The US Dollar and global equities are edging higher this morning after no news of a missile launch this past Saturday by North Korea. Hurricane Irma is also now reduced from having hurricane winds to that of a tropical storm, a sigh of disaster relief after Mexico experienced the worst earthquake in a century last week.
Flight to quality trades were on the forefront of the markets’ mind as treasury yields dropped 9-10 basis points across the curve over the past week. For example, the 10-year treasury declined ten basis points to 2.06%, though have since recovered 3.7bps. Conversely, gold was up 1.7% over the week trading around $1,352. WTI oil prices also took a beating, as Irma headed for Florida and possibly the Gulf. Crude oil dipped below $47.50, before closing the week at around $48.30.
The European Central Bank met on Thursday and while the bank kept growth and inflation outlooks unchanged, it did signal the need to wind down its EUR 60 billion a month buying program. President Draghi suggested that a decision regarding the stimulus program would be made by October, perhaps awaiting the Fed to act first. The Euro reached almost three-year highs against the greenback this week.
Closer to home, Federal Reserve representatives William Dudley and Esther George noted how low inflation concerns continue to linger, but emphasized the need to raise rates. Dudley said that the hurricanes could affect the timing of rate hikes., according to news reports.
Separately, the Fed’s vice-chair, Stanley Fischer announced his intention to resign in October, eight months before his term is to expire in June. Fischer’s departure provides the Trump administration another opportunity to shape the Fed and possibly policy going forward. Earlier in the week, it was reported that the administration is considering at least six candidates to serve as chairman of the Fed. Current chairwoman, Janet Yellen’s term is expected to expire in February.
This week:
Outside of the market assessing the impact of Hurricane Irma, it will focus on a couple of key domestic economic releases over the week, including PPI data (Wednesday), CPI (Thursday), industrial production and retail sales (Friday).
Overseas, the focus will be on GBP CPI (Tuesday) and the Australian unemployment data (Thursday). Also on Thursday, the market will focus on the Bank of England’s rate decision. While the expectation is that rates will largely remain unchanged, the focus will be on the bank’s minutes and any possible shift in policy direction. While the economy’s performance has broadly met expectations, recent declines in the Sterling have fueled inflation concerns. The pound has weakened against the Euro nearing levels not seen since 2009. Further, the unknown economic impact of the ongoing Brexit negotiations continues to lurk, adding further pressure to the pound. The Swiss National Bank is also expected to announce its rate decision on Thursday.
