Dollar's retreat continues today as markets await job data and ECB press conference. The latest Beige Book, prepared by the Minneapolis Fed, suggested that all 12 districts surveyed reported "modest economic growth". As noted in the report, "several Districts noted that contacts had generally optimistic outlooks, with firms expecting growth either to continue at its current pace or to increase". On the job market, "employment grew modestly since the last report, but tight labor markets were widely noted; wages grew modestly, and price pressure grew slightly in most districts". We believe the developments depicted in the report should be consistent with expectation of a Fed funds rate hike in June/July this year. As of yesterday, fed fund futures are pricing in only 21 chance of June hike and 58% chance of July hike, probably due to renewed Brexit fear. But the pricing could chance after today's AFP and more importantly, tomorrow's NFP job data.
In Japan, BoJ board member Takehiro Sato criticized the negative interest rate policy. Sato noted that "opinions are divided on the economic effects of the negative interest rate policy, and this is fuelling worries among the public." And, "negative rate policy has the effect of monetary tightening, rather than easing." He explained that "when financial institutions face a negative spread, it's reasonable for them to shrink their balance sheet rather than expand it." Regarding the road to achieve the 2% inflation target, he expected it to be "long" and "will not be reached in the projected period". Released in Asian session today, Japan monetary base rose 25.5% yoy in May. Consumer confidence rose to 40.9 in May. Australia trade deficit narrowed to AUD -1.58b in April, retail sales rose 0.2% mom.
The focus of Thursday is undoubtedly ECB meeting. We, as well as most market participants, do not expect new measures to be announced. Yet, we believe policymakers would reiterate the effectiveness of policies adopted, the availability of more policy options and the promptness of action when needed. The central bank would also discuss the risks of Brexit. On the data front, Eurozone will release PPI. UK will release construction PMI. US will release ADP job report, Challenger job cuts, and jobless claims.