Macro economics

Analytics on 12/07/2019. Strong data won’t prevent the Fed from cutting rates this month

European stocks are trading mostly in the positive territory on Friday, as investors digest the latest developments globally. The official report showed that China’s exports fell less than expected last month, by 1.3% versus the expected 2% decline amid the ongoing trade war with the US. Markets are also assessing yesterday’s remarks from Powell who once again highlighted global risks which could trigger a rate cut later this month. As for individual stocks, Thomas Cook Group shares plunged more than 40% to register historical lows after the Chinese tourism group Fosun said that it is in advanced talks with the British tour group’s lending banks to inject £750 million into the troubled company.

Against this backdrop, the UK’s FTSE 100 adds 0.10 per cent to 7517, Italy’s FTSE MIB gains 0.33 per cent to 22,242, France’s CAC 40 rises by 0.39 percent to 5,573, while German DAX 30 flat at 12,331. US stock index futures are edging higher rising optimism over the upcoming rate cut by the federal reserve.

On the data front, Eurozone industrial production rebounded by 0.9% m/m in May after dropping by 0.4% in April, beating expectations of a 0.2% rise. On an annualized basis, production dipped by 0.5% versus -1.6% expectations and a 0.4% drop seen in the previous month. Meanwhile, US PPI rose more than expected in June. Producer prices rose 1.7% yoy versus 1.6% estimate and 1.8% in May. However, another positive report will still not prevent the Fed from cutting rates at the July meeting.

EURUSD turned negative on the day after the pair was rejected from daily highs around 1.1275. As a result, the euro got back below the 100-DMA and now threatens the 1.1240 support area. The bearish correction accelerated as the dollar demand reemerged after strong PPI data. But considering that the data won’t make the Fed change its mind on the July rate cut, the upside impetus in the greenback will likely be short-lived and limited. A daily close below the mentioned moving average will serve as a bearish technical signal from the technical point of view.

Brent crude failed to confirm a break above the $67 handle and now threatens the 200-DMA again. Nevertheless, the prices are on track for a weekly gain as US oil producers in the Gulf of Mexico cut more than half their output because of a tropical storm. The ongoing tensions in the Middle East add to the worries about supply disruptions. Brent prices have climbed nearly 4.5% so far this week On the other hand, futures struggle to show a sustainable rally as traders prefer to take profit above $67, citing concerns over global growth and a lack of progress in the US-China trade talks. In the short term, market participants will shift focus to Baker Hughes data. Should the number of oil rigs decline, the release will cap the downside pressure on Brent ahead of the weekend.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 1.75 %
Switzerland 3 Month LIBOR Range -0,75 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1 %
Australia Cash Rate 0.75 %
Canada Overnight Rate Target 1,75 %
All rates

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