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FOMC continues to leave the door open for September “lift off”

  • EUR Gfk German Consumer Climate: 10.1
  • UK Net Lending to individuals m/m: 3.8B
  • US Pending Home Sales m/m: -1.8%
  • US Crude Oil Inventories: -4.2M
  • US FOMC Statement
  • US Federal Funds Rate: <0.25%

Yesterday’s trading session was tentative as market participants eagerly awaited the evening’s FOMC statement. However, the UK continued to post key data in the build up to the market headline. UK mortgage approvals rose more than economists’ forecast in June in a sign of continued momentum in the UK housing market. The reading posted a bullish 67k, giving the Pound a boost throughout the day.

Across the pond, the US released their pending home sales number. The reading failed to meet expectations and declined to its second worst reading this year of -1.8%. The data is consistent with the slow improvement in US housing, restrained by still-tight lending standards and a limited selection of properties.

However, the main market focus was the FOMC statement after their two day meeting. With no meeting in Aug. the market was keen to see if the FOMC would hint at a possible rate hike in September. The reaction has been mixed amongst market commentators and analyst with differing opinions still rife in the market. Looking at the language used, the Fed said the economy continued to expand at a “moderate” pace, which is driving “solid job gains and declining unemployment.” The statement suggested officials didn’t need to see much more progress before they started to increase their benchmark rate, which they have held near zero since December 2008 but failed to give a solid timeline. Ultimately the FOMC has left the door wide open to a September liftoff, but still retains the optionality to delay hiking if data disappoints between now and mid-September.  The minutes from this meeting will be released on 19th August and will be examined closely. Next week’s non-farm payrolls figure will be very important given the economic backdrop. 

  • German Prelim CPI m/m
  • US Advance GDP q/q
  • US Goods Trade Balance
  • US Unemployment Claims
  • ANZ Business Confidence
  • AUD PPI q/q

Focus will once again turn to the US on whether Wednesday nights statement will be supported by the release of the weekly jobless claims (which posted its best figure since 1973 last week) and the first reading of Q2 GDP. This is expected to bounce back from Q1 after the cold snap experienced at the beginning of the year.