The Greenback woke up on the wrong side of the bed upon seeing downbeat housing data, and the rest of its day turned out even worse on FOMC minutes and another “You’re fired!” moment from Trump.
- U.S. building permits down from 1.28M to 1.22M vs. 1.25M forecast
- U.S. housing starts fell from 1.21M to 1.16M vs. 1.22M consensus
- Canadian foreign securities purchases slipped from 29.44B CAD to -0.92B CAD
- U.S. crude oil inventories reduced by 8.9M barrels vs. 3M barrels forecast
- FOMC minutes: Balance sheet runoff to happen at an “upcoming meeting”
- FOMC minutes: Several policymakers still saw downside risks to inflation
- FOMC minutes: Many members projected inflation to stay below 2% for much longer, patience needed before acting
- President Trump ends Manufacturing Council Strategy & Policy Forum
Downbeat U.S. economic figures
The dollar started seeing red when the building permits and housing starts figures were printed, as both doused expectations of a rebound in the market.
Building permits tumbled from an upgraded 1.28 million in June to 1.22 million in July instead of just dipping to 1.25 million while housing starts slipped from 1.21 million to 1.16 million versus the consensus at 1.22 million.
Housing starts are down 4.8% mostly due to a slump in construction of both single-family and multi-family homes. Furthermore, the survey revealed that homebuilders are finding it more difficult to find skilled workers to complete the jobs and that the rising cost of materials is also weighing on profitability.
Lack of FOMC commitment to runoff
Another factor that contributed to the dollar’s slide was the release of the FOMC minutes, which revealed that a good number of policymakers are still concerned about weakening inflationary pressures.Some even projected that annual inflation could stay below 2% for much longer and that the risks are still tilted to the downside. The transcript of the discussions also indicated a split on whether or not inflation expectations remain well-anchored and that a drop in these expectations would be undesirable.
When it comes to balance sheet unwinding, dollar bulls were disappointed to find out that Fed officials were still unable to set a date for the runoff. The minutes merely noted that it will happen at an “upcoming meeting” which could mean anytime from September to December or even all the way until next year.
Apart from that, officials also clarified that these reinvestments would have a limited tightening effect. They also expressed some concern on how the uncertainty surrounding the Trump’s fiscal policy reform is starting to hurt investment activity.
Trump fallout continues
Adding salt to the dollar’s wounds was the fallout from Trump’s wishy-washy response to the events in Charlottesville. If you recall, the Donald formed a high-level committee comprised of top dogs in the business community to advise him on strategy and policymaking.
However, members of this Manufacturing Council and Strategy & Policy Committee were unhappy with how Trump has been handling the Charlottesville situation and are cutting ties. CEOs from the likes of JP Morgan, GE, Blackstone, IBM, and BlackRock huddled together and had a vote of no confidence, eventually deciding to resign together.
Of course the Donald took to Twitter to announce that he is disbanding both.
Rather than putting pressure on the businesspeople of the Manufacturing Council & Strategy & Policy Forum, I am ending both. Thank you all!
— Donald J. Trump (@realDonaldTrump) August 16, 2017
Even so, U.S. equity indices still managed to chalk up gains for the day:
- S&P 500 index is up 3.50 points to 2,468.11 (+0.14%)
- Dow 30 index is up 25.88 points to 22,024.87 (+0.12%)
- Nasdaq is up 12.10 points to 6,345.11 (+0.19%)
Major Market Mover(s):
The scrilla was down for the day thanks to a triple-whammy of weak data, the lack of resolve from the FOMC, and cracks in the Trump administration.
EUR/USD jumped from 1.1685 to a high of 1.1772, USD/JPY tumbled from 110.94 to 110.05, USD/CHF is down to the .9650 minor psychological mark, and AUD/USD advanced to .7926.
Watch Out For:
- 11:45 pm GMT: New Zealand PPI q/q (0.9% input, 0.7% output)
- 12:50 am GMT: Japan’s trade balance (0.20T JPY surplus expected)
- 2:30 am GMT: Australian employment change (19.8K expected, 14K previous)
- 2:30 am GMT: Australian jobless rate (no change from 5.6% expected)
- 9:20 am GMT: Speech by RBA Assistant Gov Ellis