Summer Markets Ahead of FOMC

The global capital markets are subdued
today;  a dearth of fresh news and
tomorrow’s FOMC meeting are making for light activity and limited price
The US dollar is little
against most of the major currencies.  The net change on
the day through most of the European morning is +/- 0.15%.  The exception
is the Norwegian krone and Swedish krona, which is
about 0.25% stronger.  

Benchmark sovereign 10-year yields are mostly firmer but by less than a single basis point, with some pockets, like
Italy, Portugal, and Greece that are
doing a bit better. 
Equity markets are mixed.  The MSCI Asia
Pacific Index fell 0.2%, its second day of losses, after a ten-day
advance.  It continues to trade in a narrow
at its best level in nearly a decade.  Japanese, Chinese, and
Korean shares eased, while most other markets in the region posted small
gains.   The disappointing news from Alphabet may have weighed on
some technology shares in Asia. 

In Europe, the Dow Jones Stoxx 600 is trying to snap a three-day fall and
is up 0.5%, led by the financials and materials.
  All sectors are higher.  The German DAX
has been underperforming for about a month,
and that pattern continues today. 

German business confidence remains strong.  Even though the
flash PMI suggested momentum was moderating, the IFO business survey found that
the evaluation of the business climate has never been better (116.0 vs. 115.2).  This is not just a function of the current assessment (107.3 vs.
106.8), but also expectations improved (125.4 vs. 124.2) to a new record high,
as well.  

The UK-US trade talks continue today, but there less here than meets the
First, the UK make any agreement while it is still a member of
the EU, and this is not going to change for 18 months (at least). 
Second,  a new trade deal with the EU may limit what the UK can offer the
US.   Third, the UK enjoys a trade surplus (merchandise and services) with
the US.  This runs smack into the US
administration’s “America First” thrust and its drive to reduce the
US trade deficit.   

The UK reports its first look at Q2 GDP tomorrow.  A lackluster
0.3% expansion is expected to have followed the 0.2% pace in Q1.   This is marked slow
after of the average quarterly expansion of 0.6% over the previous three-quarters.  The year-over-year pace
may slow to 1.7% from 2.0%.  The IMF’s new forecasts trimmed this year’s
expectation to 1.7% from 1.8%. 

The Australian dollar is firm, holding above $0.7900.   Tomorrow
Q2 CPI will be reported.  The headline pace may pick up to 2.2% from 2.1%,
but the underlying rates (trimmed mean and weighted
mean) were likely stable or even a tad softer.  RBA Governor Lowe speaks
tomorrow as well.  Given last week’s official comments that made the
Aussie come off, Lowe’s comments will be
for clues into rate policy and the comfort level with the
currency’s apparent upside breakout.  

The Canadian dollar remains firm within yesterday’s ranges after rising
past $0.80 yesterday for the first time since May 2016.
  The US dollar
is straddling the CAD1.25 level.  The low from May 2016 was near
CAD1.2460, but it is difficult to call that support.  There is little
congestion ahead of the CAD1.2360 area, and the next important technical target
is not until closer to CAD1.2160.    At the end of the week, Canada report
May GDP figures.  The year-over-year pace will rise sharply as the May
2016 0.6% decline drops out of the comparison.  Canada is poised to be the
fastest growing G7 economy this year.  

Meanwhile, the euro is carving out a little shelf above $1.1600 even if
the market appears to be hesitating ahead of last August’s high a little above
    We suspect North American participants may
initially try to extend the euros 20-tick range on either side of $1.1650 to
the upside.   Although the dollar
spent a bit of time below JPY111.00 yesterday, it has popped back above and is
now threatening to snap a five-day slide.
   Without better
support from US Treasuries, the dollar may struggle to rise above

Ahead of tomorrow’s FOMC statement, today’s data will likely be of little
Reports include S&P CoreLogic house prices (edging
higher), Conference Board’s consumer confidence (a little softer) and the
Richmond Fed manufacturing index (unchanged?). The political focus is on the
Senate machinations over the health care efforts.  

Before the weekend, the Senate Parliamentarian ruled that several key
parts of the replacement bill do not qualify for fast-track rules (where a simply majority can pass it) and instead
require 60 votes (which means Democrats). 
  The health care
debate has reportedly sapped the resources and time from other efforts. 
Moreover, housekeeping measures like the debt ceiling and spending
authorization (FY18 budget) appear to be also subject to debate within the
majority party.   The T-bill market is already reflecting some of
these considerations.  

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