FX News Today
European Outlook: Asian stock markets outside of mainland China moved higher following on from gains on Wall Street and in Europe yesterday. BoE and SNB may have left policy on hold yesterday, but at least the BoE kept the door open to another rate cut and the first rise on Japanese markets in 8 days will also have to do with position in Japan ahead of a long weekend and next week’s Fed and BoJ announcements. Japan is closed for a national holiday Monday and trading volumes were already lower than usual today. Indeed, U.K. and U.S. stock futures are in the red and already signal an end to yesterday’s move higher. Oil prices are also down on the day and the front end WTI future is trading at USD 43.55. Today’s European calendar is very quiet, with only French wages, Italian trade and Eurozone labour cost data.
FX Update: The dollar majors are near net unchanged after a quiet pre-Europe session in Asia. China, Honk Kong, South Korea, Taiwan and Malaysia have all been closed for public holidays today, while Japan will be off on Monday. The holidays and the proximity of next week’s Fed and BoJ policy decisions have been keeping participants on the sidelines. There was some movement, most notably USD-JPY, which logged a three-day low at 101.73 before recouping back above 102.00. The pair has been trading sensitively to relative expectations of Fed and BoJ policy into next week’s dual policy meetings of the two. A flood of weak data out of the U.S. yesterday, including sub-forecast readings in retail sales and industrial output, and flat PPI, saw prospects for a Fed rate hike next week whittle further (down to a 49.7% probability on Thursday, from 58.5% a week earlier, according to Bloomberg), which saw the 2-year T-note yield fall nearly 3 bp to 0.73%. Elsewhere, EUR-USD continued to ply a narrow range in the mid 1.12s. AUD-USD inched out a three-day high of 0.7527, reflecting both recent outperformance in the domestic stock market and rising yields.
US Data Deluge: Yesterday’s US reports proved disappointing overall, led by weak August retail sales figures after modest downward revisions that trimmed our Q3 GDP growth forecast to 2.3% from 2.5%, though we still assume is a Q2 growth boost to 1.5% from 1.1%. The July business inventory data were stronger than expected and initial claims remained tight in the Labor Day week at 260k, hence providing some good news on the day, and the mining data within the August industrial production report revealed a fourth consecutive monthly rise that suggests a bottom for that embattled sector, despite the 0.4% headline IP drop. Yet, the Empire State and Philly Fed reports were weaker than expected which suggests that the inventory headwind continues with gusto, and we saw weakness in the August PPI report. A narrowing in the Q2 current account defict rounded out a massive data-blast that largely negated any chance of a policy tightening at next week’s FOMC meeting.
BoE and SNB on Hold: BoE to Buy Overseas Corporate Bonds and no real surprises from BoE and SNB. Both central banks keeping policy on hold. Unlike Draghi, the BoE may have sounded somewhat less pessimistic about the U.K.’s growth outlook post Brexit, but it still left the door open to another rate cut, depending on data. At the same time, the new corporate bond purchase program has yet to start and this week’s publication on the list of eligible assets has caused some stir, as it also includes overseas companies as long as they make a “material contribution to the U.K. economy.”
Main Macro Events Today
- US CPI – August CPI is out today and expectations are to see a 0.1% (median 0.1%) headline increase with the core up 0.2% (median 0.2%). This follows July data which had the headline unchanged and the core up 0.1% on the month. The August PPI was released yesterday and featured a flat headline with a 0.1% core increase for the month.
- US Michigan Consumer Sentiment – The first release on September Michigan Sentiment is out later and expectations are for the headline to climb to 90.5 (median 90.5) to cap the recent string of declines that had the headline falling to 89.8 in August from 90.0 in July and 93.5 in June. The already released IBD/TIPP Poll for the month fell to 46.7 from 48.4 in August and expectations are that the Consumer Confidence headline to fall to 98.0 from 101.1 in August.
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