There were no great revelations in the Fed minutes yesterday, the narrative being pushed that the Fed remains data dependent and concerns over the job market weighing more heavily. This puts tomorrow’s US employment report ever more in focus and markets are going to largely tread water between now and then. We’ve seen a dramatic shift in Fed expectations over the past few weeks, pushed by the US jobs data and the uncertainties created by the Brexit vote. There are growing concerns that the US is facing a more sustained cyclical slowdown in the economy, which will put to bed any further expectations of Fed tightening of this year. The market currently places a less than 10% probability on this scenario.
Stocks are feeling more punchy after yesterday’s overall negative session, opening around 1% higher on the main European bourses. In the UK, the suspension of various property investment funds continues to make the headlines, but this should be seen as a sideshow, given the inherent nature of a fund that has daily liquidity and invests in illiquid assets. Note that the BoE meets next week and expectations are strong that we will see some sort of easing in policy, but the BoE could well be leaning heavily on the message from its network of agents around the country to get a feel for post-vote reading on the economy.
For today, there are some data releases of interest, such as the ADP data in the US and the ECB ‘account’ of its meeting. Sterling has recovered from the low’s seen yesterday on cable, which is not surprising given the extent of the sell-off seen in the prior couple of sessions. Meanwhile both EURUSD and USDJPY are facing key levels of 1.10 and 100.00 respectively, but neither look under threat ahead of tomorrow’s US jobs numbers.