Markets recover on Bernanke hopes, but Nikkei bounce needed
Financial markets managed to build on Thursday, stabilization with Asian stock markets rebounding and the USD softer. The price action seems to reflect markets taking a benign view of next week’s FOMC meeting, with anticipation of reduced Fed tapering fears consistent with the moves across markets. A Wall Street Journal article late in the day encouraged expectations for a dovish FOMC, although the piece did not contain new information but rather seemed to draw on past public comments by FOMC members. Following May retail sales data, our economists expect to see an 0.1% rise in May industrial production, which would disappoint consensus looking for a larger bounce after April’s 0.5% drop. Michigan sentiment will also likely pull back after reaching 5+ year highs in April. Heading into next week, the FOMC meeting will be key, and we suspect that a consistent message from the Fed Chairman that gradual tapering remains a possibility but that tightening will not be abrupt should leave scope for markets to rebuild long USD positions vs. low-yielding currencies
Read the full report: FX Daily
BNP Paribas