Markets await FOMC meeting

Yearly CPI inflation figures were the highlight of the UK's data calendar yesterday, printing bang in line with expectations at 0.1%, confirming the static costs of goods and services in the UK for the last year. UK data has been reasonably good of late and the threat of deflation that was felt in May, on the back of the -0.1% reading printed for the same component, now seems to be brushed aside. Bank of England Governor, Mark Carney, attributed the decline in consumer prices to a combination of lower oil prices and a retail price war, compounding the view that spending as a whole hadn't declined, just the amount that was being spent. Subsequently, the pound appreciated wholesale on Tuesday against it peers, topping a daily high of 1.3932 interbank (IB) against the euro, and 1.5647 (IB) against the dollar, in what was an impressive day's trading over the London session. Clearly, Sterling prices will take effect from events elsewhere. However, whilst the pound is experiencing sustained momentum against almost all of its major counterparts, it now offers great opportunities for Sterling sellers. This morning sees two major releases in Average Earnings Index and Claimant Count Change data, both forecast to tick up against the previous month. MPC Official Bank Rates vote data is due afterwards, the expectation being that all 9 members voted to keep rates on hold. Of course, any deviation from this will no doubt see further pound strengthening. Later in the day, Mark Carney addresses the Organisation of Securities Commission.

The events of the European economy are hardto avoid at the moment as once more the desperate situation in Greece manages to occupy the headlines. The Greeks have until Thursday to submit a revised proposal to their creditors, before they meet once again at the Euro-Group meetings. Previously, they have stated that such revisions will not be made, as they feel the expectations placed on them are too harsh and are not conducive to the long-term recovery of the nation. European stocks have seen a gradual decline over the last two days, as the prospect of a default and eventual Greekexit from the eurozone is now becoming more likely, despite German Chancellor,Angela Merkel, claiming she will do “everything possible to keep Greece in the eurozone.” The fact that no progress is being made is sending reverberations throughout Europe and the world, as policy makers try and plan for the so called ‘Grexit’, the effects of which are at this stage unknown. German ZEW Economic sentiment data released yesterday printed well behind expectation at31.5, giving a valuable insight into prospective health of the German economy,intrinsically linked to the effects of the break of the single currency. It is clear that the markets are very sensitive to all events and sentiment at present, with the euro trading comfortably within 150+ point ranges against its major peers, having depreciated considerably since the start of the year. What isn't clear is how much is already priced in and, furthermore, if Greece do leave, how long the euro sell off will last. Final CPI inflation data year-on-year for Europe is the only release of any note today, expected to print in line with the previous months figure at 0.3%. Euro-Group meetings on Thursday will help to give more definition to the Greek question and of course any sentiment prior to that will undoubtedly move the markets.

The US has seen a marked improvement in their data throughout the second quarter of this year, compounding the view supported by Fed Chair, Janet Yellen, that the poor data of Q1 was down to poor weather and ‘transitory factors’ and would eventually even itself out. Yesterday was no exception to this as Building Permits data printed well above the expected 1.11m at 1.23m, identifying an upward trend in the US housing market that will not doubt set the tone for the following month's Housing Start data which so far has come in marginally behind expectation. However, despite this decent run of form, the dollar is yet to reignite the rally that saw it appreciate strongly against both the pound and euro at the start of the year. The dollar is finding a big level of support against the pound at 1.5170 (IB), seemingly a break below this will help test levels below the 1.50 (IB) mark and whilst problems continue in Europe, euro rates against the dollar haven’t been below 1.10 (IB) since the start of June, with this pair entrenched between 1.12 and 1.13 (IB). Tonight the Fed give their economic projections, followed by the FOMC statement, where undoubtedly the focus will be toward the interest rate decision and any other future monetary policy. A rate rise this month is unlikely, with many speculating rates will go up in September of this year, as the stipulations set down by the Fed in terms of an improved labour market and inflation figures are coming to fruition. However, the Fed must consider global issues more than ever before adjusting their domestic policy, as with such uncertainty lingering over Europe, added to a Chinese slowdown and an outright deterioration of Australasian based economies, the view is that any repercussions may feed through to the US, particularly as it is seen as the ‘safe haven’ for global investors. As already mentioned, the focus today will be the FOMC economic projections, statement and subsequent press conference. Watch out for any change in future policy or rates and as ever, the markets will hang on Janet Yellen’s every word.