Daily Brief

A quiet start to the week

Which may not get much louder today

There was a fairly calm start to proceedings across the major asset classes yesterday. Buoyed by the mostly positive reaction to those frothy U.S payrolls on Friday, markets began the trading week in an upbeat mood, with steady gains in equities throughout the European session, combined and assisted by a slight drop in the yield of the U.S 10-year. Risk assets edged higher too. Having seen a decline to multi-month lows last week, oil found a more secure footing and rallied on the day. The distinct lack of drivers to inspire a more robust rally probably helped to ensure that the gains across assets were ultimately short-lived, and by the time markets had rolled over to the U.S session, the unwind had already been in full swing. One could perhaps point towards worries over the worsening relations between the U.S and China, or the Fed-speakers over the weekend promoting the merits of another 75bps hike in September. But, yesterday was just a typical rangebound day, if we were ever asked to characterise one.

A mild correction for the dollar

Having rallied out of the payrolls on Friday, the greenback witnessed a mild correction throughout the day. The dollar index slipped back under 106.00, which resulted in EUR/USD driving back over 1.0200. The latest Eurozone Sentix Investor Confidence index also helped to boost sentixment (sorry) in the single currency, rising from -26.4 to -25.2. However, the improvement across of components of the index will have done little to calm fears of an impending recession across the region. USD/JPY snapped the rally from 130.40 to 135.60, and slipped back under 134.50.

Short-term gains for the pound

GBP/USD rallied in-line with the drop for the dollar across the board, moving as high as 1.2140, but the pound was unable to maintain the gains, and had slipped back to below 1.2100 by the end of the day. With no key UK data scheduled for release until the end of the week (GDP), until then the pound is likely to take its directional bias from both the greenback and the single currency. GBP/EUR drifted back under 1.1850.

A sharp pullback for USD/CAD

There was a sharp rally for the Loonie through yesterday. USD/CAD had been rallying rapidly back towards 1.3000 on Friday, driven by stronger U.S and weaker Canadian employment, as well as a sharp pullback in the spot price of oil, but the correction back lower was just as rapid, with USD/CAD moving back under 1.2850, having threatened a break over 1.3000 just Friday afternoon. GBP/CAD followed suit, and slipped close to 1.5500 region, which has been the low point for the pair since the end of July.

Declining inflation expectations.

The Reserve bank of New Zealand published a report yesterday showing a decline in inflation expectations, which whilst pleasant to see, will do little to alter the profile of short-term inflation in NZ, which remain well above the RBNZ’s 1-3% target band, and is unlikely to do anything to stop the RBNZ from likely raising NZ rates by another 50bps next week. NZD/USD did pop higher on the day, briefly probing above 0.6300.

What else is happening today?

USD – NFIB Business Optimism index, Nonfarm Productivity, Redbook Index, API Weekly Crude Stock

JPY – Producer Price Index

CNY* – CPI

 

*Data released overnight

 

 

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