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Investment Bank

Investment Bank

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Minuting   

Aziz Sunderji, Zoso Davies, Juan Prada
 

  • Copper was better supported after weakening in the previous days, while oil prices declined as the DOE report showed lower-than-expected gasoline demand. The USD and US Treasury yields softened as President Trump disbanded his advisory manufacturing council after many CEOs resigned. The dovish FOMC minutes added to USD and yield downside.
  • The FOMC minutes hit a dovish tone. The Committee expressed heightened concerns about low inflation, and discussed the validity of the Phillips curve as a forecast model and the theoretical reasons of the coexistence of low inflation with low unemployment. Balance sheet normalization seems to be set to be announced at the September meeting, but another interest rate hike this year is in doubt. The USD sold off after the minutes as Treasury yields came down. The markets price about a 40% probability of a December hike.
  • The ECB July meeting minutes will be released today. The market will pay attention to any discussion related to the recalibration of monetary policy in the autumn, and comments on the markets’ reaction following Draghi’s speech in Sintra. Some GC members could have expressed concern with recent EUR strength in the minutes, which could bring downside to the currency. Yesterday, the EUR weakened on headlines that President Draghi will not signal a policy shift at Jackson Hole.
  • Brazil widened its fiscal deficit target for 2018 and 2019. Poor fiscal execution and lower-than-expected revenues due to slow growth made it impossible to achieve the original fiscal target. Fiscal challenges remain as the economy struggles to recover, while progress on reforms is hampered by the political crisis. Monetary policy remains the only mechanism to provide support to the economy and we still expect the central bank to deliver a 75bp rate cut in September, although we see risks of a 100bp cut.
     
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