Global Themes

US stock markets have had five consecutive days of losses amid poor earnings. Walt Disney (DIS.N) fell sharply after it lowered profit guidance for its cable network business. Media companies got battered after this news & oil companies got battered earlier in the week due to the fall in Crude Oil Prices. As per reports with about three-quarters of S&P 500 companies having reported, Q2 revenues have fallen by about 3.4 percent & quarterly earnings have posted a gain of 1.6 percent. Crude Oil Benchmark WTI fell below $45 a barrel & is poised to break below the March 18 low of $42.03. The sell-off in commodities has taken the CRB Index below 200 which is even below the low of $200.3392 touched on March 2, 2009 seen during the financial crisis. The commodity currencies like AUD, ZAR & CAD have sold off on the back of this sell-off in commodities. The silver lining is that commodity prices which have a cascading effect on the economy will result in prices falling across the board making products more affordable for consumers & reducing costs for businesses, but for Central Bankers who are battling deflation the challenge will only increase. The market traded in pretty much a narrow range as it braces for the payroll report today where about 215k jobs are expected to be added to the economy in the month of July. Yesterday the Challenger job cuts report showed 106k jobs cuts announced which is the highest since 2011.

EUR

The Euro was trading in a narrow range waiting for payroll data which will be released at 8.30 EST. German trade balance hit a record high of Euro 24 billion in June. German exports are up 13.7 percent (Y-on-Y) with non-Eurozone exports surging higher by 15.8 percent. In France, the trade deficit narrowed to Euro 2.7 billion in June from May’s Euro 4 billion. The weak Euro has had a large role to play in the surge in exports for both Germany & France. We had some more good data out of Spain today with Industrial Production for June increasing by 4.5 percent(Y-on-Y).

CAD

The Canadian Dollar posted gains yesterday after it reported a surge in exports. This resulted in the trade deficit shrinking to just $476 million comparted to May’s $3.4 billion. The market was expecting June’s trade deficit at $2.8 billion. Exports increased by 6.3 percent to $44.6 billion. The increase in exports was accompanied by a 4.8 percent increase in volumes & 1.5 percent increase in prices. Exports to the United States which comprise about 70 percent of all exports were up 7.1 percent. The steep fall in the Canadian Dollar has resulted in Canadian exports being more competitive in the US market. The impact of the exchange rate in the surge in exports can be witnessed from the fact that non-US exports grew only by 3.8 percent as most of these currencies have also fallen in the wake of the strength of the US Dollar. Looking granularly into the export data, export of consumer goods surged higher by 17.2 percent, led by exports of packaged sea food(+128%) & pharmaceutical & medical exports (+41.7). Imports on the other hand were lower by 0.6 percent with lower volumes and higher prices.

BRL

The Brazilian Central Bank sounded quite hawkish yesterday when it mentioned that it will remain vigilant in case inflation forecasts don’t materialize. The Central Bank is combating inflation at a time when most economies are worried about deflation or lack of inflation. This was a clear sign that we could see some more rate hikes as the Brazilian Real even after the Central Bank has hiked rates for seven consecutive meetings the last one being last week. Inflation currently is at 9.25, way over the Central Bank’s target at 4.5 percent and with these interest rate hikes the Central Bank expects inflation to ease back to its target level by the end of 2016. In its fight to combat inflation & manage the fiscal position amid austerity, the economy has contracted 1.8 percent this year and is expected to post some marginal growth this year.

GBP

The Sterling Pound plummeted sharply yesterday after Bank of England decided to hold rates steady at their Monthly Monetary Policy Meeting. The trigger for the fall was the 8-1 vote with which they decided to hold rates steady. The market was expecting at least 2-3 members to call for a rate hike and what this voting means is that a rate hike in UK is still a bit further than what the market has expected. This was also the first time that the Bank of England decided to publish the quarterly economic forecast and the details of the MPC meeting on the same day. The Bank of England also downgraded its forecast for inflation to 0.3 percent from 0.6 percent, but increased the growth forecast for 2015 to 2.8 percent from 2.5 percent. In the press conference BoE Governor mentioned that while the first increase in interest rates since 2007 is coming closer, its exact timing would depend on incoming data and the outlook for the economy. In all likelihood now the first rate hike by Bank of England could come in Q1 2016 which means that they could increase rates after the Fed has done and this could cushion the blow on the Sterling Pound and not send it soaring higher after a rate hike.