Markets
With nothing major scheduled on the eco calendar, technical considerations were again the main driver of today’s market moves. US building permits and housing starts (July) were the only data scheduled and were stronger than expected (see headline below) The data went unnoticed however. Trading took place against a cautiously optimistic background. Investors ignored additional US sanctions against China’s Huawei. Instead they put comfort from strong 2nd quarter results published by big US retailers (Home Depot, Wallmart). After opening in the red, European stocks soon found higher ground. Stocks rise a modest 0.5%. On Wall Street, the S&P500 touched an intraday record as we write after several days failing to do so. Core bonds held an upward bias during Asian dealings but retraced some of the gains as risk sentiment turned for the better. USTs outperform the German Bund. US yields still give up 1.6 bps (10-yr) to 3.2 bps (30-yr). German yields barely budged today. Peripheral spreads tighten 1 or 2 bps.
Today’s probably most watched market variable would be the beleaguered US dollar. Most dollar pairs were in close proximity or at important technical references. For most of the European session these levels did support the dollar, preventing a further technical slide. A comment from US Council of Economic Advisers’ Tyler was the straw that broke the camel’s back. The acting chair of the WH advisory committee said president Trump would pursue a narrower stimulus bill if needed. The trade-weighted USD dipped below support at 92.52 (previous August low) and is currently trading around 92.2. We’re now looking at 91.73 as the first reference after this deterioration of the technical picture. EUR/USD surpassed the previous August highs of 1.1916. The move triggered stop losses and pushed the couple towards 1.196 at the time of writing. EUR/USD 1.1996 is the follow-up target with 1.2103 then looming on the horizon. USD/JPY writes a third sequel to the recent relentless decline. The currency pair dips from the 106 area towards 105.38. Sterling strengthened a bit in technical trade as another round of Brexit talks are taking place at the moment. We shouldn’t read too much in these minor moves anyway. EUR/GBP fell from 0.906 towards 0.904. GBP/USD jumped north, obviously propelled by the weak dollar. Cable is changing hands at 1.324, nearing the 2020 high of 1.3278.
News Headlines
July US housing data surpassed expectations by a wide margin. Housing starts surged by 22.6% m/m (vs 5% consensus), while building permits increased by 18.8% m/m (vs 5.4%). The latter, proxy for future construction, is the strongest surge in almost 30 years. The extremely low yield environment lures many US households to the housing market. The NAHB housing market index for August yesterday jumped from 72 to 78, matching its highest level on record and suggesting more positive news from the housing market in August.
Chinese spokesperson for the country’s foreign ministry said the US has been abusing their state power in the name of national security when imposing sanction on the likes of Huawei. He added that it is nothing short of bullying and that the Chinese government will continue to take all necessary measures to safeguard the legitimate and legal rights and interests of Chinese companies.
