Daily Brief

Fed rattles its chain


The unexpected excitement on Wednesday came in the minutes of the April meeting of the Federal Open Market Committee. They showed that the committee was, for the first time, talking about talking about tapering the Fed’s asset purchase programme (though the t-word itself was not mentioned).

For months the Fed chairman had insisted that it was not the time even to be “talking about talking about tapering” the QE asset purchase programme. Last night’s minutes said: “A number of participants suggested that… it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.” The unexpected revelation sent the US dollar higher.

The dollar became the top performer as a result of the FOMC news, strengthening by an average of 0.5% and cutting its weekly loss to 0.3%. There were no significant US economic statistics to help or hinder the currency. At the back of the field the Northern Scandinavian crowns had the worst result, both falling 0.3%. Ignoring the dollar, the day’s spread was once again quite narrow, with the second-placed yen 0.3% firmer. Sterling was on average unchanged.



As usual, recently, there was no escape from the consumer price index data. Britain had opened the batting ahead of the London session with headline inflation at 1.5%. South Africa came next with a 14-month high of 4.4%. The Eurozone followed with a headline rate of 1.6% and Canada rounded off the day with a 3.4%. None of the numbers was far adrift from forecast.

The curiosity was the South African figure of 4.4%. When set against the Reserve Bank’s benchmark repo interest rate of 3.5% it implies a negative real interest rate of 1%. Although no change is expected from the SARB policy meeting today, higher rates in the future cannot be ruled out.

Whilst Canada’s 3.4% inflation rate was a mere shadow of the 4.2% US reading last week it did not hurt the Loonie. Where the US Fed might be ready to discuss tapering its asset purchases, the Bank of Canada has already begun to do so. The quarter-cent difference yesterday was more a win for the USD than a loss for the CAD.


Jobs and PMIs

The Australian employment data, which appeared early today were the most important ecostats ahead of the weekend. After a couple of minutes’ hesitation, investors decided they were positive for the Aussie. It is flat on the day against the pound and on average. Tomorrow brings a welter of provisional purchasing managers’ index readings from around the world.

Although the Australian economy lost 31k jobs in April, they were balanced by 34k new fulltime positions and the rate of unemployment fell from 5.7% to 5.5%. The next important ecostats are the weekly US jobless numbers after lunch, accompanied by Canadian new house prices.

Friday begins with UK consumer confidence and the provisional Australian PMIs. Britain’s breakfast-time statistics at 0700h cover retail sales for April, expected to be up by 7.2% from the same month last year. The provisional European PMIs include the UK readings at 0930h. Canadian retail sales follow after lunch, as do US existing home sales.


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