GBP/EUR 1.3721 (0.7287)
Yesterday saw the US dollar recover much of its lost ground from Friday’s disappointing jobs report figure as trading desks return to full capacity after the Easter break. The wind appears to be back blowing behind the dollars sails as the market seems to have shrugged of the non farm data and got back to anticipating when the next rate hike will take place. However if the market was looking for a catalyst then they may wish to look away from today’s minutes from the Fed’s March meeting. If you recall last month, Janet Yellen dropped her repetitive rhetoric of the word “patient”, for the phrase “we’re not going to be impatient”. She also reiterated that the next hike will be data dependent so perhaps the market shouldn’t shrug off last Friday’s release just yet.
In yesterday’s commentary we mentioned some of the Fed’s more hawkish policymakers who had come out recently pressing for a rate hike as early as June. However since then Minneapolis Fed President Narayana Kocherlakota laid out a case for waiting until the second half of 2016 to start raising rates, arguing that it could knock the wind out of the economic recovery. With a total of 26 central banks and monetary authorities around the world having already eased their policy this year, Kocherlakota may have a valid point.
Many of these above central banks and monetary authorities appear to be entering a period whereby many are adopting a wait and see approach, to monitor and assess whether their recent stimulus actions are having their desired effect. As we noted yesterday morning, the Reserve Bank of Australia decided to keep interest rates on hold at record low levels of 2.25%. In a similar fashion, the Indian Reserve Bank also maintained its benchmark rate yesterday at 7.5%. Over the past two months both central banks had sided with the growing club of dovish central banks. Overnight then, the Bank of Japan too kept its policy unchanged maintaining its plan to expand the monetary base at an annual rate of 80 trillion yen in order to achieve its two percent inflation target. However, with the recent collapse in oil prices and Japan a huge importer of fossil commodities, the central bank is likely to continue to miss this 2% target by some distance with February inflation at zero from a year earlier. Looking ahead too, we also have the Bank of England’s MPC meeting tomorrow with the no change theme set to continue.
To the Eurozone and it is again Greece who are making the headlines here, albeit for all the wrong reasons. Greece are due to make a loan repayment of €448m to the IMF tomorrow, however the question on everyone’s lips is, will they actually be able to. Actions so far from the Greek Prime Minister Alexi Tsipras appears to suggest there may be cause for some concern here as his suggestion for WW2 reparations of €278.7bn from Germany were labelled yesterday as “stupid” by Germany’s economy minister. With this potential source of funding seemingly off the table, Tsiparas now finds himself in Russia where formal talks are due to take place with Vladimir Putin. Any agreement between these parties here is likely to aggravate Greece’s current creditors and bring to light more uncertainties.
For the rest of Europe yesterday we had services PMI for the Eurozone and while they just missed the markets expectation of 54.3, coming in at 54.2, it is the fastest rate since July of last year and above the key level of 50 which signifies growth. The UK also reported an acceleration in services growth in March, with the PMI figure beating expectations and coming in at 58.9 which was a seven-month high.
Apart from the release of the FOMC Meeting Minutes, it is a relatively quiet day for the markets. In Europe we will keeping an eye on Retail Sales which are due out at 10am, while keeping an ear to the ground on the Greek situation.