BOJ in minor adjustment [Video]

Today's Highlights  

• BOJ in minor adjustment as deflation accelerates

• US GDP awaited as Fed says no impact from Brexit

• Aussie and Kiwi rate cuts may be on hold

FX Market Overview

The Bank of Japan surprised everyone by making only very modest changes to its quantitative easing programme when they met early this morning. Many had assumed they would be bolder as they combat the ever present lack of growth and lack of inflation. In fact the inflation rate, which was also announced overnight, showed contraction of 0.4%; much worse than expected. The Yen weakened, as you may expect it to do and the Japanese share prices fell as well.
 
Today’s big news is the US economic growth data for the 2nd quarter of the year. The forecasts are for an acceleration of growth and US data has certainly hinted this to be the case. Hence, the news is already priced into the value of the US Dollar. What that also means is that, if the data is better or worse than the expectation, there is plenty of scope for the USD to swing around like a kite in a storm. Interestingly, the Federal Reserve, which warned of a Brexit fallout affecting the US, has now said there will be little or no impact. All these pre-referendum scare stories are falling away one by one.
 
Producer prices in Australia were up 1.0% in the year to June. Private sector lending was up by 6.2% on the year and that was a little below expectations. The Australian Dollar was strengthened a little by the news. These are positive stats and that may cause the Reserve Bank of Australia to pause in its thoughts about interest rate cuts.
 
We also heard this morning that consumer confidence in the United Kingdom dived in (post Brexit) July according to GfK. The index score of -12 was well down on expectations and unsurprisingly lower than the previous reading. Uncertainty saps the life out of confidence and this is what we are seeing. However, a lot of the hard data that will show whether the lack of confidence translates into a lack of activity is yet to surface. What we have had is positive UK property market data and that will be welcomed by the government. Later we will get the consumer lending data for the UK. If the property market remains strong and yet consumers have no confidence, were they or were they not borrowing? We shall see.
 
From New Zealand came the news that the issuance of new building permits surged by 16.3% in June far outreaching the market forecasts. However, the pace of actually building these new properties will be hampered by lack of capacity in the construction sector. Nonetheless, it is a sign that the NZ domestic economy is still in remarkably rude health and that will cause the Reserve Bank of New Zealand to pause in its plans to cut the base rate.  
 
Looking ahead, this morning brings inflation data from a number of EU countries as well as French GDP growth data, which they hope will show growth. Then we will see the Eurozone unemployment rate, which remains dire and Eurozone economic growth data. It is a big Friday for data and the markets will be busy sorting month end activities as well. So we will see volatility; of that I am sure.
 
It would be good to finish on a cheery note and the Daily Mirror will send you off into the weekend feeling full of the joys of summer with their guide to how you might fare if a nuclear device were to explode in central London. Their website offers a handy interactive tool to help you identify your fate. What a bizarre article. I think they should get back to worrying what the Kardashian media junkies are wearing.
 
I hope you have a great weekend and avoid any nuclear fallout.