Here are the latest developments in global markets:
FOREX: The US dollar index traded 0.42% higher on Monday, posting a 10-day high, while dollar/yen advanced by 0.30% despite heightened global trade risks; the dollar remained resilient and the buying interest continued on the back of investors optimism in the US economy. In Eurozone, producer prices beat expectations, rising by 4.0% y/y in July from 3.6% before. However, euro/dollar failed to gain on the data, falling by 0.52% to 1.1560. Pound/dollar extended losses to reach 1-week lows at 1.2811 today (-0.37%) after disappointing construction PMI readings added to the bearish sentiment before Bank of England Governor Mark Carney testifies in parliament. In the antipodean sphere, aussie/dollar headed lower by 0.55% to a new 21-month low of 0.7155 after the RBA left interest rates unchanged. Also, kiwi/dollar plummeted by 0.83% towards a new 18-month low of 0.6539. Dollar/loonie rose by 0.44% and is set to complete the fourth straight green day.
STOCKS: European equities erased earlier gains to trade lower on Tuesday, with all the sectors turning negative. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were down by 0.63% and 0.61% respectively at 1100 GMT. Meanwhile, the UK’s FTSE 100, Spanish IBEX 35, German DAX and the French CAC 40 were trading lower by 0.27%, 0.17%, 0.94% and 1.14% correspondingly. In US stocks, futures suggest the Dow Jones, the S&P 500, and the tech-heavy Nasdaq 100 are poised to open lower today.
COMMODITIES: Oil prices surged on Tuesday as two oil platforms in the Gulf of Mexico were evacuated in fears of a hurricane, threatening US production with temporary disruptions. West Texas Intermediate (WTI) crude oil posted an aggressive upside rally (+2.18%), surpassing $71/barrel and recording a new more than 6-week high at $71.30. Brent oil climbed to an almost 2-month high of $79.72/barrel before inching down to $79.53 (+1.77%). In precious metals, dollar-denominated gold and silver fell by 0.54% and 1.49% respectively.
Day ahead: ISM manufacturing PMI & Australian Q2 GDP growth pending; trade in the forefront
In terms of data releases, ISM and Markit manufacturing PMIs will dominate investors’ interest later on Tuesday, while in New Zealand milk auctions could add further volatility to the battered kiwi. Aussie could move as well in the wake of Australian GDP growth figures for the second quarter early on Wednesday, while trade uncertainties are expected to keep investors on their toes during the week.
At 1345 GMT, the Markit Institute will publish its final August PMI manufacturing readings for the US. That said, the manufacturing PMI delivered at 1400 GMT by the Institute of Supply Management, which has a much longer history, could prove a bigger market mover, with analysts expecting the ISM measure to decline to 58.1 in August from 57.7 in July. If true, the indicator would post its third straight month of weakness. At the same time, the Census Bureau will be publishing July’s construction spending, while later at 1930 GMT, US total vehicles sales for the month of August will be also available for review.
In New Zealand, the outcome of the bi-weekly milk auction due at a tentative time could give direction to the bruised kiwi. In neighboring Australia, however, the focus will shift from monetary policy to GDP data early on Wednesday at 0130 GMT following the Reserve Bank’s decision to stand pat on interest rates for the 25th consecutive month. Analysts believe that GDP growth in the three months to June has eased by 0.3 percentage points to 2.8% in yearly terms, which would be below the RBA’s own forecasts for 3.0% in Q2. While a miss in data could weigh on market sentiment and drive the aussie lower, the RBA will likely stick to its rate course, probably until late next year as markets are currently pricing in. Chinese Caixin Services PMI due at 0145 GMT could affect the aussie as well, given the strong trade relationship between Australia and China.
Emergency currencies will remain under the spotlight as the trade story and the political noise between the US and Turkey keep damaging EM currencies, with the Indian rupee bottoming at fresh record lows on Tuesday. Meanwhile, the African rand, the Mexican peso and the Argentine were the worst performers in the FX space today, losing more than 1%. Note that yesterday stats out of the EM showed that a number of countries faced a downfall in their manufacturing activities in August, including Turkey and South Africa which posted the largest declines. Also, South Africa entered a technical recession, after Q2 GDP figures earlier today showed a surprise contraction. As investors hold optimistic about the US economy and the Fed’s rate strategy, EM markets could continue to trade heavily during the week following a potential escalation in trade tensions between Washington and China which are set to exchange another set of import tariffs after Thursday’s deadline. The US readies to activate tariffs on $200 billion Chinese imports, whereas Beijing is said to retaliate with tariffs on $60 billion US goods.
Brexit headlines will be closely watched during the week after the British Prime Minister was criticized for her exit plans at home and in Brussels. In the meantime, news stated today that the UK has accomplished some work on the economic impact of the Chequers Brexit plan.
In terms of public appearances, Bank of England’s Governor Mark Carney will be testifying on the August inflation report and policy decision to raise rates by 25bps at 1215 GMT. MPC policymakers Andy Haldane, Silvana Tenreyro and Michael Saunders will be participating as well.
