Daily Agenda: FOMC Sends Mixed Signals

FOMC notes reveal continuing debate over rate hike; July U.K. retail unexpectedly strong; Japanese exports fall; Aussie employment improves.


Andrew Harrer

Yesterday’s release of notes from the July meeting of the Federal Open Market Committee indicated that the Federal Reserve’s policymakers, while considering a rate hike as early as September, are far from committed to taking that step. The fundamental divide within the FOMC appears to involve how to balance the U.S. central bank’s dual mandates. While some feel that having achieved full employment now warrants tightening, others remain focused on stubbornly low inflation and urge patience. For investors, the message remains muddled. The U.S. dollar index declined overnight to the lowest level since June while implied yields for ten-year Treasuries remained largely unchanged.

U.K. shoppers shrugged off Brexit in July. Retail sales data released today by the U.K. Office for National Statistics suggested shoppers remain undeterred by the results of the Brexit referendum, with headline volumes up by 1.4 percent in July versus June. Sales excluding gasoline rose by 1.5 percent for the month or 5.4 percent year-over-year. According to the report, sales of clothing and footwear were particularly strong, possibly due to seasonal discounting. The pound sterling rose against all primary currencies in response to the data.

Japanese exports disappoint. July trade data released today by the Japanese Ministry of Finance revealed that a resilient yen has weighed on exporters, with shipments abroad falling by 14 percent versus the same month last year, the tenth consecutive monthly decline. Critically, outbound trade to China contracted by an annual 12.7 percent. Imports also declined sharply, with a contraction of almost 25 percent year-over-year. For the administration of Prime Minister Shinzo Abe and policymakers at the Bank of Japan, a resilient currency and weak demand abroad continue to present massive challenges.

Australian jobs picture brightens. July employment figures released by the Australian Bureau of Statistics registered stronger improvement than forecast, with an increase in jobs of more than 26,000 versus consensus predictions of 10,000. Headline unemployment declined to 5.7 percent. The improvement was heavily driven by a significant uptick in parttime jobs, suggesting that underemployment remains an issue that may offset headline improvements in the consideration of RBA policymakers.

U.S. swimmers pulled off plane in Rio. In a further escalation of an ongoing controversy, Brazilian authorities removed U.S. Olympians Jack Conger and Gunnar Bentz from an outbound plane and ordered them to remain in the country. The two are among four swimmers who reported being robbed at gunpoint by men claiming to be police officers. Brazilian authorities have attempted to quash concerns over crime during the Olympic Games.

Banks face suit over Australian rate fixing. A class action suit in the Southern District of New York brought by a group of asset managers is seeking damages over alleged manipulation in setting levels for the Australian bank-bill swap rate. Sixteen banks are named in the suit, including Citigroup, Morgan Stanley and BNP Paribas. The suit references ongoing proceedings brought by the Australian Securities and Investments Commission against banks over price fixing.