Today we have the ECB rate decisions

The Day So Far

Yesterday saw a muted reaction to Janet Yellen’s semi-annual testimony. Yellen reiterated that policy would remain ‘highly accommodative for quite some time’ and, more importantly we feel, that she’d be willing to hold a press conference on a meeting which isn’t scheduled to have one. The next scheduled meeting without a press conference will be October so the Fed appear to be preparing the way for a potential October hike, marginally delayed from the September consensus. The September date was reaffirmed by Fed’s Williams who stated September would be a “plausible time” to hike rates; he referenced the problem of a stronger dollar and the implications of overshooting the 2% inflation target in 2016 which he saw as less of an issue. The dollar index strengthened in light of these comments and T-notes were dragged lower into the close of trade as traders began to price in higher interest rates and yields. This was also reflected in stocks as we saw the DOW and S&P 500 drop on the prospect of higher corporate borrowing costs. Overall markets responded in a predictable manner; underlying strength in the currency with higher rates influencing asset pricing. We also saw Crude fall from its highs set on the 14th; this seems to be a majority dollar strength move but given the Iranian Nuclear deal securing a further 375k barrels per day, on average, it seems to be an expected reaction to increasing supply. This wasn’t priced in efficiently on the 14th as we saw the price of the August WTI future rise by 250 pips. We saw better than expected PPI data from the US for June with beats of expectations in both the headline and the core reading. Industrial production were up.

It would feel unnatural to not talk about Greece at this stage. Greek Prime Minister Alexis Tsipras has managed to secure the Golden Fleece of a “Yes” vote in Parliament, with the bill passing with an overall majority of 229 out of 300. 32 Syriza MPs voted against, with 6 abstaining voters. The Euro is still on the back foot against the majority of other currencies, most notably Sterling. The pound has gained much ground since Carney’s unexpected comments that rates will be coming sooner. GBPEUR currently trades above the 1.4300 handle. Bridge financing for Greece has just been made available to pay the IMF and ECB with an agreement in principle of €7bn.

The Afternoon View

Today we have the ECB rate decisions, all expected unchanged across all three facilities. We will also be monitoring the subsequent press conference at 13:30, watching for any telling comments from ECB’s Draghi. We are also due a repeat of Janet Yellen’s testimony, this time to the Senate which will be of lesser impact than yesterday; please be aware of this and expect muted-no reaction in trades. As usual we have US Initial Jobless Claims, the Philadelphia Fed business outlook and the NAHB housing data, alongside earnings from Citigroup, Goldman Sachs, Google and eBay. Initial Jobless Claims are expected at 285k with Continuing Claims at 2300k. The Philadelphia Fed Business Outlook is likely to have a larger bearing on the market, expected with a range of 5 – 57, with an inline expectation of 12. This wide range will make trading relative difficult but traders are reminded to prioritise trend-following trades as a result of these numbers.