Insubstantial

Nothing the US Federal Reserve did or said on Wednesday could have come as a surprise. Even so, investors took against what they evidently saw as a dovish monetary policy stance. They still believe the clock is ticking down towards a tapering of quantitative easing; they just think it is ticking too slowly.

The FOMC statement, while not identical to the half dozen that preceded it, painted a similar picture. Crucially, there has been progress towards the FOMC’s goal of sustainable 2% inflation and full employment but it is not yet the “substantial” progress that the Fed demands before it will tighten monetary policy.

There was a bit of a wobble for the dollar when the FOMC statement came out but it was not until half an hour later when Chairman Jerome Powell held his press conference that it moved definitively lower. Over the 24 hours, the US dollar fell an average of 0.4%, losing a third of a cent to the euro and half a cent to sterling. It shared last place for the day with the Japanese yen.

Canadian inflation slows

The Federal Reserve announcement saved the day for the Canadian dollar, which had come slightly unglued earlier on when the Canadian consumer price index data came out. Canada bucked the recent global trend by delivering a slowdown in inflation.

Investors had been ready for some moderation in the pace of price rises. The consensus among analysts was that inflation would slow from 3.6% to 3.2%. In fact, it fell to 3.1%, a three-month low. Nevertheless, the Fed sorted out all the Loonie’s problems six hours later and it eventually strengthened by an average of 0.4%, enough to put it in second place behind the bouncing Norwegian krone.

There was little to be had from the rest of the economic statistics during London’s day. Consumer and business confidence in Italy both improved slightly in July. ZEW’s measure of Swiss business confidence fell eight and a half points to 42.8, an eight-month low. America’s trade deficit widened by 3.5% in June to $91.2 billion, not far short of March’s $91.6 billion record shortfall. Overnight ANZ’s New Zealand Business Outlook showed a softening of business confidence and most activity measure. Importantly, “costs continue to rise, pricing intentions remain extremely high, and inflation expectations continue to lift”.

Inflation and GDP

As the end of the month approaches, the screens will be carpeted with inflation data and updates to gross domestic product. The UK will not be participating in those particular ‘statfests’ but there will be figures this morning for mortgage approvals and consumer lending in June.

Spain opened the batting with a headline inflation rate of 2.9%. Germany follows at lunchtime, with 3.3% pencilled in by analysts. France reports on inflation on Friday, as does Italy and the Eurozone. The GDP updates for Q2 come from the United States, France, Germany, Spain, Italy and Canada, in that order.

Other points of interest today cover German unemployment, Eurozone business and consumer confidence and US weekly jobless claims. Tomorrow there are NZ building permits, Japanese retail sales and US consumer confidence.