBI Trends orders for June
– ECB Board members Claudia Buch, Edouard Fernandez-Bollo, Isabel Schnabel and Elizabeth McCaul all speak
– Appearances by Austan Goolsbee of the Federal Reserve, Mary Daly and Christopher Waller. Bank of Canada Governor Tiff Macklem speaks
– Dallas Fed manufacturing index for June
