Rather than simply say that current rates are restrictive, the Fed “needs to take a view” on where the long-term neutral rate is, Summers said. “If you don’t know what’s neutral, you don’t know how expansionary or restrictive you’re being.” And he finds “bizarre” the Fed’s suggestion “that the ultimate neutral rate is 2.6%.” Among other things, Summers cited expansionary fiscal policy, new climate investment, more defense spending and money flowing into chips for the AI revolution. “The neutral rate is far more likely to have a 4-handle on it right now than it is to have a 2-handle,” he said. If Summers is right, those rates aren’t nearly as restrictive as Powell thinks they are.
Despite this, Summers says the Fed seems intent on cutting rates, which he finds difficult to understand.
Washington — President Joe Biden on Saturday signed the massive spending package that the Senate approved overnight, avoiding a partial shutdown of the government and ending a monthslong fight over spending that persisted six months into the fiscal year. The package fully funds the government through September 2024. The Senate approved the $1.2 trillion package, which […]
Washington — President Joe Biden on Saturday signed the massive spending package that the Senate approved overnight, avoiding a partial shutdown of the government and ending a monthslong fight over spending that persisted six months into the fiscal year.
The package fully funds the government through September 2024.
The Senate approved the $1.2 trillion package, which was unveiled early Thursday in a vote of 74 to 24. Hours earlier, it advanced out of the House in a 286 to 134 vote.
The Senate slipped past the deadline after an hourslong standoff on amendment votes. Shortly before midnight, Senate Majority Leader Chuck Schumer, a New York Democrat, announced the upper chamber had finally reached an agreement that would allow them to expedite the bill's passage. Republicans demanded votes on amendments in exchange for speeding up the process. Without an agreement, the soonest the Senate could vote is Sunday.
The missed deadline was not expected to have any effect on government operations. The White House said agencies would not shut down and could continue their normal operations, since it was clear that a resolution was imminent and that President Biden would sign the bill.
By Laila Kearney NEW YORK (Reuters) – Oil prices fell by nearly $1 a barrel on Friday as comments from U.S. central bank officials indicated higher-for-longer interest rates, which could hinder demand from the world’s largest crude consumers. Brent crude futures were down 93 cents, or 1.1%, to $89.95 a barrel by 1:29 p.m. ET […]
By Laila Kearney
NEW YORK (Reuters) - Oil prices fell by nearly $1 a barrel on Friday as comments from U.S. central bank officials indicated higher-for-longer interest rates, which could hinder demand from the world's largest crude consumers.
Brent crude futures were down 93 cents, or 1.1%, to $89.95 a barrel by 1:29 p.m. ET (1729 GMT), while U.S. West Texas Intermediate crude shed 88 cents, or 1.1%, at $78.38 a barrel.
Both benchmarks headed for weekly losses.
Oil prices also were pressured as the U.S. dollar strengthened after Dallas Federal Reserve President Lorie Logan said it was unclear whether policy was tight enough to bring down inflation to the U.S. central bank's 2% goal. A strong dollar makes greenback-denominated commodities more expensive for buyers using other currencies, and higher-for-longer U.S. interest rates could also dampen demand.
Higher interest rates typically slow economic activity and weaken oil demand.
Atlanta Fed President Raphael Bostic also told Reuters he thought inflation was likely to slow under the current monetary policy, enabling the central bank to begin reducing its policy rate in 2024 - though perhaps by only a quarter of a percentage point and not until the final months of the year.
"The two fed speakers certainly seemed to put the kibosh on the prospect of rate cuts," said John Kilduff, a partner at Again Capital LLC.
Prices were also under pressure from rising U.S. fuel inventories approaching the typically robust summer driving season, said Jim Ritterbusch of Ritterbusch and Associates.
"Given the price decline of the past month and the weaker-than-expected demand trends for U.S. gasoline and diesel, some bearish demand adjustment would appear likely," Ritterbusch said.
Next week, U.S. inflation data could influence Fed decisions on interest rates.
Prices drew little support from the U.S. oil rig count, which is an indicator of future supply, despite energy services firm Baker Hughes data showing the oil rigs fell by three to 496 this week, their lowest since November. [RIG/U]
Data on Thursday showing China imported more oil in April than the same month last year also helped to keep oil prices from moving lower. China's exports and imports returned to growth in April after contracting the previous month.
The European Central Bank, meanwhile, looks increasingly likely to start cutting rates in June.
In Europe, a Ukrainian drone attack set an oil refinery in Russia's Kaluga region on fire, RIA state news agency reported on Friday, the latest salvo from Kyiv in what has become a series of tit-for-tat attacks on energy infrastructure.
Conflict in the Middle East also continues after Israeli forces bombarded areas of the southern Gaza city of Rafah on Thursday, according to Palestinian residents, after a lack of progress in the latest round of negotiations to halt hostilities in Gaza.
(Additional reporting by Natalie Grover in London, Katya Golubkova in Tokyo and Sudarshan Varadhan in Singapore; Editing by Marguerita Choy and David Gregorio)
The overview USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week. Unless the Japanese government softens […]
USD/JPY continued to sideways range trade, with bullish fundamentals offset by the threat of BOJ intervention
US CPI and PPI reports, the ECB interest rate decision and geopolitics loom as the key drivers for USD/JPY this week
Near-term bias remains to sell rallies in USD/JPY rather than buying dips
The overview
USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week.
Unless the Japanese government softens its public stance towards weakness in the yen, the preference is to sell rallies rather than buy dips or breaks. Geopolitical tensions in the Middle East are another wildcard for traders to navigate.
Key events for USD/JPY
There’s no need to reinvent the wheel when it comes to the likely USD/JPY drivers this week with the US interest rate outlook and geopolitics the key areas to focus on. As the latter is impossible to predict, what we as traders can do is look at the events that are likely to have the largest impact, taking into consideration positioning and technical factors.
Over the week, three such events stand out: the US consumer price inflation report on Wednesday, the US Producer price inflation report on Thursday and the ECB interest rate decision, also on Thursday. While the Fed speaking calendar is extremely busy, they key point to remember is the tone will be heavily influenced by these events, along with last Friday’s blockbuster US non-farm payrolls report.
There’ll be plenty of headlines to navigate, including from the FOMC minutes on Wednesday, but the vast majority will be noise and not impact USD/JPY meaningfully.
US CPI preview
Having topped market expectations at the headline and underlying level in the first two months of the year, markets may receive greater clarity as to whether the inflation acceleration is the start of a new trend or simply a seasonal anomaly.
Both headline and core CPI are forecast to lift 0.3%, down a tenth from February. While a deceleration, both would be incompatible with inflation returning to the Fed’s 2% inflation mandate in a timely manner.
The core services ex-housing figure, known simply as “supercore” inflation, will be influential given the Fed has nominated it as something it’s watching. It decelerated noticeably in February, minimising the damage to the dovish rates case despite the heat in other readings.
Potential USD/JPY market reactions
If that happens and we see no upside surprise in the core or headline inflation rates, it’s likely US front-end bond yields will decline, dragging back-end rates lower with it. That should narrow the yield differential between the US and Japan and weigh on USD/JPY. However, if we see another upside surprise, especially at the core level, USD/JPY and yields would likely lift, reflecting the diminishing case for Fed rate cuts in 2024.
Source: Refinitiv
US PPI, ECB rates decision in focus
The same approach applies for Thursday’s producer price inflation report with a hotter reading likely to lift USD/JPY, and vice versus if cold. A 0.3% gain is expected.
The ECB monetary policy meeting is the other key event simply because the euro is the largest weight in the US dollar index, making its fluctuations influential on other G10 FX names, including the yen. While no change in policy rates is expected, there is a growing risk it may signal the likely timing of its first rate cut will be brought forward from June. If that eventuates, EUR would likely weaken against the USD, dragging JPY along with it.
As for geopolitics, the rule of thumb is that if the tensions in the Middle East are subsiding, it should boost USD/JPY. If they escalate significantly, the likely repatriation of capital to Japan would weigh heavily on USD/JPY.
USD/JPY technical setup
With markets continued to pare rate cut expectations from the Fed, widening interest rate differentials with Japan, fundamentals suggest the bias for USD/JPY should be higher heading into the US inflation reports this week. However, with the threat of intervention from the BOJ elevated, rallies continue to suffocate on pushes towards resistance at 152, creating what I’ve described previously as a stalemate scenario.
With USD/JPY sandwiched by the intervention threat and bullish fundamentals, I’ll direct you to recent trade ideas that remain valid and have already worked since written. They can be accessed here and here.
The one overriding message is that while the technical picture looks bullish for USD/JPY, with a break of 152 pointing to the potential for substantial gains, the threat of BOJ intervention has greatly reduced the odds we’ll see significant upside should a topside break occur.
That suggests there’s limited reward and ample risk of going long on pushes toward 152. If the BOJ were to intervene, or even just signal such a move was imminent, USD/JPY could fall hundreds of pips in the space of seconds. As such, unless the Japanese government’s stance towards the weaker yen shifts substantially, selling rallies, rather than buying dips or breaks, remains the preferred strategy.
Resistance is located just below 152 with support located at 151.50, 151.20, 150.80 and 150.27. A more pronounced support zone is located between 149.58 and 149.00. Good luck!
GVZ, or the gold volatility index, witnessed a strong move higher on Thursday as markets digested the recent Fed statement and latest summary of economic projections. The projections invalidated a growing belief in the market that the Fed will be forced to forgo a third rate cut in 2024 due to robust US data and resulted in a […]
GVZ, or the gold volatility index, witnessed a strong move higher on Thursday as markets digested the recent Fed statement and latest summary of economic projections. The projections invalidated a growing belief in the market that the Fed will be forced to forgo a third rate cut in 2024 due to robust US data and resulted in a dovish repricing in the dollar.
However, it has not taken long for markets to rally behind the dollar once again – something that is likely to keep the greenback supported into Friday’s PCE data which falls on Good Friday.
The chart below reveals gold’s recent responsiveness to the dollar (DXY) and shorter-term yields like the US 2-year yield. The aggressive move higher corresponded with falling yields and a lower USD but shortly thereafter,
Daily Gold Chart with DXY and 2-Year US Treasury Yields
POTENTIAL EVENING STAR EMERGES MOMENTS AFTER PRINTING THE NEW ALL-TIME HIGH
An evening star could be emerging as the week came to a close, although the middle candle has a very notable upper wick which is not synonymous with the candle stick pattern. Nevertheless, price action suggests the recent move higher was an overreaction to the Fed news, as prices continued to ease into the weekend.
At the start of the coming week, the prior high of $2146.80 comes immediately into view as an early indication of whether bears may set the tone for the week. It’s a quiet week apart from final Q4 GDP data for the US and UK just to list a few and then on Friday PCE data for the month of Feb is due.
The dollars strong, immediate recovery poses a challenge for further upside for gold over the shorter-term and with few catalysts to choses from next week, gold may consolidate around the prior all time high with a view to trade lower.
The weekly chart helps put golds multi-week advance into perspective. The week before the one that’s just passed revealed a bit of a slowdown in bullish momentum and the candle relating to the most recent trading week that’s just come to a close, reveals a rejection of higher prices.
TOKYO (Reuters) – Japan’s economy likely contracted an annualised 1.5% in the January-March quarter as all key drivers of growth slumped due to an uncertain outlook, a Reuters poll showed, which will probably set back Bank of Japan efforts to raise interest rates. Cabinet Office data due out at 8:50 a.m. on May 16 (2350 […]
TOKYO (Reuters) - Japan's economy likely contracted an annualised 1.5% in the January-March quarter as all key drivers of growth slumped due to an uncertain outlook, a Reuters poll showed, which will probably set back Bank of Japan efforts to raise interest rates.
Cabinet Office data due out at 8:50 a.m. on May 16 (2350 GMT on May 15) is expected to show the economy's contraction would be equivalent to quarterly decline of 0.4%, according to the poll of 17 economists.
The decline followed growth of 0.4% annualised in the last three months of 2023, with the main pillars of GDP collapsing and leaving no growth engine for the January-March quarter.
"The trend of thrifty consumers remains strong due to rising living costs likely being exacerbated by the yen weakening," said Takeshi Minami, chief economist at Norinchukin Research Institute, who predicted the overall economy would contract at 1.2% annualised in the January-March period.
Private consumption, which makes up more than 50% of the economy, likely fell 0.2% in the quarter as consumers tightened belts to guard against the rising costs living.
The earthquakes that struck the Noto peninsula at the start of this year also undermined output and consumption. As well, a scandal at Toyota's compact car unit Daihatsu led to the suspension of output and shipments.
Capital expenditures also fell 0.7% quarter-on-quarter as companies remained slow to invest their hefty profits in plants and equipment, such as labour-saving technology to overcome labour shortages.
External demand, or net exports, which means shipments minus imports, likely shaved 0.3 percentage points off GDP growth. Domestic demand probably fell for a fourth straight quarter.
The corporate goods price index, a key gauge of prices corporations charge against each other, probably rose 0.8% in April year-on-year, keeping the pace unchanged from March.
The CGPI data will be released at 8:50 a.m. on May 14 (2350 GMT on May 13).
The CGPI, broadly equivalent to wholesale prices, likely rose 0.3% month-on-month in April, accelerating slightly from the 0.2% rise for March, underscoring persistent inflation that is boosting the costs of living and doing business.
(This story has been refiled to say quarterly decline, not monthly, in paragraph 2)
(Reporting by Tetsushi Kajimoto; Editing by Tom Hogue)
