Archives of “July 2019” month

rss

Wall Street drops on earnings as euro swings on ECB rhetoric

  
Analysis, US Market
#  #  #  #  #  #  #

The S&P 500 retreated from a record high on Thursday as adverse reactions to a handful of corporate results weighed on the market and as the latest assessment of monetary policy rhetoric from the European Central Bank triggered a volatile session for the euro.

The US equities benchmark was down 0.5 per cent owing to poorly-received results from a number of technology and industrial companies.

American Airlines shed 8.4 per cent after saying it expected a larger hit to pre-tax earningsfrom the grounding of Boeing’s 737 Max jets. Southwest Airlines said it expected cost pressures from the grounding to weigh on results in the second half and decided it would cease operations out of Newark Liberty International airport, which helps serve the New York City area, although its shares managed to reverse early declines to finish roughly flat.

Rivals Delta Air Lines and United Airlines were both lower. Boeing remained under pressure, down nearly 4 per cent, after flagging on Wednesday it might have to cease production of the jet that was involved in two fatal crashes earlier this year.

Facebook and Tesla were down 2 per cent and nearly 14 per cent, respectively, after reporting results following Wednesday’s closing bell.

The leg down in US equities also came as investors digested better than expected US economic data that raised concerns that Federal Reserve policymakers may not be as dovish as markets expect at next week’s investor meeting.

There was much interest in the ECB, though. As President Mario Draghi gave his regular press conference after leaving interest rates on hold, investors measured his words against hopes for a return to economic stimulus in the region, which had pointed to more bond-buying as soon as September.

It sent the euro on a volatile run, and a rally for the region’s government bonds also faded, drawing yields higher as the trading day developed. Stocks also dropped back from highs, although banking shares remained in demand.

The shared currency bounced up off two-year lows after Mr Draghi spoke to reporters, and was about flat at $1.1144.

European stocks were also unsettled, with the extent of the ECB’s concern at an economic slowdown outweighing the hopes for fresh stimulus. Frankfurt’s Xetra Dax stood out, falling back by 1.3 per cent, surrendering earlier gains that took it up as much as 0.6 per cent for the session.

USD/JPY climbs to two-week high as yields rise

  
Analysis, Forex
#  #  #  #  #

USD/JPY at the highs of the day

USD/JPY at the highs of the day
If you expect the Fed to follow the ECB, then USD/JPY longs are the place to be.
That’s the brewing signal in USD/JPY as it rises to a two-week high of 108.55. A Fed cut next week is almost a sure thing but a further cut is less certain and either way I don’t see the Fed pre-announcing anything.
Technically, USD/JPY is still in a tough spot but we now have at least one higher low over the past month. It will take a break above 109.00 to spark any kind of real rally but the conditions are there.

ECB leaves key rates unchanged in July monetary policy meeting

  
  Analysis
#  #  #  #  #  #  #

European Central Bank monetary policy decision – 25 July 2019

  • Prior decision
  • Main refinancing rate 0.00%
  • Marginal lending facility 0.25%
  • Deposit facility -0.40%
  • Sees rates at present or lower levels at least through 1H 2020
  • Central bank stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards aim in a sustained manner
  • Says will examine options for tiering, potential QE
  • Orders review of options including tiered system for rates
  • Says needs highly accommodative policy for a prolonged time
  • Determined to act if inflation outlook falls short of its aim
Despite the central bank not acting here, the adjustment to the forward guidance and mentioning of further easing measures is just about as dovish as they can get. The part on examining options for rate tiering and QE highlights that and the former will at least be a relief for banks as cuts are set to come in September.
Of note, there’s a subtle tweak to the forward guidance with the ECB allowing for rate cuts now shifting from “rates at present levels at least through 1H 2020” to “rates at present or lower levels at least through 1H 2020″.
EUR/USD nudged higher initially on the rate decision to 1.1161 but after digesting the details, the pair has fallen to a low of 1.1119 before lingering around there now. Expect a more dovish Draghi to potentially send the pair below the year’s low of 1.1107 later on.

Ifo economist says that German economy faces a turbulent time ahead

  
  Analysis
#  #  #  #  #  #

Comments by Ifo economist, Klaus Wohlrabe, following the data earlier

Germany
  • Sees a slightly positive growth rate in 2H 2019 for Germany
  • But notes that recession is spreading in all important sectors in German economy
  • Says risk of disorderly Brexit has increased
  • Doesn’t believe that the ECB will loosen policy today
The early signs for Q3 haven’t been encouraging for Germany with the manufacturing sector in freefall as the recession in that area deepens. As that continues, the risk of spillover to the services sector will intensify and that won’t bode well for the economic outlook.
As for his comment on the ECB, I’m also leaning more towards that as the governing council may likely see fit to only change its forward guidance as they will only release their latest staff projections in September. That said, they will be skating on very, very thin ice in the mean time in managing the euro and inflation expectations.
Go to top