QE3 on Offer for Next Fed Meet

Twist 2 or Twist light? Investors had been warned that if the Fed failed to deliver, they should brace themselves for substantial fallout. They knew that QE3 signals from the FOMC would be much more important in moving risk that the euro-zone crisis has been in moving the markets. The recent deterioration of US economic data and financial market conditions had boosted expectations for stronger immediate Fed support. It did not come and helicopter Ben has been defending this week’s decision ever since. The Fed has lowered the bar for further efforts, noting in its statement that it was ready to do more to promote “a stronger economic recovery and sustained improvement in labor market conditions.” They want a better job market. And now they do not think the job environment is going to show much, if any, improvement by year end. This week’s claims trend does go some ways to support that point. Look out next NFP! Perhaps now the market will begin considering pricing in more action by the Fed at its next two day meeting ending on August 1st?

Below are some other highlights of the week:

AMERICAS

• CAD: Foreign appetite for Canadian bonds resumed in April. Non-resident investments in Canadian securities was a net +$10.16b, including +$8.99b in bonds. Foreign investors have only been net sellers of Canadian bonds in four months in the past three-years.
• USD: Home building slowed last month (-4.8% to +708k units), but new permits granted (+7.9% to +780k) reached their highest level in four-years.
• USD: US commercial crude oil inventories increased by +2.9m barrels last week. The EIA reported +387.3m barrels. Crude oil inventories are currently above the upper limit of the average range for this time of year.
• FED: The FOMC’s decision to extend “Operation Twist” and to not introduce any new forms of stimulus was viewed as disappointing by the market.
• CAD: A new round of tightening mortgage financing requirements will likely diminish the possibility of the BoC hiking rates any time soon.
• CAD: The number of Canadian filing initial and renewal claims for UI was little changed in April (+0.7% to +235.6k)
• USD: The same cannot be said for US weekly claims. Despite filings falling -2k to +387k the overall level continues to indicate a weakened labor market. The prior week’s figures were revised higher. The four week moving average rose by +3.5k to +386.2k.
• CAD: Canadian Retail sales reversed course from the previous month and fell an unexpected -0.5% to +$38.9b. The market was expecting a +0.2% increase.
• USD: Continuing the weak US housing trend, existing home sales declined -1.5% to +4.55m vs. +4.57m. Inventory of unsold homes was at 6.6 month’s supply. More uplifting was the median existing home price increasing +7.9% to +$182.6k.
• USD: Philly Fed June business index plummeted to -16.6 vs. May’s -5.8. Digging deeper, new order, shipments and prices all declined, while June employment rallied to +1.8 vs. May’s -1.3.
• CAD: Canadian annual inflation hit a 23-month low in May as prices for energy products recorded the first year over year decline in three years. Overall CPI rose by +1.2% following a +2% climb in April. Core inflation rate was up +0.2%, m/m.

EUROPE Week in FX

ASIA Week in FX

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