A look at the day ahead at Rae Wee’s European and global markets
Investors were closely watching the first US presidential debate between Democratic President Joe Biden and his Republican rival Donald Trump in the early Asian hours on Friday as the two clashed on stage ahead of the US elections in November.
The debate was hardly market-moving, but it probably did little to allay concerns about the country’s political and economic future.
Biden — his voice hoarse from a cold — notably stumbled over his words several times, while Trump said tariffs will reduce deficits and not increase inflation.
Market odds for a Trump victory have narrowed slightly in the aftermath of the debate, which could translate into upside risks to inflation.
That would mean that the Federal Reserve would keep interest rates high for longer, that US government bond yields would remain high and that the dollar would remain resilient.
The dollar rose to a 10-day high against the Mexican peso and rose against other trade-sensitive currencies, including the Canadian dollar, in the wake of the debate.
The main market event is the release of the US personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, later on Friday.
The PCE core price index is expected to rise 2.6% year-on-year in May, a slowdown from 2.8% in April. Should the data match forecasts, it would likely reinforce expectations that the Fed will start its easing cycle in September.
However, analysts are skeptical about the dollar’s downside. Major central banks elsewhere have already started monetary easing and there are a number of risks plaguing other economies, such as political unrest in Europe.
The first round of the French elections will start next Sunday.
Perhaps the biggest victim of the dollar’s relentless strength is the yen, which fell to a 38-year low again on Friday.
The dollar effortlessly stormed past the 161 yen level to peak at 161.27 yen, while the euro similarly hit a record high against the Japanese currency.
That kept traders alert to possible interventions from Tokyo, with the appointment of a new top foreign exchange diplomat on Friday fueling expectations that a move by authorities to support the yen was imminent.
Also on Friday, separate data showed core inflation in the Japanese capital accelerated in June, while factory output recovered nationally in May.
Key developments that could affect the markets on Friday:
– US Core PCE Price Index (May)
– UK GDP for the first quarter
– Germany import prices (May)
