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We know that this is slightly contrary to the consensus views but we think it needs to be said. The communication from the RBA (Reserve Bank of Australia) is unusually unclear, confusing and conflicted. The view conveyed in statement, press conference and minutes currently we would argue counter each other.

And the reason for this we believe is because the RBA is a reluctant hawk and is frightened to act. Let us now present why we think this and what it will mean for FX and yields in particular. The RBA has just completed a mass review of its operations and one of the key changes was to improve transparency.

This included press conferences, extended meetings, and more public discussions from members. The catch with this has been the mixed communications. Take for example the statement which was extremely ambiguous.

It was filled with terms like uncertainty, mixed signals, and complexity. It explains why the statement has this line: ‘the path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.’ That’s fair – things are complex and we understand why the board is waiting for more data. That was countered with this: ‘ The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.’ Historically, whenever the Board has included such a resolute statement in its communications, they followed up with a cut or a hike in the preceding meetings – the frightened hawk is there and strongly suggests that a rate hike is likely.

The initial AUD reaction to the statement we think shows why the communication is mixed. Then take the press conference – Governor Bullock’s were much stronger than the statement, indicating a significant stance, not really clear in the statement. As mentioned, the Board stated they are not ruling anything in or out, but in reality, they have dismissed the possibility of rate cuts.

That was confirmed when Bullock was asked on this exact point and confirmed that rate hikes were the only things discussed. There was no ongoing discussion about cuts in the near or medium term as they do not expect inflation to reach their target by mid-2026. The Board’s concern is that inflation is notably higher than expected, employment is solid and that overall demand is still generating inflation.

The reaction to all this was clear here: The next notable reaction was the interbank market. All though it doesn’t appear like much in this chart. Please understand this change is actually from a ‘cut’ to ‘hike’ so yes there is a 10% chance of a hike, that is from a 10% chance of a cut.

July will be crucial with substantial data releases, including the second quarter CPI (July 31), GDP figures, and the wage price index. Current forecasts suggest that inflation and employment are performing better than expected, raising concerns about the need for a potential harder landing in the economy to return inflation back to target. The focus is now shifting towards slowing down the economy further despite the per capita recession because in the RBA’s view the impact on the household’s price power in the future from high inflation is still too high.

Future Rate Decisions All things being equal – with the RBA turning itself in knots and trying so hard to stay the course the RBA's commentary suggests it still has preference to hold rates if possible. The big issue as it acknowledges is the possible need for near term tightening due to a lack of progress towards inflation targets. Here is the market’s forecast for rates post the meeting on Tuesday Which probably explains the AUD/USD reactions in the following 24 hours It flatlined – thus the market is telling us that it needs a catalyst, and those catalysts are clearly coming in July.

So to finish what’s the key? A significant upside surprise in the RBA's core inflation measure could lead to a rate hike, despite slowing demand and labour market conditions. We get the monthly inflation data next week, this will be the first strike then the July 31 quarterly read.

This will be huge and will be the biggest AUD mover outside of an RBA meeting. We will be providing as much information on this release the closer we get to the release. However as shown the RBA is a terrified hawk and without this inflation beat, the risk of further tightening diminishes, with expectations for the RBA to remain on hold until potentially the first rate cut in February 2025.

The next RBA meeting on August 6 it’s going to be an interesting 6 weeks for AUD traders ahead of what is a likely live event.

The European Central Bank (ECB) is set to announce its interest rate policy this Thursday. Market participants are widely expecting the rate to remain on hold, but most importantly, the “language” and the “tone” of the statement will be closely watched. It is unlikely that there will be any surprises from the ECB policy meeting and they are expected to maintain the current guidance about ending bond purchases and keeping rates on hold.

Despite being mostly uneventful, it should stay on the Euro traders radar as policymakers have been slightly more hawkish on the underlying inflation pressures recently and some have even highlighted the possibility of bringing forward the timing of the first rate hike. The growing uncertainty around the Italian budget and fiscal position will be the main significant issue that investors will be keen to watch. This week, the European Commission officially rejected Italy’s budget proposal.

The proposal of the deficit is definitely below the 3% EU deficit ceiling, but the EU was hoping that Italy will curb its massive debt given that they are the second largest public government debt pile in Europe after the Greeks. The debt to equity ratio in Italy currently stands at 131.81% of its GDP, and market participants are concerned on the country’s ability to repay its debt. European leaders have ramped up pressure on Italy over its public spending plans and gave unprecedented warnings.

Source: National Institute of Statistics All eyes will, therefore, be on the President Draghi’s comments on Italy’s budget woes to gauge the thoughts on the developments in Italy and the possible effects it may have on the Eurozone economy. Investors will also closely watch how the ECB is balancing the “external” risks that have become more prominent over the coming months: Threat of protectionism Vulnerabilities in the emerging markets Financial Market Volatility

The Bank of England on the 3 rd August, will announce whether they will increase, decrease or maintain the key interest for the United Kingdom. In this article we will look ahead with some industry experts and see how the UK economy performed last quarter. Who decides the rates?

Interest rates are set by the Bank of England’s Monetary Policy Committee which is made of nine members – The Governor, the three Deputy Governors for Monetary Policy, Financial Stability and Markets & Banking, the Banks’s Chief Economist and four external members appointed directly by the Chancellor. Expectations According to Bank of England’s Deputy governor Ben Broadbent it is unlikely that the current interest rate of 0.25% will be raised on 3 rd August as the directions of the UK economy remains unclear. Mr Broadbent is a close ally to the Bank of England governor Mark Carney, who in a recent interview said he was not ready to raise interest rates. “In my opinion, it is a bit tricky at the moment to make a decision (to raise the interest rates).

I am not ready to do it yet”. Bank of England rate history in the last 10 years [caption id="attachment_57430" align="aligncenter" width="445"] Source Bank of England[/caption] Economy The UK GDP (Gross Domestic Product) was estimated to have increased by 0.3% in Quarter 2 (April to June) 2017. The growth in Quarter 2 was driven mainly by services, which grew by 0.5% compared to 0.1% growth in Quarter 1 (January to March) 2017.

The largest contributors to growth in services were retail trade and film production and distribution. Construction and manufacturing were the biggest downward pulls on quarterly GDP growth after two consecutive quarters of growth. GDP per head was estimated to have increased by 0.1% during Quarter 2 2017. [caption id="attachment_57414" align="aligncenter" width="600"] Source: Office for National Statistics[/caption] Financial Markets The Pound The Pound has been at a steady level for the past few weeks, on 16 th July reaching its highest level against the US Dollar since September 2016.

Most experts predict the rates to remain at the same level in the upcoming Bank of England meeting. The markets would have priced in the outcome already. [caption id="attachment_57416" align="aligncenter" width="600"] GBP/USD Source: Go markets MT4[/caption] Since reaching record highs back in May, the FTSE100 has remained around the same level with no major movement in the Index in the recent weeks. [caption id="attachment_57417" align="aligncenter" width="600"] FTSE 100 Source Go Markets MT$[/caption] Remaining Monetary Policy Committee meeting dates in 2017 The New Note On 18 th July 2017, the Bank of England unveiled the new £10 note which will be issued on 14 th September 2017. The £10 note which features author Jane Austen, will be larger than the new £5 note but smaller than the current £10 note and will is made of plastic and has traces of animal fat.

Speaking at Winchester Cathedral, the resting place of Jane Austen, the Governor Mark Carney said “Our banknotes serve as repositories of the country’s collective memory, promoting awareness of the United Kingdom’s glorious history and highlighting the contributions of its greatest citizens”. [caption id="attachment_57421" align="alignleft" width="435"] The New Ten Source Bank Of England[/caption] The new £10 note celebrates Jane Austen’s work. Austen’s novels have a universal appeal and speak as powerfully today as they did when they were first published. The new £10 will be printed on polymer, making it safer, stronger and cleaner.

The note will also include a new tactile feature on the £10 to help the visually impaired, ensuring the nation’s money is as inclusive as possible. By: Klavs Valters GO Markets

The recent USD decline stalled in yesterday’s session with FX traders seemingly taking the view that there is not enough thrust from US data to justify a significantly weaker USD just yet. Aside from the inflation aspect – and markets may have reacted a bit too optimistically to the CPI and PPI – jobless claims also eased back yesterday to 222k after a jump to 232k one week ago, mirroring the January reading where they reached 225k but then dropped back to the 200-210k area. GBP under pressure EURGBP has come off its 0.8610 peak in the past couple of sessions with a strong equity market benefitting the more cyclical and risk sensitive Pound Sterling.

At the same time, volatility in the pair seems to be abating ahead of the key CPI figures in the UK next week. Risks are skewed to the dovish side for the Bank of England, and a move higher in EURGBP is a good chance as traders increase their bets on a June rate cut. Today, the key event for GBP traders is a speech by the BoE’s Catherine Mann, who is considered the MPC’s most hawkish member.

Yesterday, Megan Greene echoed the recent cautious optimism on inflation expressed by Governor Andrew Bailey at the latest meeting.

Mays FOMC minutes released on Wednesday surprised on the hawkish side, bolstering USD and seeing the Dollar Index (DXY) retake the psychological 105 level. While the general view of FOMC members was that policy was “well positioned”, there were a few more than expected who were open to more hikes if needed, questioning whether policy was restrictive enough. Hot March inflation and jobs figures seemingly lingering in the minds of some of the kore hawkish members of the FOMC despite some encouraging April data.

Hawks Neel Kashkari and Chris Waller being the main voices regarding caution from the Fed in cutting too early, though it does seem that the general FOMC sentiment has turned generally less hawkish since the May meeting so any pop in the USD may be short lived. In today’s economic releases for FX traders PMIs are released in the US and eurozone. Given indications from recent data, there is the possibility for eurozone figures to paint a relatively more encouraging picture on inflation than in the US, also Nvidia’s solid results will likely have some positive impact on risk sentiment today.

Where’s the Federal Reserve at? Slowing Growth and Potential Rate Cuts: Recent economic data suggests a slowdown in growth, contrary to earlier expectations of reaccelerating growth and inflation. Federal Reserve Chairman Jerome Powell's statements and recent economic indicators point towards the possibility of lower policy rates in the near future.

Key indicators, such as the softening in job markets and overall economic activity, indicate that growth is decelerating rather than accelerating. Core inflation remains above the Fed's target but is showing signs of a gradual decline, with core CPI at 0.29% month-over-month (MoM) in April. This trend could build the Fed's confidence that inflation is on a downward trajectory, potentially leading to rate cuts starting in July.

These data trends have filtered into in the market itself. The divergence between the S&P and US 2-year has been come very apparent as yields unwind from their hawkish bets that ramped up on Q1 data. That spread is becoming an interesting trade – it could close as fast as it has opened if data misses.

On the data – what is core to the Fed’s view? Inflation Trends: Core inflation remains elevated but shows signs of slowing. The April core CPI increase of 0.29% MoM aligns with the Fed's expectations of gradual inflation decline.

The slow but steady decrease in shelter prices, particularly the owner’s equivalent rent (OER), is a positive sign. However, the "supercore" non-shelter services sector's inflation is unlikely to slow significantly without a loosening of the labour market and that remains a headwind. That brings us to the next question what is the official views of the Fed?

Federal Reserve Outlook: The recent Federal Open Market Committee (FOMC) minutes and statements from Fed officials suggest it still holds a cautious approach. While there is no major shift towards a hawkish stance, the rhetoric indicates a readiness to cut rates if inflation data supports a premise it’s on a path to a more sustainable level. Yet the view from members is rather mixed, illustrated by the mixed views from members over the past week.

Key Statements Vice Chair Philip Jefferson: Jefferson noted that while April's data is encouraging, it is too early to determine if the slowdown in inflation is sustainable. He emphasized the current restrictive monetary policy and refrained from predicting when rate cuts might begin, stressing the importance of assessing incoming economic data and the balance of risks. Vice Chair of Supervision Michael Barr: Barr expressed disappointment with Q1 inflation readings, which did not increase his confidence in easing monetary policy.

He reinforced the message that rate cuts are on hold until there's clear evidence that inflation will return to the 2% target. Cleveland Fed President Loretta Mester: Mester anticipates a gradual decline in inflation this year but acknowledges that it will be slower than expected. She no longer expects three rate cuts this year and mentioned that the Fed is prepared to hold rates steady or raise them if inflation does not improve as anticipated.

San Francisco Fed President Mary Daly: Daly sees no need for rate hikes but also lacks confidence that inflation is decreasing towards 2%. She sees no urgency to cut rates, echoing the broader sentiment of caution among Fed officials. The conclusion from all this is that the Fed is still giving itself time.

It’s of the view that the restrictive policy will need more time to work, suggesting a prolonged period of higher interest rates to combat inflation effectively and despite the movements in the bond market and USD. Traders in the fed fund futures are still trading a full 50 basis points higher as of now compared to their bets at the March meeting. (Black v Blue line) Other data that matters: GDP and Consumer Spending: Despite strong GDP growth in the latter half of 2023, real GDP growth slowed significantly to 1.6% annualized in Q1 2024. Final private domestic demand was sustained primarily by consumer services spending, even as real goods spending declined.

The weakening consumer spending on goods is beginning to spill over into the services sector, indicating broader consumer weakness. Manufacturing and Investment: Data on manufacturing and business investment remains weak. Manufacturing production has stagnated, and orders for durable goods have not shown significant improvement.

Residential fixed investment is also slowing, with housing starts and building permits both declining in April. Housing Market: Existing home sales data, to be released soon, is expected to show a modest rebound from the previous month. However, ongoing weakness in the housing market, influenced by higher mortgage rates, remains a concern.

Hot Copper – Too hot? Copper has experienced significant price movements, with several key factors contributing to the recent trends in copper prices, spreads, and inventory levels. The following points provide an in-depth analysis of the forces at play: Tighter Physical Copper Market: Last week's record highs in COMEX and SHFE copper prices, alongside the COMEX-LME copper spreads indicate a very tight physical copper market.

This saw the LME copper price smash a new record all-time high (above US$11,000 a tonne). The dislocation in copper price benchmarks, such as the COMEX-LME spread, typically leads to adjustments in physical flows. However, current conditions are proving challenging, with generally low copper inventories and logistical issues.

For example, traders in China are facing tight shipping schedules, making it difficult to move copper to the US. Suggesting the price will hold in the interim De-commoditisation of Commodities: Deliverable Metal Scarcity: The elevated COMEX copper prices relative to other benchmarks can be partly attributed to the lack of deliverable metal. Only 17% of the metal in LME warehouses originates from countries with COMEX-approved brands.

This scarcity of deliverable inventory means that most of the available copper cannot be used to satisfy COMEX contracts, driving up the COMEX copper premium. RIO, BHP and the like all benefit from this. Influence of Financial Flows: Naturally this kind of move brings highten investor and trader interest.

COMEX copper futures are experiencing all-time highs in long positioning and record open interest in copper options. This surge in financial flows has pushed COMEX copper prices higher compared to other benchmarks and has been more resistant to reversal. What next?

The tight inventory situation is likely to persist, especially if logistical challenges and shipping delays continue. This will maintain upward pressure on prices and could lead to further dislocations between different copper price benchmarks. Efforts to alleviate bottlenecks will be crucial in normalizing price spreads and stabilizing the market.

Any improvement in shipping schedules or inventory replenishment could ease some of the current tensions, but we do not hold our breathe for this to occur any time soon. Conclusion The recent record highs in copper prices and spreads underscore a complex interplay of tight physical markets, and significant financial flows. Traders should closely monitor these dynamics and adapt their positions to capitalise on potential switches and further squeezes.

But in the main Dr. Copper is hot and likely to remain so until supply catches up.