Market Roundup
• Defiant Trump says Russia not targeting U.S., calls critics deranged.
• Pompeo says N.Korea deal 'may take some time,' sanctions to remain.
• Fed's Powell says no evidence recession is imminent.
• Fed's Powell says trade problems could pose big challenge if tariffs raise inflation while also holding back economic activity.
• Fed Beige Book shows tariff concerns rising among business contacts.
• Fed says manufacturers in all districts expressed concern about tariffs; many reported higher prices and supply disruptions.
• US Jun Building Permits: Number, 1.273 mln, 1.330 mln forecast 1.301 mln previous.
• US Jun Build Permits: Change MM, -2.2%, -4.6% previous.
• US Jun Housing Starts Number, 1.173 mln, 1.320 mln forecast, 1.350 mln previous, 1.337 mln revised.
• US Jun House Starts MM: Change, -12.3%, 5.0% prev, 4.8% revised.
• US 13 Jul w/e MBA 30-Yr Mortgage Rate, 4.77%, 4.76% previous.
• US 13 Jul w/e Mortgage Refinance Index, 979.6, 958.5 previous.
• Trump says U.S. may pursue separate trade deal with Mexico.
• "Brexit continues to mean Brexit": May presses on with her plan.
• Tame UK inflation knocks BoE rate hike expectations.
• Inflation less sensitive than growth to risks - ECB's Villeroy.
• China's c.bank to encourage banks to lend more, invest in corporate bonds – source
Looking Ahead - Economic Data (GMT)
• 18 Jul 23:50 Japan Jun Exports YY, 7.0% forecast, 8.1% previous
• 18 Jul 23:50 Japan Jun Imports YY, 5.3% forecast, 14.0% previous
• 18 Jul 23:50 Japan Jun Trade Balance Total Yen, 534.2 bln forecast, -578.3 bln previous, -580.5 bln revised
• 19 Jul 01:30 Australia Jun Employment, 17.0k forecast, 12.0k previous
• 19 Jul 01:30 Australia Jun Participation Rate, 65.5% forecast, 65.5% previous
• 19 Jul 01:30 Australia Jun Unemployment Rate, 5.4% forecast, 5.4% previous
Looking Ahead - Events, Other Releases (GMT)
• 10:30 European Commission's Jean-Claude Juncker holds news conference with European Investment Bank's Werner Hoyer - Brussels
• 14:00 Fed's Jerome Powell gives semiannual testimony on economy and monetary policy before House Financial Services Committee - Washington
• 18:00 Fed issues Beige Book of economic condition – Washington
Currency Summaries
EUR/USD is likely to find support at 1.1588 levels and currently trading at 1.1642 levels. The pair has made session high at 1.1661 and hit lows at 1.1601 levels. The euro edged lower against the dollar on Wednesday as the dollar extended its rally following bullish comments from U.S. Federal Reserve Chairman Jerome Powell about the strength of the U.S. economy. In his closely watched congressional testimony on Tuesday, Powell said he saw the United States on course for years more of steady growth. Powell also played down the risks to the U.S. economy of an escalating trade conflict between China and the United States. Powell's answers to questions from members of the House Financial Services Committee struck a chord similar to the one he sounded before the Senate Banking Committee on Tuesday. His message supported traders' expectations that the U.S. central bank would increase key overnight borrowing costs two more times in 2018. After Powell's testimony, the Fed released its latest Beige Book which showed the economy was growing at a moderate to modest pace in June to early July even as manufacturers expressed concerns about the impact of tariffs. The dollar surged across the board, hitting a two-week high against a basket of major currencies. The dollar index rose to 95.267, up 0.3 percent on the day and just below its 95.531 12-month high hit in June. The euro fell 0.16 percent to $1.1642.
GBP/USD is supported in the range of 1.3000 levels and currently trading at 1.3070 levels. It reached session high at 1.3071 and dropped to session low at 1.3007 levels. Britain's pound declined to hit 10- month lows against the dollar on Wednesday after data showed British inflation failed to rise as expected and Brexit-linked political turmoil pummelled the currency towards the $1.30 mark. Annual consumer price inflation held steady in June at 2.4 percent the bottom end of forecasts of economists who had expected to see the first increase this year, to 2.6 percent. Market expectations for a 25 basis point August interest rate rise by the Bank of England fell back to 72 percent from close to 80 percent earlier this week.The pound was already down before the inflation data on a rallying dollar and worries about British Prime Minister Theresa May's ability to push through her Brexit plans after she only narrowly won a crucial parliamentary vote on Tuesday. May threatened rebel lawmakers in her Conservative Party with a general election this summer if they defeated her Brexit plans on customs. Trading at $1.3080 before the inflation numbers, sterling fell further to a low of $1.3007, its weakest since Sept. 5.Against the euro the pound dropped 0.4 percent to 89.32 pence. The political turmoil caused the pound to suffer its biggest one-day fall in more than two months. A dollar rally following bullish comments from Federal Reserve Chairman Jerome Powell also hurt sterling.
USD/CAD is supported at 1.3109 levels and is trading at 1.3164 levels. It has made session high at 1.3250 and lows at 1.3167 levels. The Canadian dollar rose against the U.S. dollar on Wednesday, reversing earlier losses, after President Donald Trump said he may negotiate separate trade deals with Mexico and Canada. This is not the first time that Trump had suggested bilateral deals with Mexico and Canada, as he vowed to revamp the 24-year old North American Free Trade Agreement (NAFTA). Analysts said Trump first brought up the idea back in May and June, but Canada and Mexico stuck together. Trump pledged during his election campaign to revamp the 24-year-old NAFTA trade deal between the United States, Canada and Mexico, which he has called a disaster for the United States. However, the negotiations that started last August have moved slowly. They were initially scheduled to finish by the end of 2017, but the deadline has been extended several times as Canada and Mexico struggle to accommodate U.S. demands. Mexico's President-elect Andres Manuel Lopez Obrador has said he wants a good relationship with the United States and that his transition team will participate in future NAFTA talks. He met with Secretary of State Mike Pompeo last week. The U.S. dollar was last down 0.1 percent at C$1.3173 against the Canadian dollar. So far this year, the Canadian dollar has been down 4.7 percent against a strong U.S. currency.
USD/JPY is supported around 112.17 levels and currently trading at 112.87 levels. It peaked to hit session high at 112.90 and made session lows at 112.69 levels. The U.S. dollar edged slightly lower against the yen on Wednesday as investors cashed in on greenback’s gains after two days of testimony by U.S. Federal Reserve Chairman Jerome Powell reinforced a strong economic outlook. In congressional testimony on Tuesday and Wednesday Powell said he believed the United States was on course for years more of steady growth, and played down the risks to the U.S. economy of an escalating trade conflict. Powell in written testimony to the Senate Banking Committee and in his response to questions about a possible "trade war" largely discounted the risks and said there would be a positive outcome if the administration's bargaining ultimately produced a world of lower tariffs. While Powell steered clear of direct criticism of President Donald Trump's slapping of tariffs on goods, particularly from China but also from U.S. allies in Europe and elsewhere, he acknowledged that tariffs were "absolutely" the wrong approach and said the United States "would feel it at the national level" if levies remained in place for too long. For Powell, his testimony marked one of the strongest affirmations yet by a Fed leader that the central bank is within reach of its policy targets after years of struggling to pull the country back from a deep financial crisis and recession. The dollar rallied to as high as 113.13 against the yen, its strongest since Jan. 9. It was last at 112.85, slightly down on the day.
Equities Recap
European shares hit a one-month high on Wednesday, supported by currency weakness and a rally in tech stocks following well-received earnings updates and a record close for the Nasdaq.
The UK's benchmark FTSE 100 closed up by 0.7 percent, FTSEurofirst 300 ended the day up by 0.62 percent, Germany's Dax ended up by 0.8 percent, and France’s CAC finished the up by 0.5 percent.
The S&P 500 hit a five-month high and the Dow rose for a fifth consecutive session on Wednesday as solid earnings boosted financial and industrial stocks and reinforced expectations for a strong second-quarter reporting season.
Dow Jones closed up by 0.32 percent, S&P 500 ended up 0.22 percent, Nasdaq finished the day down by 0.02 percent.
Treasuries Recap
U.S. Treasury yields were little changed on Wednesday with the yield curve remaining near its flattest in nearly 11 years as Federal Reserve Chairman Jerome Powell stayed on message about a healthy economy before a U.S. House of Representatives committee.
The spread between two-year and 10-year Treasury yields was 25.80 basis points after touching 23.40 earlier Wednesday, its tightest since July 2007.
The yield on the benchmark 10-year Treasury note was up nearly 1 basis point on the day at 2.871 percent.
Commodities Recap
Gold prices steadied on Wednesday as the U.S. dollar eased off a three-week high, following an earlier drop in bullion to a one-year low as bullish comments from U.S. Federal Reserve Chair Jerome Powell boosted the greenback.
Spot gold was flat at $1,227.26 per ounce by 2:50 p.m. EDT (1850 GMT), after touching its weakest since July 14, 2017 at $1,220.81.
U.S. gold futures for August delivery settled up 60 cents, or 0.1 percent, at $1,227.90 per ounce.
Oil prices rose on Wednesday after U.S. government data indicated bullish demand for gasoline and distillates, which overshadowed a surprise build in U.S. crude inventories and U.S. crude oil production hitting 11 million bpd for the first time.
Brent crude futures rose 74 cents to settle at $72.90 a barrel, a one percent gain. The contract hit a session low of $71.19 a barrel, its lowest since April 17.
West Texas Intermediate (WTI) crude futures rose 68 cents, or one percent, to settle at $68.76 a barrel.
