Will the Fed have anything for us?

* Data improves
* Japanese stimulus
* Aussie inflation
* Fed anticipation

And Now, Today’s A Pfennig For Your Thoughts.

Good Day. And welcome to Wednesday morning. We’ll see the conclusion of the Fed meeting early this afternoon, although indications aren’t pointing to any surprises, but the markets will still be very interested to see if there are any tweaks to language or any other nuances that can be gleaned following the meeting. Before we jump in, here are some words from Frank.

“Vancouver this year is a city that vibrates with excitement, but it’s different than the last several years. There is something about it. Nothing specific that says – we’re on our way up, but I could feel the excitement and confidence. We were out on a ship Tuesday evening courtesy of Sprott. The skies were crystal clear, the sun shone through the trees in Stanley Park, the bridge was arching over us, and the sulphur pile was resplendent in the sunshine of late afternoon while the boat paused as it waited for the sun to set over west Vancouver. Postcard evening in an area that needs no postcards. We heard that Hells Angels work through the port union to smuggle . . . well you decide what might be interesting. Untouchable, but it’s there in broad daylight.

At the conference, Steve Sjuggerud made a great presentation covering his big ideas. One such idea is to consider the opportunity in large cap Chinese indexes before they are included in the basic Wall Street lobule Ned’s. In further dialogue, we also spoke of and cast thoughts the strong US dollar trend is overdone. Hoping for our clients sake this permeates among the markets.”

Thanks Frank. We did have some substantive US economic data yesterday worthy of discussion and that trend will continue through the end of the week, so here is Dane Moody with the data recap.

“We got our first impactful data of the week on Tuesday morning with the release of US consumer confidence and new home sales data. Consumer confidence came in at 97.3, essentially flat from June’s reading. The confidence number was a bit better than the experts anticipated and indicates that consumers remain cautiously optimistic about state of and outlook for the US economy.

The June new homes sales surpassed expectations with an improvement of 3.5% month over month to the highest level in more than 8 years. The May figure was revised up to no change from the April, rather than the 6% drop that had previously been reporting. These positive housing numbers come on the heels of low borrowing costs (average rate on a 30 year fixed rate mortgage was 3.45% last week) and a stabilizing job market. Coupled with limited inventory in many parts of the country, current conditions continue to prop up, if not boost, asking prices on houses around the US.

Today will likely be a wait-and-see day as the market looks to the interest rate decision at the conclusion of the FOMC meeting this afternoon. Traders (and their computers) will spend the afternoon parsing the FOMC statement for any hint of if and when the next rate hike is coming, as improving data in recent weeks lead some to believe that a rate hike could be coming soon.”

Thanks again, Dane. Even though the markets did have something to chew on besides general sentiment, the US trading session was essentially a non-event as there wasn’t any real change in the currency rankings as we progressed through the day. The Japanese yen retained the top spot and had a solid 1% gain after traders trimmed back expectations of new stimulus measures that could be announced on Friday. The Aussie and kiwi were able to hang on to their early morning gains and round out the top three performing currencies with nearly 0.50% gains respectively.

The Brazilian real recouped some lost ground and posted a modest gain after the central bank indicated rates won’t be going lower any time soon due to inflation worries, but all of the other currencies, with the exception of Swiss francs, ended the day hovering around the breakeven mark. As I mentioned, the Swiss franc was the only currency entrenched in negative territory after it lost about 0.60%. I couldn’t find anything that specifically explained the downward move, so it appears as though continued fallout from the central bank’s concern over currency strength as well as the possibility of intervention and rates moving even lower weighed on the franc. Metals prices had a decent day. Nothing spectacular but the lower dollar gave them some room run a little higher yesterday.

As I came in this morning, the dollar is sitting on slight gains while most currencies are hiding out until we hear from the Fed this afternoon. The Japanese yen has been the biggest mover so far this morning and its movements remind me of that toy paddle with the ball attached by a string. In unexpected fashion, Prime Minister Abe announced plans for a 28 trillion yen ($265 billion) stimulus package in an attempt to spur the economy. Rumors were starting to fly that 50 year bond sales may be on the horizon, but policy makers were quick to quiet that little ditty.

In other news, we had Australian inflation figures in the crosshairs overnight. No matter how you slice it, consumer prices in the land down under have been and continue to be well below the target band of 2% to 3%. This report was being touted as the indicator of whether the central bank will cut the interest rate or remain on hold. I’m sure as you can guess, this report did nothing to strengthen the case of either side. While the annual and quarterly numbers remained at historic lows, they actually exceeded initial expectations so this just adds some drama to the next rate meeting. Right now, it seems to be an August coin toss. Now, its time to sit around and wait for the Fed.

Currencies today 7/27/16. American Style: A$ .7468, kiwi .7031, C$ .7579, euro 1.0992, sterling 1.3099, Swiss $1.0062 European Style: rand 14.3150, krone 8.5853, SEK 8.6741, forint 285.17, zloty 3.9765, koruna 24.569, RUB 65.98, yen 105.75, sing 1.3584, HKD 7.7570, INR 67.1988, China 6.6671, pesos 18.8410, BRL 3.2804, Dollar Index 97.328, Oil $42.81, 10-year 1.56%, Silver $19.61, Platinum $1,092.25, Palladium $691.40, and Gold $1,320.10.

Mike Meyer
Vice President
EverBank World Markets