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    Fed Minutes show China and Greece fears dominated FOMC thinking

    USD

    The dollar fell on Wednesday after the market decided on a doveish interpretation of the Fed June meeting minutes as well as more doveish commentary from Fed’s Williams, who said he didn’t think the labour market participation rate would recover any time soon as it was in a down-trend and discouraged workers were proving difficult to entice back into the market. The rate has reached a low not seen since 1977, and is a major reason why the Unemployment Rate looks so positive at 5.3%.

    There were hawkish elements to the minutes, however, after it revealed one of the board wanted to vote for a rate hike in June, and said the economy was steadily: “approaching levels needed to create that first rate hike in years.”

    Williams too continued to believe there would be a hike this year, and reiterated his concerns about waiting too long.

    The minutes also showed the Fed’s fears about the impact of Greece and China on the U.S economy. Of particular concern was if there was no Greek deal between the country and its creditors, and how that could spill over into European markets and then the U.S. They were also worried about growth in China. These concerns may have cancelled out gains from safety-flows on Wednesday, further contributing to the greenback’s decline.

    On the data front MBA Mortgage Applications July 3 came out 4.6% higher, and Consumer Credit in May, came out at 16.1bn in May, undershooting expectations of 18.5bn.

    EUR

    The euro rallied on Wednesday after it was reported that the Greek Finance Minister sent a letter to the European Stability Fund requesting a three-year bailout loan, in return for implementing some of the reforms creditors had asked for, which gave hope to investors that the the country might reach a deal and avoid a messy default.

    In Tsipras’s own assessment of his country, it was “on the brink of bankruptcy.” Other’s reinforced this, with Donald Tusk, the head of the European Council saying that Greece now only had a maximum of five days to agree a deal before the country and its banking system would go kaput. German Chancellor Merkel, said “we only have a few days to find a solution,” and that she was “not particularly optimistic.”

    European leaders have organized a summit on Sunday to discuss how to handle a Grexit and financial crisis if there a deal has not been struck by then.

    There was no other hard data out on Wednesday from the euro-zone.

    GBP

    The pound fell mostly as a result of a spike in the dollar and the yen on safety flows as a result of the ongoing Grexit crisis and the ripple effect from the Chinese stock market meltdown.

    On the data front, the main news was from the U.K Chancellor’s budget speech. The reaction to the budget was generally positive as fears that it would be a roller-coaster of cuts followed by spending did not realize, after the chancellor smoothed the cuts over the full 4-year term. This also limited chances of a sudden decline in overall economic growth which might have accompanied a more severe budget.

    He outlined a host of reforms, including changes to taxes, cuts to welfare and reductions in other areas of public spending, in order to achieve the goal of a budget surplus by the end of the decade.

    On tax he announced that the basic tax-free allowance would be increased across the board, Corporation tax reduced, a special levy increased on banks, the tax break reduced on buy-to-let mortgages, and the inheritance tax threshold raised to 1m.

    He also increased the national minimum wage to £7.20 per hour, but announced some deep cuts to welfare and general public spending – expect to the NHS which has been ring-fenced.

    Other data includes House Prices from Halifax, which showed a rise of 1.7% in June mom from 0.3% in May, when no change had been forecast.

    The RICS house price balance is also scheduled for release and expected to show a 36% rise in June fro 34% previously.

    JPY

    The yen outpaced the greenback in safe-haven trading on Wednesday and coupled with good Current Account data this morning gave the currency a bit of a bounce. The currency was trading at 120.71 per dollar late in the New York session.

    Overnight data showed that Japan’s trade deficit unexpectedly decreased to 47.3 billion yen in May , following a trade deficit of 146.2 billion yen in the preceding month. Meanwhile total Current Account surplus expanded more than anticipated to 1,889.9 billion yen in May compared with the previous month’s surplus of 1,326.4 billion yen.

    An adviser to prime Minister Abe, Etsuro Honda, said that it would be difficult to reduce its monetary policy before the sales tax hike that will occur in April 2017. Last year already the increase from 5% to 8% has slashed growth for two quarters. In addition the Qualitative and Quantitative Easing, in other words the ‘money waterfall’ brought the Japanese debt-to-GDP ratio to more than 230.0%.

    For the time being Japan is still struggling to go out of the deflation which is necessary requirement for growth. A major issue is consumer spending which has to be a major key driver for Japanese growth. May retail sales came in better than expected at 3% versus 2.2% yoy. June retail sales will be awaited keenly by traders.

    Moving ahead, market participants await release of Japan’s Eco Watchers survey data scheduled for release overnight.

    USD

    The dollar fell on Wednesday after the market decided on a doveish interpretation of the Fed June meeting minutes as well as more doveish commentary from Fed’s Williams, who said he didn’t think the labour market participation rate would recover any time soon as it was in a down-trend and discouraged workers were proving difficult to entice back into the market. The rate has reached a low not seen since 1977, and is a major reason why the Unemployment Rate looks so positive at 5.3%.

    There were hawkish elements to the minutes, however, after it revealed one of the board wanted to vote for a rate hike in June, and said the economy was steadily: “approaching levels needed to create that first rate hike in years.”

    Williams too continued to believe there would be a hike this year, and reiterated his concerns about waiting too long.

    The minutes also showed the Fed’s fears about the impact of Greece and China on the U.S economy. Of particular concern was if there was no Greek deal between the country and its creditors, and how that could spill over into European markets and then the U.S. They were also worried about growth in China. These concerns may have cancelled out gains from safety-flows on Wednesday, further contributing to the greenback’s decline.

    On the data front MBA Mortgage Applications July 3 came out 4.6% higher, and Consumer Credit in May, came out at 16.1bn in May, undershooting expectations of 18.5bn.

    EUR

    The euro rallied on Wednesday after it was reported that the Greek Finance Minister sent a letter to the European Stability Fund requesting a three-year bailout loan, in return for implementing some of the reforms creditors had asked for, which gave hope to investors that the the country might reach a deal and avoid a messy default.

    In Tsipras’s own assessment of his country, it was “on the brink of bankruptcy.” Other’s reinforced this, with Donald Tusk, the head of the European Council saying that Greece now only had a maximum of five days to agree a deal before the country and its banking system would go kaput. German Chancellor Merkel, said “we only have a few days to find a solution,” and that she was “not particularly optimistic.”

    European leaders have organized a summit on Sunday to discuss how to handle a Grexit and financial crisis if there a deal has not been struck by then.

    There was no other hard data out on Wednesday from the euro-zone.

    GBP

    The pound fell mostly as a result of a spike in the dollar and the yen on safety flows as a result of the ongoing Grexit crisis and the ripple effect from the Chinese stock market meltdown.

    On the data front, the main news was from the U.K Chancellor’s budget speech. The reaction to the budget was generally positive as fears that it would be a roller-coaster of cuts followed by spending did not realize, after the chancellor smoothed the cuts over the full 4-year term. This also limited chances of a sudden decline in overall economic growth which might have accompanied a more severe budget.

    He outlined a host of reforms, including changes to taxes, cuts to welfare and reductions in other areas of public spending, in order to achieve the goal of a budget surplus by the end of the decade.

    On tax he announced that the basic tax-free allowance would be increased across the board, Corporation tax reduced, a special levy increased on banks, the tax break reduced on buy-to-let mortgages, and the inheritance tax threshold raised to 1m.

    He also increased the national minimum wage to £7.20 per hour, but announced some deep cuts to welfare and general public spending – expect to the NHS which has been ring-fenced.

    Other data includes House Prices from Halifax, which showed a rise of 1.7% in June mom from 0.3% in May, when no change had been forecast.

    The RICS house price balance is also scheduled for release and expected to show a 36% rise in June fro 34% previously.

    JPY

    The yen outpaced the greenback in safe-haven trading on Wednesday and coupled with good Current Account data this morning gave the currency a bit of a bounce. The currency was trading at 120.71 per dollar late in the New York session.

    Overnight data showed that Japan’s trade deficit unexpectedly decreased to 47.3 billion yen in May , following a trade deficit of 146.2 billion yen in the preceding month. Meanwhile total Current Account surplus expanded more than anticipated to 1,889.9 billion yen in May compared with the previous month’s surplus of 1,326.4 billion yen.

    An adviser to prime Minister Abe, Etsuro Honda, said that it would be difficult to reduce its monetary policy before the sales tax hike that will occur in April 2017. Last year already the increase from 5% to 8% has slashed growth for two quarters. In addition the Qualitative and Quantitative Easing, in other words the ‘money waterfall’ brought the Japanese debt-to-GDP ratio to more than 230.0%.

    For the time being Japan is still struggling to go out of the deflation which is necessary requirement for growth. A major issue is consumer spending which has to be a major key driver for Japanese growth. May retail sales came in better than expected at 3% versus 2.2% yoy. June retail sales will be awaited keenly by traders.

    Moving ahead, market participants await release of Japan’s Eco Watchers survey data scheduled for release overnight.


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