Comments from Fed Presidents were in the news overnight. San Francisco Fed President Daly commented that she is in a “watch and see position right now” regarding further interest rate cuts. She also stated that if inflation data came in “more robust, that would be a confidence-generator for me. Her comments seem to lead to a “no” rate cut vote next month. Richmond Fed President Barkin stated in a speech that the “national economy appears great”, with unemployment at a 50-year low and solid GDP growth. He also said that consumers “feel confident and are spending”. He reiterated that last month’s rate cut was a “mid-cycle reduction” whose goal was to provide a “little insurance for continued growth of the economy and strength of the labor market”. Comments like these could make the September FOMC meeting very interesting.
Italian Prime Minister Conte has been given a mandate to form a new government. The opposition Democratic Party (PD) has set aside their differences with the Five Star Movement (M5S) to form a new coalition. This agreement could put an end to the political problems coming from Italy that have weighed on the EUR earlier this month. ECB Governing Council member Ewald Nowotny commented that “in past years we perhaps followed markets’ expectations too intensively and avoided disappointing them”. He commented that inflation of 1.6% is within target and requires no monetary policy measures. There is an ECB meeting next month and expectations are for lower rates and more quantitative easing (QE).
PM Johnson received permission to suspend Parliament until Oct 14. This gives MPs less time to try to prevent a “no deal” Brexit. Reaction from the opposition has ranged from uproar to outrage as the opposition looks to fight this move. The GBP initially moved lower on the news but has since steadied. Parliament will have very little time to debate PM Johnson’s agenda when they return as the Brexit deadline is Oct. 31. There is a possibility that the opposition side will look at legal action to reverse PM Johnson’s action.
The Japanese Yen moves back and forth as traders follow the US-China trade negotiations. The latest comments from China’s commerce ministry that they are opposed to escalating trade tensions have moved traders to take some “risk” off. However, as we have seen in the past these markets react to the slightest comments from either side. The tendency will remain towards the “risk-on” bias.
As oil moves, so goes the Canadian Dollar. Data released on Wednesday from the Energy Information Administration showed a fall in US oil inventories, which helped oil prices rise. Positive trade comments also helped the Loonie. As a commodity based currency, the Canadian Dollar is very much attached to the oil market and seems content to follow that for the time being.
China’s onshore Yuan weakened slightly for an 11th straight trading session. The comments from a Ministry spokesman seem very positive. They “oppose the escalation of a trade war”, “hope the US will meet China halfway on trade issues”, and they are “willing to resolve the issue via a calm attitude”. These comments have had seen a positive reaction in the equity markets. The “ball” now seems to be in the U.S’s “court”.