With North America returning from its labor holiday weekend, capital markets are beginning to shift their focus a tad, away from North Korea geopolitical issues to a week packed with central-bank decisions (RBA, BoC and ECB), Fed speakers, and economic data.
The market will look to Fed speakers from today to shed light on the US policy outlook. On Thursday ECB’s Draghi is expected to provide more clarity on paring back the ECB’s bond-buying program in his press conference after the rate decision. A few outsiders think that the Bank of Canada (BoC) could surprise tomorrow in their rate announcement, but Canadian futures market does not support that theory.
Expect US data on durable-goods orders, the trade balance, and unemployment claims, as well as the release of the Fed’s Beige Book (Wednesday 2 pm EDT) to add to the mix.
Note: The Fed’s Lael Brainard is speaking this morning (8am EDT) on the US economic outlook and monetary policy – this may set the tone for the Fed’s Sept. 20 policy decision. Among other Fed speakers this week are NY’s Dudley and Dallas Fed Kaplan.
1. Dollar’s muted moves despite N. Korean concerns
Despite the increase in tensions between the US and North Korean, the ‘mighty’ dollars reactions over the past two trading sessions has been relatively muted.
Both the JPY (¥109.34) and CHF ($0.9596) have been the main beneficiaries of the Korean Peninsula situation. However, ahead of the US open, the currency pairs have managed to give up some of their recent strength. Also putting some pressure on CHF is Swiss Q2 GDP missing expectations while last month’s inflation numbers remained largely absent.
Note: Swiss National Bank (SNB) is expected to leave its deposit rate at -0.75% for the foreseeable future. Policy makers next meet on Sept 14.
EUR/USD (€1.1900) is straddling the psychological €1.19 level ahead of Thursday ECB meeting where the market will try to gauge “when and how” the ECB would begin its tapering process from extraordinary measures. One of the key points this week will be how ECB chief Draghi addresses the pace of EUR appreciation.
2. Stocks mixed results
In Japan, the Nikkei share average (down -0.6%) traded atop of its one-week lows in quiet trade overnight as tensions on the Korean peninsula sapped risk appetite. A stronger yen (¥109.34) has also been weighing on shares. The broader Topix fell -0.8%.
Down-under, Australia’s S&P/ASX 200 Index rallied +0.1% after the RBA left their monetary policy unchanged, while South Korea’s Kospi index lost -0.1% on renewed North Korean tensions.
In Hong Kong, shares finished little changed, with investors remaining in a defensive mood on geopolitical concerns. The Hang Seng index was unchanged, while the China Enterprises Index gained +0.1%.
In China, shares rallied for a third consecutive session overnight as investors bet economic data in coming weeks will remain largely robust despite higher financing costs. China’s blue-chip CSI300 index rose +0.4%, while the Shanghai Composite Index gained +0.2%.
In Europe, regional bourses are trading higher across the board rebounding from yesterday’s falls, led by the DAX. The rally comes despite mostly lowered PMI figures in Europe (see below), while geopolitical tensions continue to exist.
US stocks are set to open in the red (-0.2%).
Indices: Stoxx600 +0.4% at 375.6, FTSE +0.2% at 7429, DAX +0.9% at 12206, CAC-40 +0.4% at 5122, IBEX-35 +0.2% at 10257, FTSE MIB +0.4% at 21877, SMI +0.6% at 8917, S&P 500 Futures -0.2%
3. US crude rises; gas slumps to pre-Harvey levels, gold higher
Ahead of the US open, oil prices are better bid as the gradual restart of refineries in the Gulf of Mexico that were shut by Hurricane Harvey raises demand for crude.
The return of refineries is also putting an end to a spike in gas prices stateside.
Brent crude futures are up +3c to +$52.31 a barrel, while US West Texas Intermediate (WTI) crude futures are at +$47.55 barrel, up +26c, or +0.55% from their last settlement.
Note: Gas futures have fallen -4% from their last close, to +$1.68 per gallon, down from +$2.17 a gallon on Aug. 31 and back to levels last seen before Hurricane Harvey hit the US. Gulf coast.
US Dept. of Energy said that eight oil refineries with a total of +2.1m bpd, or +11.4% of total US refining capacity, were still shut.
Gold prices edged up overnight, hovering atop of their 12-month highs, as North Korea’s most powerful nuclear test to date supported haven demand. Spot gold is up +0.1% at +$1,335.36 per ounce.
4. Yields little changed despite geo political issues
In Japan, government bond prices edged lower overnight with an auction for 10-year JGB’s drawing lukewarm demand from investors.
The 10-year JGB yield backed up +0.5 bps to -0.005% – yields had declined below zero over the past week for the first time since mid-November as tensions in the Korean Peninsula generated sovereign safe-haven bids.
Note: Losses for safe-haven JGB’s are expected to be limited because of geopolitical tensions.
Elsewhere, the yield on US 10-year Treasuries fell -2 bps to +2.14%, while Germany’s 10-year Bund yield increased +1 bps to +0.38%. In the U.K, 10-year Gilt yield has gained +2 bps to +1.057%.
5. Eurozone growth seen easing slightly
The summer months have seen eurozone economic growth ‘moderate’ a tad from the rapid pace seen in the spring.
Data this morning from IHS Markit said its composite PMI for the eurozone was unchanged at 55.7 in August. That was below the preliminary estimate of 55.8, and the average reading for Q2.
Other data showed that figures on retail sales for July also point to a moderation of growth. Sales were down -0.3% from June, having risen in each month since the start of the year.
Note: The ECB’s is expected to raise their growth forecasts for the year Thursday, having already increased their projections twice this year. They currently expect to see growth of +1.9% this year.