Australian Dollar rebounds notably today as GDP data met market expectations while services data showed improvement. Though, upside is capped so far as RBA is still on track to another rate cut later in the year. Sterling is the second strongest after lawmakers cleared a hurdle to block no-deal Brexit. On the other hand, Yen and Swiss Franc weaken on rally in Asian stocks, in particular Hong Kong HSI. Looking ahead, focus will turn to Canada will BoC rate decision featured.
Technically, Dollar should have made a temporary top against Euro, Sterling, Swiss Franc and Canadian, after yesterday’s post ISM manufacturing pull back. Some more downside is likely for the near term. But there is no clear sign of short term topping yet. Similarly, Yen crosses are generally in recovery now and more upside is likely. But such recovers should be corrective and outlook in the Yen crosses will remain bearish.
In Asia, Nikkei rose 0.12%. Hong Kong HSI is up 3.28%. China SSE is up 0.57%. Singapore Strait Times is up 1.13%. Japan 10-year JGB yield is down -0.0057 at -0.281. Overnight, DOW dropped -1.08%. S&P 500 dropped -0.69%. NASDAQ dropped -1.11%. 10-year yield dropped -0.040 to 1.466.
Fed Rosengren: Don’t use up valuable space, no immediate policy action required
Boston Fed President Eric Rosengren said in a speech that the US economy remained “relatively strong”. And he saw not pressing need to cut interest rate s at the upcoming meeting. He said, “If the consumer continues to spend, and global conditions do not deteriorate further, the economy is likely to continue to grow around 2%”.
Also, “with continued gradual increases in wages and prices, then in my view, no immediate policy action would be required.” “I don’t want to use up that valuable space at a time where we actually think prices are pretty stable and the labor markets are pretty tight,” he added.
Nevertheless, Rosengren also admitted that risks are on the rise. “Clearly, there is a downside risk that trade or geopolitical problems could escalate, resulting in a much weaker situation than is currently anticipated in economic forecasts” However, “to date, these elevated risks have not become reality.” “This is a particularly good time to carefully watch incoming data to determine whether any additional policy adjustments are necessary to achieve” the dual mandate.
Fed Bullard urges 50bps rate cut to realign with markets
St. Louis Fed President James Bullard said Fed’s interest rates are “too high” and a -50bps cut this month is needed to realign with financial markets. Bond yields dropped to record lows on expectation of Fed cut and intensifying risk of global trade war. Bullard said “in this situation I would respect the market signal,” He added, “we should have a robust debate about moving 50 basis points at this meeting…It’d be better in my mind to go ahead and get realigned right now”.
UK lawmakers overcome first hurdle to stop no-deal Brexit
In a motion put forward by oppositions and Conservative rebels to take control of parliamentary schedules, the UK government was defeated by 328 to 301 votes. On Wednesday, those lawmakers will proceed to pass a law to force Prime Minister Boris Johnson to seek another Brexit delay, from October 31 to January 31, to stop no-deal Brexit.
After the vote, Johnson warned, “I don’t want an election, but if MPs vote tomorrow to stop negotiations and compel another pointless delay to Brexit, potentially for years, then that would be the only way to resolve this.” He reiterated ” if I am Prime Minister, I will go to Brussels, I will go for a deal and get a deal but if they won’t do a deal we will leave anyway on 31 October.”
It’s reported that all 21 Conservative rebels could face expulsion from the party as a result of the vote. The group include Nicholas Soames, the grandson of Britain’s World War Two leader Winston Churchill, and two former finance ministers – Philip Hammond and Kenneth Clarke.
Separately, Irish Finance Minister Paschal Donohoe insisted that “a very significant political rationale” is needed for any further Brexit delay. He told national broadcaster RTE, “the European Council and the European Commission have said that were another extension to be looked for, there would have to be a very significant political rationale for it and it is yet to be seen what that rationale would be.”
Australia GDP grew 0.5% in Q2, strengthen the case for RBA rate cut
Australia GDP grew 0.5% qoq in Q2, matched expectations. Annual growth slowed to 1.4%, way slower than 3.1% a year ago and was the worst since 2009. ABS Chief Economist for Bruce Hockman, noted “the external sector drove GDP growth this quarter, while growth in the domestic economy remains steady”. Net exports added 0.6% to Q2’s growth, reflecting strong exports of mining commodities. He added, “strength in mining related activity was seen across a number of measures in the economy”.
According to Westpac, today’s data strengthened the case for further RBA rate cut in the very near term. To achieve RBA’s growth forecasts of 2.5% for 2019, the economy needs to register 1.6% growth in the seco