North American Open 07/28/17

DEFLATEGATE HEADS TO BRAZIL?

Brazil sees first negative monthly inflation rate for the first time in over a decade

  • Inflation decrease 0.23% in June compared to May
  • Decline influenced by lower electricity, food, and transport prices
  • Capital Economics considers this result to lay the foundation for the central bank to cut its Selic rate by 75 basis points at next month’s meeting, down to 9.5%
  • Brazil’s currency and stock index were fairly unchanged on Friday, June 7th

 

 

 

STERLING SOARS TO 10-MONTH HIGH

The surge was investors’ response to the UK’s negotiations with the EU over Brexit

  • The British government explicitly acknowledged the financial obligations it owes to the EU as a result of Brexit
  • This acknowledgement will hopefully avoid a stand-off and delays in trade talks between the two
  • The pound rose as high as $1.3083 – a 1.1% increase – to its highest level since September 2016
  • Britain is currently not set to exit the EU until March 2019

 

SOUTH AFRICA CUTS INTEREST RATES FOR FIRST TIME IN 5 YEARS

The cut comes as part of an effort to stimulate the economy, which fell into an unexpected recession earlier this year

  • The cut was the first change in rates in 16 months
  • Inflation dropped further than expected in June, down to 5.1%
  • The rand weakened, dropping from 13.0170 to 12.9167
  • The SARB halved its growth forecast for the rest of 2017 and cut its forecasts for 2018 and 2019

GO GREECE LIGHTNING?

The International Monetary Fund’s board has agreed, in principle, to a $1.8 billion loan for Greece

  • The move is largely symbolic, and the IMF is pushing for more realistic budget targets and more ambitious debt relief
  • IMF Managing Director Christine Lagarde is urging creditors to reduce the Greek surplus target from 3.5% to 1.5%
  • The Greek debt pile currently stands at 180% of its GDP
  • Greece has not sold a bond since 2014 but plans to ease back into the market with a 5 year bond in the near future

EURO RISES TO HIGHEST LEVEL IN TWO YEARS

Despite dovish efforts by Mario Draghi the euro continues its inspired year

  • The ECB faces a similar challenge as the Fed and the Bank of England: tightening monetary policy while managing investors’ emotions
  • Eurozone inflation fell further to 1.3% on the year, far below the ECB’s target mark of just shy of 2%

  • Despite Draghi’s declaration that the $60 billion per month QE would continue, investors were not convinced
  • The euro rose more than 1%, as high as $1.166

 

 

 

 

 

 

 

Opening Rates

EUR / USD 1.1709 / 1.1710
USD / JPY 111.22 / 111.23
GBP / USD 1.3087 / 1.3088
USD / CHF 0.9703 / 0.9704
USD / CAD 1.2540 / 1.2541
AUD / USD .7947 / .7948
USD / MXN 17.7571 / 17.7626
USD / CNY 6.7414 / 6.7448
EUR / JPY 130.29 / 130.30
EUR / GBP .8948 / .8949