Market Roundup
• Fed's Powell: Years of strong jobs, low inflation still ahead.
• US Jun Industrial Production MM, 0.6%, 0.6% forecast,-0.1% previous,-0.5% revised.
• US Jun Capacity Utilization MM, 78.0%, 78.3% forecast, 77.9% previous, 77.7% revised.
• US Jun Manufacturing Output MM, 0.8%, 0.7% forecast, -0.7% previous,-1.0% revised.
• US Jul NAHB Housing Market Index, 68, 68 forecast, 68 previous.
• US w/e 14 Jul Redbook YY, 3.3%, 5.2% previous.
• Trump says he has confidence in U.S. agencies on Russia, 'misspoke' in Helsinki.
• Rebuking Trump's embrace of Putin, U.S. lawmakers look to punish Russia.
• Trump, U.S. House Republicans to talk tax cuts at White House.
• UK PM May narrowly avoids defeat in parliament on trade laws.
• BoE's Carney: no deal Brexit would prompt interest rate review.
• ECB warns of "systemic" threat if Euribor reform efforts fail.
• Iran files suit in international court against U.S. over sanctions.
• Canada May Manufacturing Sales MM, 1.4%, 0.5% forecast, -1.3% previous, -1.1% revised.
Looking Ahead - Economic Data (GMT)
• No major data scheduled
Looking Ahead - Events, Other Releases (GMT)
• 14:00 Fed's Jerome Powell gives semi-annual testimony on economy and monetary policy before House Financial Services Committee - Washington
• 18:00 Fed issues the Beige Book of economic condition – Washington
Currency Summaries
EUR/USD is likely to find support at 1.1608 levels and currently trading at 1.1662 levels. The pair has made session high at 1.1705 and hit lows at 1.1647 levels. The euro slipped lower against the dollar on Tuesday as dollar rose after Federal Reserve Chairman Jerome Powell provided an upbeat assessment on the U.S. economy while downplaying the impact of current global trade policy discussions on the outlook for further monetary tightening. Investors were watching Powell's comment on global trade for any hint that it may slow the pace of interest rate increases. Powell said in his prepared remarks before the Senate Banking Committee that it would be difficult to predict how trade policy negotiations could impact the U.S. economy. He also said the economy is on the cusp of "several years" in which the job market remains strong and inflation stays around the Fed's 2 percent target. The dollar's gains this year have been capped by worries over the intensifying trade dispute between the United States and China, though the concerns have not derailed the greenback's solid performance so far.The International Monetary Fund warned on Monday that escalating and sustained trade conflicts after U.S. tariff action threaten to derail economic recovery and depress medium-term growth prospects. The dollar rose 0.2 percent at 94.727 against a basket of six major currencies. The currency rose to a 12-month high of 95.53 in late June and has rallied more than 5 percent in the past three months.
GBP/USD is supported in the range of 1.3047 levels and currently trading at 1.3113 levels. It reached session high at 1.3198 and dropped to session low at 1.3066 levels. Britain's pound declined sharply to hit three-week low against the dollar on Tuesday as investors expected more Brexit challenges after Theresa May's government only narrowly won a vote on a trade bill before the British parliament. The British pound fell 0.8 percent versus the dollar to $1.3107, its worst daily showing since May 1. It also fell against the euro, which rose to a one-week high of 89.15 pence. Sterling’s steep losses came after the government suffered an unexpected defeat on a separate amendment, which means the UK will now be required to secure an agreement that allows Britain to have continued participation in the European medicines regulatory framework. But the pound cut those losses after the UK parliament in the end voted 307 to 301 against an amendment to trade legislation that would have required the government to try to negotiate a customs union arrangement with the European Union if, by Jan. 21, 2019, it had failed to negotiate a deal with the bloc that offered frictionless free trade for goods. Most traders believe Britain will avoid a so-called hard exit from the EU, in which trade ties are minimal, but the pound remains highly sensitive to political uncertainty and bearish sentiment.
USD/CAD is supported at 1.3064 levels and is trading at 1.3193 levels. It has made session high at 1.3127 and lows at 1.3140 levels. The Canadian dollar weakened against its US counterpart on Tuesday as Federal Reserve Chairman Jerome Powell's upbeat comments on the U.S. economy lifted greenback across the board. Powell, in testimony to the Senate Banking Committee, said the U.S. economy is on the cusp of "several years" where the job market remains strong and inflation stays around the Fed's 2 percent target. He discounted the risk that a trade war may throw a global recovery off track. The Canadian currency touched session lows against the greenback following release of Powell's testimony, nearing a two-week trough hit last week. On the data front, Canada's factory sales rose 1.4 percent in May from April trimmed the Canadian currency's decline versus the greenback, but that had a brief impact. The outlook for the Canadian dollar remained negative, even though the Bank of Canada raised interest rates last week for the fourth time since July 2017, as the market has yet to fully price in the impact of global trade tensions. The U.S. dollar was up 0.3 percent against its Canadian counterpart at C$1.3186. So far this year, the Canadian dollar is down 4.8 percent against a strong U.S. currency.
AUD/USD is supported around 0.7330 levels and currently trading at 0.7387 levels. It hit session high at 0.7402 and made session lows at 0.7374 levels. The Australian dollar was subdued on Tuesday as the country's central bank expressed concern about the impact of high household debt on the economy. The Aussie eased 0.2 percent to $0.7487 from Monday's high of $0.7443.The currency is now down more than 5 percent since the start of the year when it traded above 80 U.S. cents. The losses have largely been due to diverging interest rate outlook where the U.S. Federal Reserve is on a tightening path while its Australian counterpart is seen keeping policy steady for some while yet. Australia's central bank stressed there was no need to move interest rates as inflation remained tepid while high household debt and the threat of a full-blown global trade war added to risks. The Reserve Bank of Australia's (RBA) Board agreed the next move in the cash rate would more likely be an increase but saw "no strong case" for a near-term shift, Tuesday's minutes of its July policy meeting showed. Board members spent considerable time discussing household debt which is at all-time highs as a percentage of disposable income. The RBA last cut rates to 1.5 percent in August 2016, notching up the longest period without a change in modern history. Financial markets are wagering this steady spell could extend beyond 2019.
Equities Recap
European shares rose on Tuesday in a choppy session, as stocks were buoyed by upbeat comments in Federal Reserve Chairman Jerome Powell's testimony amid a batch of mixed company updates.
UK's benchmark FTSE 100 closed up by 0.4 percent, the pan-European FTSEurofirst 300 ended the day up by 0.31 percent, Germany's Dax ended up by 0.9 percent, France’s CAC finished the day up by 0.2 percent.
U.S. stocks rose on Tuesday and the Dow posted its fourth consecutive session of gains, as Federal Reserve Chairman Jerome Powell expressed an optimistic U.S. economic view and solid earnings bolstered the outlook for a robust reporting period.
Dow Jones closed up by 0.23 percent, S&P 500 ended up by 0.41 percent, Nasdaq finished the day up by 0.64 percent.
Treasuries Recap
The U.S. two-year Treasury yield rose on Tuesday to its highest level in nearly a decade, with the yield curve at its flattest in nearly 11 years, as Federal Reserve Chairman Jerome Powell's upbeat remarks on the economy supported traders' view of more rate hikes.
On light trading volume, the yield on benchmark 10-year Treasury notes was 2.860 percent, up 0.4 basis point from Monday.
The two-year yield, which is most sensitive to traders' views on changes in Fed policy, hit 2.615 percent, the highest since August 2008
Commodities Recap
Gold declined more than 1 percent and hit its lowest in a year on Tuesday as the U.S. dollar strengthened during testimony by U.S. Federal Reserve Chairman Jerome Powell to the U.S. Congress.
Spot gold was 1.1 percent lower at $1,226.91 per ounce by 1:36 p.m. EDT (1736 GMT), having earlier hit its lowest since last July at $1,225.58. The metal is down more than 5 percent for the year.
U.S. gold futures for August delivery settled down $12.40, or 1 percent, at $1,227.30 per ounce.
Crude oil futures steadied on Tuesday as the focus turned to falling inventories in the United States and further output constraints in Venezuela and Libya.
U.S. West Texas Intermediate crude (WTI) settled up 2 cents at $68.08 a barrel.Brent futures rose 32 cents to $72.16 a barrel, after earlier trading as low as $71.35 a barrel, its lowest since April 17.
