Awaiting FOMC Statement and Press Conference

June 13, 2018

The Federal Open Market Committee is widely expected to raise the federal funds target later today and will hold a press conference afterward. Markets will comb the new forecasts and dot-plot indication of individual FOMC member preferences regarding the future path of the interest rate.

Market attention will remain on central bank policy. The European Central Bank meets Thursday amid speculation that it may reveal the timing of the end of quantitative stimulus, having supplied 2.4 trillion euros under that program. And the Bank of Japan has a two-day policy review Thursday-Friday at which officials are likely to keep existing policy settings. Like the Fed, both the BOJ and ECB will be holding press conferences to explain their latest thinking.

The dollar is narrowly mixed this morning, with declines of 0.4% against the kiwi, 0.3% relative to the yen, 0.2% vis-a-vis the euro, Aussie dolar and peso and 0.1% relative to the yuan. The dollar strengthened 0.3% against sterling, which continues to be weighed down by Brexit uncertainties, and the greenback has also ticked up 0.1% versus the Swiss franc while holding steady versus the loonie.

Results from local elections in South Korea have not yet been announced but are awaited for any revelations they may shed on how the Kim-Trump summit is being perceived.

Turkey’s upcoming election on June 24th rattled the lira, which is down about 1% on the day. Much is at stake. Voters will be choosing parliament and the president and deciding if more powers will granted to President Erdogan, as he has sought. Polls suggest a tightening race. On-year growth in Turkish industrial production slowed from 7.6% in March to an 11-month low of 6.2% in April.

Share prices sank 1.3% in Hong Kong, 1.1% in Singapore, 0.5% in Australia but rose 0.4% in Japan. They are also up 0.4% in the U.K., 0.9% in Italy, 0.3% in France, and 0.2% in Germany.

Ten-year sovereign debt yields fell 9 basis points in Italy, 0.6 bps in Portugal, 0.3 bps in Greece and France, 0.2 bps in the U.K. and a basis point in Spain and The Netherlands as well as U.S. Treasury futures. The German bund and Japanese JGB yields are unchanged.

WTI crude oil settled back 0.5%, and Comex gold has ticked 0.1% lower.

The Central Bank of Iceland left its 7-day term rate at 4.25%, the level since a 25 basis point cut last October.

Having broken a 3-month streak of monthly declines with a 0.6% rise in March, Euroland industrial production more than reversed that revival by dropping 0.9% in April. Production recorded a 1.7% on-year advance, down from 3.2% in March and 5.1% last December.

Employment in the euro area went up 0.4% last quarter but posted a smaller 1.4% from a year earlier. For the prior three quarters, on-year jobs growth had averaged just over 1.6%.

British price data for May released today highlighted rising inflationary pressure. Consumer prices rose 0.4% on month and 2.4% on year. Retail prices were 3.3% higher than a year earlier. Producer output price inflation rose 0.4 percentage points to 2.9%, and producer input inflation shot up 3.6 percentage points to 9.2%.  House prices were 1.2% higher in April than March and 3.9% greater than a year earlier.

The Swiss PPI/imp0rt price index accelerated to a 3.2% on-year increase in May from 2.7% in April and 2.0% in March. Domestic producer prices were only 1.6% higher than a year earlier, but import prices soared 6.4%.

Swiss industrial production climbed 9.0% between 1Q17 and 1Q18.

Spanish consumer price inflation jumped one percentage point to 2.1% in May.

South African on-year retail sales growth slowed from 4.2% in February and 4.6% in March to just 0.5% in April.

President Trump, back from his summit in Singapore, asserted that North Korea no longer poses a nuclear threat, but how denuclearization will be monitored and how quickly it will proceed remain unspecified.

Treasury-compiled U.S. capital flow data will be reported late today, but first comes the FOMC announcement at 14:00 EDT, followed by Jay Powell’s press conference beginning at 14:30 EDT (18:30 GMT).

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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