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28 Aug 2015
Move over China, Fed hype building up again - BTMU
FXStreet (Guatemala) - Derek Halpenny at Bankof Tokyo Mitsubishi UFJ explained that, like the consumer confidence data earlier this week, the real GDP report for Q2 yesterday, which saw an upward revision from 2.3% to 3.7%, confirmed that the US economy was strengthening ahead of the onset of financial market turmoil in August.
Key Quotes:
"It might take some time to judge whether the events in China were an over-reaction or something more serious. As stated here before, our internal valuation estimates indicate that EUR/USD overshot on the upside and is now correcting back to levels consistent with traditional drivers of spot rates, a process that is near completion."
"Short-term US yields have rebounded with the 2-year UST bond yield moving back over 0.70% briefly suggesting market participants are still considering September for the first rate increase from the Federal Reserve. The Sept fed funds future contract implied a shift in probability from around 25% to 33%. But we still believe the comment from Vice Chair Dudley that a September lift-off was now “less compelling” is indicative of a far more cautious Fed."
"The FOMC will have been pleased to see the 3.7% print for Q2 data but most of this upward revision was already expected (the consensus was 3.2%) and the main element of uncertainty for the FOMC is not economic growth but whether inflation would rise toward its target. As the July FOMC meeting minutes revealed, “almost all” voters wanted more evidence to support the view that inflation would increase. Given the deflationary shock in August, the FOMC will probably be less sure about the path of inflation."
Key Quotes:
"It might take some time to judge whether the events in China were an over-reaction or something more serious. As stated here before, our internal valuation estimates indicate that EUR/USD overshot on the upside and is now correcting back to levels consistent with traditional drivers of spot rates, a process that is near completion."
"Short-term US yields have rebounded with the 2-year UST bond yield moving back over 0.70% briefly suggesting market participants are still considering September for the first rate increase from the Federal Reserve. The Sept fed funds future contract implied a shift in probability from around 25% to 33%. But we still believe the comment from Vice Chair Dudley that a September lift-off was now “less compelling” is indicative of a far more cautious Fed."
"The FOMC will have been pleased to see the 3.7% print for Q2 data but most of this upward revision was already expected (the consensus was 3.2%) and the main element of uncertainty for the FOMC is not economic growth but whether inflation would rise toward its target. As the July FOMC meeting minutes revealed, “almost all” voters wanted more evidence to support the view that inflation would increase. Given the deflationary shock in August, the FOMC will probably be less sure about the path of inflation."