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Market Analysis

FX News Today

European Outlook: Asian stock markets are mostly higher, with the ASX a notable exception as the Aussie strengthened following Bank of Australia’s decision to keep rates steady. Oil prices are higher on the day and the front end WTI future climbed further above USD 45 per barrel, but gains are capped by concerns that stocks indices may be approaching overbought levels. U.S. and U.K. stock futures are also moving higher, despite the fact that U.K. BRC retail sales came in much weaker than expected with the like-for-like reading down -0.9% y/y, against expectations for another marked rise. German factory orders disappointed and previous month revised down (see below) – EURUSD overnight lows 1.1140 currently 1.1150. The Eurozone also has the detailed reading of Q2 GDP, and elsewhere Switzerland releases Q2 GDP and August inflation data.

FX Summary: The dollar and euro traded softer against most other currencies, with markets taking Friday’s payrolls report as lowering the odds for the Fed to hike rates at its FOMC meeting later this month, while data left prospects for unchanged policy with dovish guidance at the ECB’s meeting this week. USD-JPY declined by over 0.5% to the 103s and EUR-JPY fell by 0.7%. Cable popped higher on the back of a record month-to-month rebound in the UK’s August services PMI, but gains failed to sustain as such an outcome had been well flagged by the stellar rebounds already seen in last week’s construction and manufacturing PMI reports. USD-CAD extended Friday’s post-U.S. jobs losses, with the Canadian dollar rallying concomitantly with oil prices. News that Russia and Saudi Arabia had signed an agreement to set up a “working group” to think of ways to curtail crude market volatility boosted crude. (see below)

Oil Update: Oil prices sprang higher on news of a Saudi-Russia agreement, signed on the sidelines of the G20 meetings, to set up a “working group” to discuss ideas about how to minimise market volatility. WTI crude was up nearly 5% at the $46.50 intraday peak, overnight it traded to $44.75 before recovering to $45.30.  A lack of specifics about how output might be restricted apparently led to the rally fizzing out, and prices retreating. Saudi Arabia’s oil minister, Falih, said that that Iranian production has now reached pre-sanctions levels, suggesting that there is scope for Tehran to agree to a production freeze.  The global supply glut remains and there will have to be some significant compromise in Algiers if the $50 is to be recovered.

German July manufacturing orders rose 0.2%: This was less than hoped and even with June revised marginally higher to -0.3% m/m from -0.4% m/m, the annual rate remained stuck in negative territory. Still, the -0.7% y/y reading is a clear improvement from the -3.0% y/y in the previous month, although looking at the dip in the manufacturing PMI, and the sharp downward revision to the German services PMI growth projections going ahead will have to be revised again and the weaker orders data will add to the arguments of the doves at the ECB. Interestingly though, the breakdown showed a marked rebound in foreign orders inflow, which suggests Brexit and the weaker Pound are not to blame. Domestic orders meanwhile dropped -3.0%.

 

Main Macro Events Today        

  • US Non-Manufacturing PMI – 14:00 GMT – Forecast for a slight rise to 55.7 from 55.5. Last July’s spike to 59.6 set a new post-recession high. The ISM-adjusted figure for the ISM-NMI tends to track that of the Philly Fed. The August Philly Fed index rose to 2.0 from -2.9, but the ISM-adjusted measure fell to 47.2 from 51.3.
  •  NZD GDT Price Index – The fortnightly Global Dairy Trade Index is published and with a strong recovery last time to 12.7% sparking a rally in the NZD, today’s data will be followed closely.

 

 

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