Forex Markets: FED’s Dovish Signals, ECB QE and Global Growth

Forex Markets: FED’s Dovish Signals, ECB QE and Global Growth

Good morning. Central banks are signalling rate cuts may be on the horizon, Donald Trump made big proclamations about a post-Brexit U.K. and trade tensions continue to underlie it all. Here’s what’s moving markets.

Economic Calendar:

EU PMI

EU Retail Sales

US ADP Non Farm

US PMI

Crude Oil EIA Inventories

Dovish Signals
The shadow of a potential interest rate cut from the Federal Reserve is looming large again. Chairman Jerome Powell acknowledged an openness to cut should trade tensions indeed start to sap economic growth. Still, the Chicago Fed’s Charles Evans stopped short of that and hinted the data aren’t telling him a cut is necessary yet, while lessons from Canada suggest changing policy is tough. A host of further Fed officials will be taking part in events on Wednesday and after bond bulls were stung by Powell’s dovish words, they and happier stock investors given a fillip by the comments will be listening intently.

Don’t Forget the ECB
Europe has rate headaches of its own to contend with too. Inflation is undershooting target and the state of the economy is looking precarious, prompting JPMorgan Chase Co. to push back its estimates on when Western Europe’s central banks will start raising rates and ABN Amro to predict quantitative easing will kick off again next year. European services PMI data is coming up on Wednesday and the next European Central Bank decision is on Thursday, so once the future path of the Fed is more clear, the ECB will take center stage.

Not the NHS
U.S. President Donald Trump will move on to Ireland after his trip to the U.K. in which he promised a “phenomenal” trade deal, albeit one that many analysts say is likely to run into the same roadblocks as other talks the U.S. has held. One sticking point would likely be the National Health Service, which the president hinted could be opened to American companies before backtracking. The Conservatives also agreed to accelerate the process of replacing Theresa May, meaning the U.K. will have a new prime minister in place by July 26. Front-runner Boris Johnson warned the Tories face extinction should Brexit be delayed again.

Global Growth
The World Bank cut its global growth forecast due to trade growth slowing to the weakest since the financial crisis a decade ago, another indication of the pain that trade jitters are causing. Chinese President Xi Jinping remains staunch, however, saying China’s economy is improving noticeably and can manage the risks it faces. This weekend, U.S. Treasury Secretary Steven Mnuchin will meet with China’s central bank governor at the G-20 finance ministers summit, a chance to begin work on breaking the impasse between the two.

Coming Up…
Asian stocks were given a boost by Powell’s comments and Treasuries steadied after the drop on Tuesday. Data on U.S. crude inventories will also drop later in the day and oil prices were knocked back by reports the numbers will signal a supply glut. JPMorgan Chase & Co. boss Jamie Dimon will speak at a biotech conference in Philadelphia and watch for any read-across for Europe’s software sector after another set of decent numbers from Salesforce.com Inc.

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