The relatively light news stream continues to facilitate corrective action in the capital markets. The advancing streak in global equities has broken while Chinese shares continue to stabilize after their recent dramatic slide. Peripheral bond markets are giving back some of their recent gains. The US dollar has been pushed from its recent highs but is largely in a consolidation mode.
Sterling underperformed yesterday but is back in the driver's seat today. It is the strongest of the major currencies, gaining around 0.4% against the dollar. A base is seen now near $1.5530. The upper end of the consolidation range is seen in the $1.5670 area. It was bolstered by the minutes from the recent MPC meeting. Many suspect it will be the last time that there was a 9-0 vote for standing pat. The tone of the minutes indicate that more than a couple MPC members see the call as finely balanced, especially if the risks emanating from Greece are reduced.
The MPC recognized that the spare capacity in the labor market, and in the economy more broadly, is being absorbed. It is possible that in August three MPC members vote to increase rates. The likely candidates are Miles, Weale and McCafferty. Next month's meeting is Miles' last, and as his departing shot is likely to vote for a hike. Weale and McCafferty have dissented previously in favor of hikes before rejoining the majority. BOE Governor Carney has indicated that the rate outlook will be clearer toward the end of the year. While the risk of a rate hike this year seems small, market participants seem divided between a hike in Q1 or Q2 2016.
The Nikkei's six-session advancing streak ended today with a 1.2% decline. It was dragged down by the sharp losses in US markets yesterday following disappointing earnings. This saw the dollar extended yesterday's losses after it posted a reversal yesterday. After first making new highs for the move, (to almost JPY124.50), the dollar was sold through Monday's low to about JPY123.75. Those losses were marginally extended to just below JPY123.60. As the North American session is set to begin, the dollar is trading in tight ranges near its lows.
