Federal Reserve building with twenty dollar bill on grunge texture

China Consumer Prices Slump on Weak Demand as the Focus Shifts to the FED

Earlier in the Day:

It was a relatively busy start to the day on the economic calendar this morning. The Aussie Dollar was in action in the early part of the day, with inflation figures from China also in focus.

While the markets considered the stats, the focus is on the FOMC meeting and the release of their economic projections later today. Hopes are that the FED assures support while avoiding to spook the markets with any, particularly dire forecasts.

Looking at the latest coronavirus numbers,

On Tuesday, the number of new coronavirus cases rose by 128,377 to 7,316,820. On Monday, the number of new cases had risen by 102,703. The daily increase was higher than Monday’s rise and 112,694 new cases from the previous Tuesday.

Germany, Italy, and Spain reported 843 new cases on Tuesday, which was up from 783 new cases on Monday. On the previous Tuesday, 938 new cases had been reported.

From the U.S, the total number of cases rose by 19,894 to 2,045,549 on Tuesday. On Monday, the total number of cases had risen by 18,206. On Tuesday, 2nd June, a total of 21,208 new cases had been reported.

For the Aussie Dollar

Consumer sentiment improved further in June, with the Westpac Consumer Sentiment Index rising by 6.3% to 93.7. Economists had forecast a 2.2% rise to 90.0. In May, the index had risen by 16.4% to 88.1. The upward momentum in May and June saw confidence return to around pre-COVID-19 levels.

According to the latest Westpac Report,

Looking at the sub-components:

  • The economy, next 12-months sub-index increased by 8.4% to 77.2, with the time to buy a major household item jumping by 10.1%.
  • Time to buy a dwelling slipped by 0.05% following May’s 31.8% jump, while the House Price Expectations Index increased by 10.5%.
  • Family finances vs a year ago rose by 3.6% to 77.0, with family finances next 12 months rising by 3.3% to 105.3.
  • The economy next 5-years increased by 6.4%, with the Unemployment Expectations Index falling by 7.0% to 127.2.

The Aussie Dollar moved from $0.69393 to $0.69440 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.06% to $0.6965.

Out of China

Inflationary pressures continued to ease in May. The annual rate of inflation softened from 3.30% to 2.40%, with consumer prices falling by 0.8%, month-on-month. Economists had forecast an annual rate of inflation of 2.7%.

Wholesale deflationary pressures persisted in May, with wholesale prices falling by 3.7% year-on-year. In April, wholesale prices had fallen by 3.1%.

The Aussie Dollar moved from $0.69610 to $0.69522 upon release of the figures.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.06% to ¥107.70 against the U.S Dollar, with the Kiwi Dollar was up by 0.08% to $0.6519.

The Day Ahead:

For the EUR

It’s a particularly quiet day ahead on the economic calendar. There are no material stats due out of the Eurozone to provide the EUR with direction.

A lack of stats will leave the EUR in the hands of market risk appetite in the early part of the day.

Late in the day, the focus will shift to the FOMC monetary policy decision and Economic and interest rate projections.

There are plenty of unknowns, including FOMC member views on the pace of the economic recovery and interest rate outlook. Expectations are that Committee members will refrain from talk of negative rates…

At the time of writing, the EUR was up by 0.03% to $1.1343.

For the Pound

It’s another particularly quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.

The lack of stats will continue to leave the Pound in the hands of Brexit and market risk sentiment. That recent trend of finding support from a pickup in risk appetite could break, however. The chances of a hard Brexit rise each day as we approach the end of June… COVID-19 numbers are not too impressive either. The UK now has more COVID-19 cases and deaths than the likes of Italy and Spain.

At the time of writing, the Pound was up by 0.05% to $1.2735.

Across the Pond

It’s a busy day ahead on the U.S economic calendar. May inflation figures are due out in going into the U.S session.

We don’t expect May inflation figures to have too much influence, however, with the FOMC in action late in the day.

While the markets are expecting the FOMC to leave interest rates unchanged…. We can expect the following:

  • The FED will likely close the door on any hopes of negative rates that will likely rile U.S President Trump. Well, assuming that there are no more economic shocks near-term.
  • Last week’s labor market numbers may cause some of the more bullish members of the FOMC to even pencil in a rate hike within the next 18-24 months.
  • A large degree of economic uncertainty, however, should leave the FED a little flat-footed on any major commitments… Employment may have been better than expected last week but that doesn’t mean a sub-10% unemployment rate before the end of the summer.
  • Providing the markets with some optimism, without pulling the plug on an extremely accommodative market environment would make sense.
  • Some committee members, however, will have concerns over-inflated asset prices amidst the current economic environment.
  • Finally, on the QE front, some guidance on what lies ahead in terms of size and duration will also be likely

Whatever the FED announces, expect Trump to be busy on Twitter and it’s unlikely to be too complimentary of the FED Chair.

As we have seen in the past, the markets don’t appreciate such heavy-handedness… Any shocks from the FED could be exasperated by the U.S President.

The Dollar Spot Index was up by 0.06% to 96.385 at the time of writing.

For the Loonie

It’s another particularly quiet day ahead on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

That will leave the Loonie in the hands of the weekly EIA inventory numbers, market risk appetite, and ultimately the FED…

At the time of writing, the Loonie was up by 0.16% to C$1.3396 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.