Market News & Insights
25 July 2017

Markets Look to Central Banks for Guidance

Markets are often quieter during the summer periods with volatility thin on the ground. Yesterday was a particularly subdued trading session which saw the recent euro rally halted by profit-taking on the single currency. European markets had a mixed session too with the German DAX slipping to a three month low while oil reversed its earlier falls after OPEC producer Saudi Arabia pledged to limit their exports next month, while Nigeria also agreed to cap their output to 1.8 million barrels per day.

Markets are now turning their attention to Central Banks, where first up we had the Bank of Japan who released minutes of their June meeting overnight. The report proved quite indecisive with the minutes showing some disagreements within the committee as members appeared split on disclosing information around a possible exit from their quantitative easing program. Some members proved even more dovish stating that the central banks 2% inflation target was still some way off and disclosing information too soon that could cause market turbulence. The BoJ aren’t the first central bank to consider tightening ahead of market expectations but perhaps they learnt some lessons from the ECB on how to avoid unwanted market volatility. With the BoJ only recently pushing back its 2% inflation target to 2019, the chances of any tapering in the near term are unlikely.

Stateside, and the Federal Reserve will commence its two day meeting today which will be followed by the statement and announcement tomorrow. While a hold is almost a foregone conclusion, markets will be looking for further clues on the central bank’s decision on reducing the size of its $4.5trn balance sheet. The dollar did get some uplift yesterday with stronger manufacturing and services PMIs. The greenback was also little affected by Jared Kushner’s statements that he had had no improper contact with Russia, however both Kushner and former Trump campaign chairman Paul Manafort will testify on Wednesday.