I. Market focus:
The U.S. dollar remained under pressure at the beginning of Friday's session, due to the U.S. President Donald Trump’s criticism of the Fed for increasing interest rates. Trump noted he is doing everything to stimulate the U.S. economy, while rate hikes “can put the U.S. at a disadvantage”. “I am not happy about it (raising rates). But at the same time I’m letting them do what they feel is best,” Trump added. Apparently, the U.S. president forgot about the inflation and the need to tame it. Nonetheless, despite the irrationality of the statements, the dollar reacted to them with a decline, which, however, is not expected to last long, since it is unlikely that the Fed will listen to Donald Trump's recommendations on monetary policy, and the process of tightening will be continued.
The final session of the week is not to be busy with macroeconomic reports and events. The only important report will be Canadian inflation statistics, which will be released at 12:30 GMT.
The stock market participants continue to assess the quarterly reports of companies, as the second-quarter earnings season rolls. Today, their quarterly results will post General Electric Co. (GE), Honeywell International Inc. (HON) and Schlumberger Ltd. (SLB).
II. The market highlights are:
The data from the Labor Department reported on Thursday the number of applications for unemployment benefits unexpectedly fell last week, pointing to a tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 8,000 to 207,000 for the week ended July 14. That was the lowest reading since December 1969. Economists had expected 220,000 new claims last week. Claims for the prior week were revised upwardly to 215,000 from the initial estimate of 214,000. Meanwhile, the four-week moving average of claims fell 2,750 to 220,500 last week.
The Federal Reserve Bank of Philadelphia announced on Thursday its index of current manufacturing activity in the region rose to 25.7 in July from an unrevised reading of 19.9 in June. More than 44 percent of the manufacturers reported increases in overall activity this month, while 19 percent reported decreases, the FRB of Philadelphia said. The details of the report were mostly higher. The indexes for new orders (+13.5 points m-o-m to 31.4 in July), unfilled orders (+13.7 points m-o-m to +11.0), inventories (+4.2 points m-o-m to 14.4), the prices received (+3.1 points m-o-m to 36.3) and prices paid for inputs (+11.1 points m-o-m to 62.9), as well as the delivery times index (+1.4 points m-o-m to 11.0), all increased. At the same time, the indicators for the shipments (-4.0 points m-o-m to 24.7) and employment (-13.6 points m-o-m to 16.8) dropped.
The Conference Board reported on Thursday its Leading Economic Index (LEI) for the U.S. rose 0.5 percent in June to 109.8 (2016 = 100), following a 0.2 percent increase in May. Economists had forecast an increase of 0.4 percent. Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, said “The U.S. LEI increased in June, pointing to continuing solid growth in the U.S. economy. The widespread growth in leading indicators, with the exception of housing permits which declined once again, does not suggest any considerable growth slowdown in the short-term.” Meanwhile, the Conference Board Coincident Economic Index (CEI) for the U.S. went up 0.3 percent to 103.9 in June, and its Lagging Economic Index (LAG) for the U.S. also rose 0.3 percent to 105.4.
The Ministry of Internal Affairs and Communications reported on Thursday that Japan’s consumer prices rose 0.7 percent y-o-y in June, the same increase as in the prior month. That was below economists’ forecast for a 0.8 percent y-o-y gain. Individually, the fuel, light and water charges (+3.3 percent y-o-y) rose the most last month, followed by prices for medical care (+2.0 percent y-o-y), transportation and communication (+1.4 percent y-o-y) and culture and recreation (+0.8 percent y-o-y). On the contrary, prices for furniture and household utensils (-1.0 percent y-o-y) fell the most, while apparel prices were flat. The nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 0.8 percent y-o-y in June, following a gain of 0.7 percent y-o-y in May. That was the highest reading since March and in-line with economists’ expectations.
III. Market Situation
The currency pair EUR/USD traded moderately higher, as the U.S. dollar demonstrated the broad weakness after the comments of the U.S. President Donald Trump. Trump, in an interview with CNBC, said he does not like the Federal Reserve’s rate actions rate actions and said the central bank could put the U.S. economy at a “disadvantage.” “I am not happy about it (raising rates). But at the same time, I’m letting them do what they feel is best,” Trump noted. His remarks were seen as controversial as presidents typically refrain from commenting on monetary policy. Later, the White House issued a statement that Trump did not mean to influence the central bank’s decision-making process. With an almost empty economic calendar in the EU and the U.S. ahead, investors will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.1744 (high of July 17). Support level - $1.1575 (low of July 19).
The currency pair GBP/USD rose slightly, continuing its retreat from the new 10-month low, which was set the day before after the release of a weak report on the UK’s retail sales. The main catalyst behind the pair's growth was the broad weakness in the U.S. currency. Market participants are now awaiting the release of the UK’s data on the public sector net borrowing (PSNB) for June. Apart from the data, the focus of market participants will also be on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3082 (high of July 19). Support level - $1.2957 (low of July 19).
The currency pair AUD/USD fell sharply in early trading, but then erased all the losses and refreshed the session’s high. The Australian dollar’s drop was triggered by increased trade concerns, which, in turn, caused a fall of the Chinese yuan to a one-year low against the U.S. dollar. China is Australia's main trading partner. Meanwhile, the reason the AUD/USD pair rallied was the resumed decline of the U.S. currency. Resistance level - AUD0.7442 (high of July 16). Support level - AUD0.7310 (low of July 2).
The currency pair USD/JPY traded slightly lower, as the U.S. dollar remained under pressure. The pair’s performance was also influenced by the Ministry of Internal Affairs and Communications’ report, which revealed that Japan’s consumer prices rose 0.7 percent y-o-y in June, the same increase as in the prior month. That was below economists’ forecast for a 0.8 percent y-o-y gain. Meanwhile, the nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 0.8 percent y-o-y in June, following a gain of 0.7 percent y-o-y in May. That was the highest reading since March and in-line with economists’ expectations. Resistance level - Y113.17 (high of January 19). Support level - Y110.76 (low of July 11).
U.S. stock indexes closed lower on Thursday, as investors assessed a slew of mixed earnings, and trade tensions rose on news the European Union (EU) could impose retaliatory measures on U.S. goods if Washington slaps tariffs on the EU cars. In addition, market participants reacted negatively to the U.S. President Donald Trump’s criticism of the Fed for increasing interest rates. The focus also was on the weekly data on initial jobless claims and the Philadelphia Fed manufacturing index for July. The Labor Department’s report revealed the number of applications for unemployment benefits unexpectedly fell last week, pointing to a tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 8,000 to 207,000 for the week ended July 14. That was the lowest reading since December 1969. Economists had expected 220,000 new claims last week. Meanwhile, the Federal Reserve Bank of Philadelphia announced on Thursday its index of current manufacturing activity in the region rose to 25.7 in July from an unrevised reading of 19.9 in June. More than 44 percent of the manufacturers reported increases in overall activity this month, while 19 percent reported decreases, the FRB of Philadelphia said. The details of the report were mostly higher.
Asian stock indexes closed mostly higher on Friday, despite a weak lead from Wall Street. The focus was on news the People's Bank of China (PBoC) weakened its USD/CNY fixing by 0.9 percent to 6.7671, the lowest since July 14, 2017. Japan’s Nikkei underperformed as the yen firmed against the U.S. dollar, putting pressure on the Japanese large export-oriented companies.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 2.85% (+1 basis points)
Yields of German 10-year bonds hold at 0.27% (0 basis points)
Yields of UK 10-year gilts hold at 1.19% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in September settled at $68.34 (+0.15%). The crude oil prices rose slightly, responding to the weakness in the U.S. currency and Saudi Arabia’s prediction of “substantial stock draws due to robust demand and seasonality factors in the second half” of the year. Market participants are now awaiting weekly data on the U.S. oil rig count from Baker Hughes.
Gold traded at $1,222.80 (-0.04%). Gold prices consolidated near the opening level, as the fall was limited by the negative dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, dropped 0.16 percent to 95.00. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Current account, unadjusted
Retail Sales ex Autos
Bank of Canada Consumer Price Index Core
Consumer Price Index
Baker Hughes Oil Rig Count
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