There is a Lot to cram into what will likely be ……
… a shortened trading day. With the US closed tomorrow for their Independence Day holiday, both the US bond and equity markets are closing early today. Ahead of that we have Spanish unemployment numbers, a Riksbank policy meeting result, EU unemployment data, the ECB policy meeting result plus the usual press conference from Trichet to follow and then the very important US employment data.
The Dollar yesterday had a reasonably stable time of it, with reassuring manufacturing data and pending home sales data underpinning both the currency and the stock market. The Greenback was largely unfazed by the worse than expected ADP employment data yesterday afternoon. The number of American jobs shed by US private companies in June was less than in May but still disappointing compared to the market’s expectation. This doesn’t bode well for the official jobless figures today, within which the overall rate is expected to reach 9.7%.
Markets also took in their stride, rumours that circulated late in the afternoon that China has asked to debate proposals for a new global reserve currency at next week's Group of Eight summit in Italy and that the issue could be referred to briefly in the summit statement that is released at its culmination. This morning, the Chinese Vice Foreign minister is quoted as saying that he had not heard of a request for a reserve currency debate at the up-coming G8 meeting. This sounds more like he does not want to rock the currency question boat, hence playing down speculation on active discussions in replacing the US dollar as reserve currency, while at the same time emphasising that in China's view current arrangements are not desirable. All in all a bit of a ‘push-me, pull-you’ day for the Dollar ahead of what might prove to be a livelier, shortened session today. Adding to the Yuan debate, Dow Jones quoted an IMF source saying that the Chinese currency exchange rate was still 'substantially undervalued'. The report also quoted a source saying China may reset its Yuan exchange rate policy if the US Dollar weakened.
In Europe, we firstly get confirmation that the recession in Spain is still biting hard with unemployment expected to show a continuation of the demise in their economy. This data, along with yesterday’s jobs data from Ireland, will likely push the EU unemployment up above last month’s 9.2% and worry markets ahead of the ECB policy meeting. Sweden announce the outcome of their policy meeting which might very well produce an unexpected 0.25% cut in their official rate down to 0.25%. The market also wants to hear of further unconventional policy measures with the possibility of an announcement of asset purchases. Explicit QE measures will likely pressurise the Krona in the short term. The ECB will announce a ‘no-change’ result for their official rate, still at 1%, but the market will hope for any new policy announcements. Given the size of the recent 1-year repo operation, I think that the Central Bank will keep whatever powder they have left, dry. Euro might soften in the short period between ECB and non-farms payroll data but any move will be short-lived.
From the UK we are scheduled to get a further set of PMI figures - this time CIPS construction which might surprise on the upside… The DMO are also active again, looking to sell £2.5 billion of 2039 gilts. This follows yesterday’s bond buyback operation which caused gilt prices to slump. The BoE allocated more than 75% of its funds on offer to just one specific gilt, buying none of the benchmark March 2019 on offer and causing yields to rise by as much as 15 basis points as prices fell.
In the US, Treasuries jumped and the yield curve steepened following Yellen’s comments on Tuesday night that US interest rates could stay at or near to zero for the next few years.
Today’s Central Bank speakers, aside from Trichet and Sweden’s Ingves following their respective policy meetings are both from the BoE. Tim Besley speaks at 9.25 this morning and the new MPC recruit, Miles, testifies before the Treasury Select Committee on his appointment.
Today’s Data and Major Events:
08.00 EU Spanish unemployment (last -30K)
08.30 SW Riksbank policy meeting outcome - followed by press conference
09.00 EU Spanish consumer confidence - expected 63.5
09.30 UK CIPS construction PMI (last 45.9)
10.00 EU PPI and unemployment data
12.45 EU ECB meeting result followed by Trichet’s press conference at 13.30
13.30 US weekly jobless claims (expected 610K after last 627K)
13.30 US unemployment data - NFP expected -425K unemployment 9.6%
15.00 US factory orders (expected +0.8 after last +0.7)