06.06.2013 The Big Picture Bad news is good news? The gyrations around the disappointing ADP report suggest that the market may be in a “bad news is good news” regime. A lower-than-expected ADP report gave rise to thoughts that the Fed might not taper off after all, which helped to reverse the “risk off” mood that had predominated before the figures because of disappointing Eurozone data and thoughts that the ECB may not offer anything to support growth today. But the cautious mood resumed shortly afterwards anyway as US stocks fell and bond yields came down. Commodity currencies were particularly hit as commodity prices fell. The market will focus today on the Bank of England and the ECB. No change in policy (and hence no statement) is expected from the Bank of England. Yesterday’s May service sector PMI was significantly better than expected, rising for the fifth consecutive month to the highest level in a year. If it weren’t for the arrival of Mr. Carney next month, people might start thinking about a rate rise in the UK. As for the ECB, virtually no one expects a change in either the refi rate or the deposit rate. There have been mixed messages coming from board members, many of whom appear opposed to negative rates and yet willing to consider them, perhaps as an effort not to appear doctrinaire. The comments opposing purchases of asset-backed securities have also been more vocal than those arguing in favor. Again then the focus will be on the press conference afterwards to see how the debate is going. Last month EUR/USD rose a bit after the announcement of a cut in the refi rate by 25 bps but then went sharply lower during the press conference. No change this month could push EUR/USD lower, but I would expect Draghi once again to hint that further moves are possible as they “monitor very closely all incoming information.” Later in the day the new Bank of Canda Governor, Stephen Poloz, testifies at the House of Commons Finance Committee. It will be his first public comment since becoming BoC Governor.
Posted on: Thu, 06 Jun 2013 07:17:27 +0000
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