Dollar higher as US rate expectations, US bond yields rise

•     Dollar higher as US rate expectations, US bond yields rise

–    St. Louis Fed President Bullard sees “better than 50-50” chance of a hike in Sept

–    Market prices in a bit more risk for next week’s FOMC meeting

–    Heavy US corporate bond issuance also pushes up US bond yields

–    BUT continued rally in European bonds sends Bund yields lower

–    US-Germany spread moves in favor of US, USD strengthens

•     Oil, other commodities continue to fall

•     NZD rises as market feels decline has gone too far

–    Market discounting possibility of more than 25 bps cut at Thursday’s RBNZ meeting

–    Likelihood is that expectations are disappointing, NZD to recover

•     AUD slipping after RBA minutes show weak economy in Q2, RBA hopes for further decline in AUD (as usual)

•     JPY weak after minutes show some Policy Board members expect recovery to slow in Q2

•     TRY plunges on bombing; USD/MXN hits record high as oil falls

Today: no major indicators out

Confidence returns, with a twist: commodity prices still falling

•     Confidence returns, with a twist:  commodity prices still falling

–    VIX index collapses, indicating less fear about the future; gold falls sharply

–    Eurozone peripheral bond spreads tighten

–    Confidence in US economy rises as inflation accelerates, housing market improves

–    As confidence returns, carry trades come back into fashion

–    Yet oil, copper and other commodities continue to fall

•     Contrast may be due to supply shock or change in source of growth

–    Increase in supply is depressing price of oil & iron ore, maybe other commodities too

–    Change in locus of growth from EM (China) to DM (US, Eurozone) means less demand for commodities

•     Shift should help EM countries that are commodity importers

–    RUB, TRY, ZAR, MXN are highest-yielding EM currencies; RUB and MXN linked to oil

–    TRY fell sharply Friday but was best-performing EM currency we track over the week

•     Today: no major indicators

•     This week:

–    Tue: BoJ minutes of 18/19 June meeting; RBA minutes of July meeting

–    Wed:  BoE minutes of July meeting; Australia Q2 CPI forecast to accelerate

–    Thu: RBNZ expected to cut rates 25 bps = NZD negative?

–    Fri: PMI day in Europe, Markit PMI in US

The fickle market – Greece is forgotten, now it’s back to monetary policy divergence

•     The fickle market – Greece is forgotten, now it’s back to monetary policy divergence

–    Resolution (for now) of Greek problem is helping European stocks & peripheral bonds, but not EUR as US and European monetary policy differences come into focus

–    Yellen reiterates that Fed wants to tighten, while Draghi repeats he’s willing to do whatever necessary if inflation falls again. Fed funds rate expectations rise.

•     GBP also benefitting

–    Carney notes BoE wants to raise rates within 3 years; who else is saying this?

•     Commodity currencies to suffer

–    Weak demand from China = weak economic activity = weak inflation = lower interest rates, weak currencies

–    Oil prices now back to March levels as Iran starts to come back on stream

•     Draghi increases ELA, suggests Greece may be included in QE

•     Today:

–    Eurozone: No major indicators. Germany votes on Greek bailout

–    Canada:  CPI for June

–    US: CPI for June. Both headline & core CPI expected to accelerate = USD-positive. Preliminary U of M consumer sentiment for July. Housing starts & building permits for June: starts expected to be higher, permits lower = mixed. 

Speakers:  Fed Vice Chairman Fischer

Dollar gains vs all currencies as Yellen repeats her view

•     Dollar gains vs all currencies as Yellen repeats her view

–    Yellen says FOMC intends to hike this year as long as the data cooperates

–    Says she’d be willing to hold a press conference if they hike at a meeting with no press conference scheduled = Oct, Jan now possible

–    Fed funds rate expectations ease nonetheless as US manufacturing stagnates

–    Nonetheless USD up against all currencies; commodity currencies particularly weak as oil, copper, milk prices fall

•     Bank of Canada cuts rates 25 bps as expected; CAD weakens

–    Cuts growth forecast, leaves door open for further easing

•     NZD falls on 9^th consecutive fall in milk prices, below-target inflation

•     Greek parliament passes austerity measures needed to win bailout

•     Today:

–    Eurozone: ECB policy board meeting is the highlight. No change in policy likely; focus will be on what Draghi says in the press conference about aid to Greece. Indicators:  Eurozone final CPI for June.

–    UK:  BoE Gov. Carney speaks at the Magna Carta lecture series

–    US: Fed’s Yellen gives 2^nd half of her biannual report to Congress. Not much impact expected as the speech is the same as yesterday. Indicators:  Initial jobless claims

US indicators weak, Fed funds expectations retreat, USD falls

•       US indicators weak, Fed funds expectations retreat, USD falls

–      US retail sales unexpectedly decline in June, small business optimism falls

–      Fed funds rate expectations retreat, USD falls vs most currencies

–      Today’s trend depends on Yellen

•       China GDP, retail sales, IP, FAI beat expectations; stocks don’t care

–      Q2 GDP is +7.0% vs expected 6.8%, indicating stimulus measures starting to work

–      But stocks are lower anyway as market thinks maybe govt will ease off

–      AUD, NZD both higher = tracking economy, not stocks

•       Bank of Japan holds pat

–      Lowers FY16 inflation forecast but keeps FY17 forecast unchanged

–      Wait till formal revision of forecasts in October

•       Market waiting for Yellen’s comments today

–      Said on Friday that “I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate...” But once or twice?

•       Today:

–      UK: Unemployment for May expected to decline, average earnings rise = GBP-positive

–      Sweden:  Minutes of July Riksbank meeting

–      Canada:  Bank of Canada expected to cut rates 25 bps = CAD-negative

–      US: Industrial production for June expected to rebound; Empire State manufacturing index for July expected to improve

Expectations of a Fed rate hike are back in focus

•      Expectations of a Fed rate hike are back in focus

•      The market shift its attention back on Fed rate hike expectations after Greek debt crisis talks finally reached an agreement.

•      With Grexit seemingly averted, investors will focus on the semi-annual testimony by Fed Chair Yellen and whether she will give any hints regarding the timing of a rate hike.

•      However, the Greek drama has still to enter its final act as the Greek PM must pass a series of unpopular legislations in order to rebuild trust and start negotiations on a new bailout program.

•      This could keep EUR under selling pressure, while Monday’s relief rally in stock markets could continue today but any signs of inability to pass the bills are likely to pause any advances.

•      Overnight we had a relatively quiet session with AUD the only exception

•      AUD/USD strengthened after Australia’s NAB business conditions and business confidence indices both increased in June from the previous month.

•      Today:

•      Germany: ZEW survey for July. Expectations are for another decline in the indices, which could add to the evidence that the German economy is losing momentum.

•      UK: CPI for June. The focus will probably be on the core figure and on any signs of positive upside momentum in prices. 

•      Sweden: CPI for June is expected to fall into deflation again. This could be SEK-negative.

•      US: Retail sales for June. A positive surprise in June’s figure is needed to keep confidence up and USD supported. NFIB small business optimism for June is also coming out.

•      Speakers: BoE Governor Mark Carney testimony by The House of Commons Treasury Committee.  

Greece fights against a temporary Grexit plan

•      Greece fights against a temporary Grexit plan

•      Eurogroup meeting on Saturday ended with no deal, resumed on Sunday…again no deal!

•      Eurozone leaders’ summit started on Sunday and still no deal has being reached.

•      Few details available of what a compromise entails show two points Greece is resisting:

•      Greece is against the involvement of the IMF in the post 2016 rescue package (the only institution that recognizes the country needs debt relief).

•      Creditors demand state assets worth of 50bn to be privatized with the proceeds transferred to an external fund to pay down the debt

•      If no deal is agreed, Greece will be offered a five year “time-out” from the Eurozone, to restructure its debts.

•      EUR opened with a small gap but recovered, Asian stock markets moved higher. DAX and Eurostoxx could advance a bit as well.

•      The highlight of the week will be Fed Yellen’s semi-annual testimony to Congress (Wednesday & Thursday):

•      Given the international developments in Greece, China and the IMF’s call for Fed to remain on hold until 2016, we will be looking to see if there are any comments to indicate that the Fed is still on track to raise rates.

•      Today: 

                    No major releases on the schedule, focus will be on the                       outcome of the Greek talks

•      This week:

•      Tuesday: UK CPI for June, German ZEW survey for July

•      Wednesday: Bank of Japan and Bank of Canada policy 

     meetings: Expectations are for the BoJ to remain on hold, while the BoC to cut rates by 25bps = CAD-negative.

•      Thursday: ECB policy meeting. The focus will be on the press conference after the meeting and much will depend on what will happen with Greece today.

Friday: US and Canada CPI rates for June.

Greece seems ready to compromise

•     Greece seems ready to compromise

–    Cabinet approves a plan that is similar to one presented by the creditors last month, including tax increases and concessions on pensions.

–    Plan now goes to creditors, who will then submit it to Eurozone finance ministers

–    Probability of GREXIT now back below 50%, but still higher than it was

•     China stocks rally again = up around 10% in two days

–    Continued impact of government measures improve sentiment, although nearly half of    the stocks are still suspended so the real test is yet to come

•     Greek compromise, China rally boosts risk-on sentiment

–    Commodities gain, particularly oil

–    Dollar weakens despite higher Fed fund rate expectations. Commodity currencies are the best performers, while safe-haven JPY and CHF are the only losers

–    Whether it continues depends on what happens over the weekend with Greece and whether China stocks can continue to stabilize

•     Today:

–    Eurozone: French industrial production for June

–    Norway:  CPI for June

–    Canada:  unemployment for June

–    US: Wholesale inventories for May

–    Speakers:  Fed Chair Yellen to discuss the Fed’s economic outlook. First appearance since June FOMC meeting, ahead of her semi-annual testimony to Congress.

China hurts markets as well as Greece

•     China hurts markets as well as Greece

–    Most commodities down yesterday as fears of Chinese growth permeate markets

–    Commodity currencies were the worst performers

–    SEK also suffers due to its exposure to Europe, global growth

•     Greece gets Sunday deadline

–    Country must present plan by Thursday evening. Its plan must accept previous EU proposals and probably go even further.

–    Entire EU (including non-Eurozone countries) to meet Sunday night to discuss. Failure to agree then would mean Greece being ejected from the Eurozone, probably by having the ECB cut off aid to the banking system.

–    Greek official says the country will present today the “common ground” for agreement

•     Today:

–    Eurozone: No major indicators

–    UK:  Tax and spending changes in the Budget

US: Minutes of the June FOMC meeting. Attention will focus on changes in forecasts for Fed funds and particularly how many rate hikes the members expect this year. Also what impact will international events have on their plans for domestic policy