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European Outlook:  Topix and Nikkei reached fresh two year highs, Chinese stocks traded in Hong Kong rallied as markets reopened after a holiday, benefiting from robust PMI data over the weekend and the PBOC’s announcement that it will cut reserve requirement ratio for next year. The Hang Seng is up 1.75%, the Nikkei gained 0.95% while the ASX 200 dropped -0.49%, as lower oil prices weighed on energy stocks and a sharp fall in QBE insurance, after the company detailed expected losses from recent hurricanes, dragged the index down. Mainland China remains closed for holidays. In Europe Germany is closed for a national holiday after Bunds were underpinned yesterday by intra-Eurozone safe haven flows following the escalation of Spanish tensions. Gilts outperformed with the US100 yesterday amid a broader rise in European stocks ex Spain, which benefited from USD strength. U.K. and U.S. stock futures suggest further gains today. Today’s data calendar is relatively quiet, with only Eurozone producer price inflation and the U.K. CIPS Construction PMI.

U.S. reports: revealed upside surprises across the September ISM and August construction spending reports that add upside risk to forecasts for an Irma-depressed 120k September nonfarm payroll rise and a 3.0% growth rate for Q3 GDP. For the ISM, we saw a headline pop to a 13-year high of 60.8 from a 6-year high of 58.8 in August, as all the producer sentiment surveys are showing a sharp rise with the hurricane rebuild to new cycle-highs. The jobs index also rose, to a 6-year high of 60.3 in September from a prior 6-year high of 59.9. For construction, we saw a 0.5% August rise after upward revisions across the private construction components, though public construction was revised down sharply, and we now have a new cycle-low for that measure in July before a 0.7% August bounce.

FX Update: The dollar has continued to find demand, posting gains versus the euro, yen, sterling and Australian dollar, among other currencies. The narrow trade-weighted USD index clocked a one-and-a-half-month peak at 93.77, while EURUSD traded below 1.1700 for the first time since mid August. USDJPY remained buoyant, albeit with upside momentum being crimped in the face of Japanese exporter offers above 113.00. The pair edged out a high at 113.19, which is six pips short of last week’s two-and-a-half-month peak. The dollar is in demand as markets continue to adjust to the rekindled hawkishness of the Fed, while the elevated tensions between Spain’s central government and the autonomous region of Catalonia have soured appetite for euros. The Australian dollar came under some pressure after the RBA left policy on hold, as was widely expected, but as the accompanying statement of Governor Lowe remained non committal in tone, acknowledging improving economic growth but reaffirming that the inflation outlook remains subdued. AUD-SD posted a two-and-a-half-month low at 0.7785.

Main Macro Events Today

  • UK Construction PMI – The construction PMI expected to come in unchanged at 51.0, a level indicating only weak expansion in the sector.
  • EU PPI – PPI is expected to improve 0.1% m/m in August and  2.3% y/y.
  • FOMC Powell –   Governor Powell speaks  at a financial regulation event jointly hosted by Reuters and George Washington University, in Washington DC, about regulatory reform.

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Andria Pichidi

Market Analyst


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