It’s been a bit of a change of pace on the macroeconomic news front on Monday, following the busy schedule at the end of last week when we had big central bank decisions along with monthly government employment figures
By Peter Martin
Tuesday, June 10, 2014
In comparison, the economic calendar looks thin for the start of this week, though things will pick up again towards the tail-end of the week when several significant indicators are due for release, including retail sales data for May and the preliminary reading from the University of Michigan for its index of consumer sentiment.
One aspect that has continued unabated from where we left off on Friday is the upward trend of the stock market, with share prices on Wall Street carrying on with their steady climb into previously untouched territory. By early afternoon in New York, the Dow Jones Industrial Average was up 0.13% or 21 points at 16,946, coming within 30 points of the 17,000 mark earlier in the trading session. The S&P 500 index, a more representative gauge of the US economy than the DJIA by virtue of its broader complement of stocks, gained 0.12% to stand at 1951.7. Both indices set new intraday and closing records a number of times last week and, at these levels, are on course to once again set record high closes.
The NASDAQ 100, meanwhile, was flat despite a 1.5% rise in Apple, its most highly capitalized component. Today is the first day of trading for the iPhone manufacturer after completing a seven-for-one stock split. An article in the Nikkei Asian Review last week cited an unnamed industry source as claiming Apple will release its long-mooted smartwatch in October, producing three to five million units per month in its initial run.
Federal Reserve Bank of St Louis President James Bullard gave some hints today that the Fed could be prepared to tighten monetary policy sooner rather than later should the economy continue along a solid trajectory of recovery. ‘If you get 3% growth for the rest of this year, if you get unemployment coming down below 6%, if you continue to have jobs growth at 200,000, if you continue to see inflation moving back up toward target, I think if we get to the fall of the year and all of those things are transpiring as I’m suggesting they will, that will change the conversation about monetary policy, and there will be more sentiment toward an earlier rate hike,’ Mr Bullard said, following a speech on the economy in Palm Beach, Florida earlier today.
The Federal Open Market Committee (FOMC) meets next week to make its latest decision on monetary policy, with the consensus estimate of analysts pointing to the Fed sticking with its recent pattern of trimming its monthly asset purchases by $10 billion per month, a move that would take the monthly purchases to a total of $35 billion. Mr Bullard, who is not a voting member of the FOMC this year but whose centrist approach has often meant a history of reflecting the consensus at the Fed, said that he would like to see the Committee address the issue of when its QE program would conclude and observed that the Fed is ‘much closer to its macroeconomic goals than it has been in the past five years.’ The euro has slid substantially against the dollar today, weakening by 0.4% to 1.3586, as the combination of low volatility in the forex market and the ECB’s cut last week to take eurozone rates down to record lows has put the euro in the position of being sold as a funding currency in carry trades (in a carry trade, a low-yielding currency is sold and the funds used to buy a higher yielding currency in order to obtain the interest rate differential between the two currencies). Speculation that the ECB might yet dabble with further stimulus, while the Fed appears to be on the path to tightening policy is wielding further downward pressure on the euro.
A surprise acceleration in Canadian home construction in May reported today, suggests the Canadian housing market is still on a firm footing, which has supported the Loonie. Housing starts jumped to a seven-month high of an annualized rate of 198,324 last month, up from an upwardly-revised 196,687 in April and defying predictions that the rate would slow to 185,000. While questions still remain about the sustainability of this rate of housing construction, this latest gain should serve to boost second-quarter GDP. USD/CAD fell 0.2% to 1.0912.
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