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Market Wrap
Trends were able to continue with the economic calendar being void of any real tier 1 data. What data was released eluded to US inflation expectations rising as we wait for the US PPI data tomorrow. Today was Eurozone and Japan focused which translated in the EURUSD along with the USDJPY rising into the London close. The single currency was affected by a relatively weak US dollar and ECB talking heads. In Japan Prime Minister Yoshihide Suga and his Cabinet are set to face a no-confidence motion tomorrow. The motion was submitted by four opposition parties who feel that the administration need to create a supplementary budget to fight the ongoing coronavirus pandemic in the country.
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The leader of the main opposition Yukio Edano commented on the motion: “There are many things that deserve distrust, such as the fact that we may not respond to requests for extension of the session, and the situation with the Suga Cabinet, which has not been able to protect the lives and livelihoods of the people.“
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Member of the European Central Bank’s (ECB) Executive Board Isabel Schnabel was in the news today offering potential options that would see the ECB adjust its monetary policy operations more gradually in line with sustainability considerations. Schabel argued that “it is imperative that central banks ambitiously explore the scope for adjusting their monetary policy operations to take climate change into account within the limits of their legal mandate.” After making comments that following a green bond agenda could “adversely affect market liquidity or unduly influence the price discovery mechanism” in private sector asset purchases.
Another member of the European Central Bank (ECB) Governing Council Francois Villeroy de Galhau commented on the ECB’s stimulus will be extended at least as much as the one created by the US Federal Reserve.
It does seem that the central banks tend to follow the Fed in both actions and wording within forward guidance. So it makes sense everyone is waiting for Jerome Powell to address the markets tomorrow before making any early moves.
The NY Fed Survey of Consumer Expectations for May showed expectation one-year-ahead for inflation had risen for the seventh consecutive month to a new series high of 4%, while the three-year horizon inflation expectation grew to 3.6%. The FOMC is only targeting an average of 2% across a year, so this shows how hot the economy is running currently.
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The US dollar had rallied to the top of the trading range last week but was unable to carry on with that particular trend today. The US dollar index is currently at $90.45 and looks set to hover around the $90 until Wednesdays FOMC meeting.
