The US$ continued its run higher on Friday, with the DXY ending the week at 98.80 on a combination of month-end demand and a sense that the US economy/assets remain more attractive than are available in other markets, as seen in the Euro, which fell to its lowest level since May 2017 on the back of more soft EU data and the ongoing concerns over the Italian political situation. The fall in the Euro came about despite Donald Trump complaining via Twitter about the dollar’s strength/Euro’s weakness, making American exports less competitive.
Stocks ended mildly higher in thin, end-of-month trade ahead of the US long weekend, with the Chinese and US trade negotiating teams maintaining communication according to the Chinese Foreign Ministry, on Friday. The US started to implement the 15% tariff on an estimated $125 billion of Chinese goods as of yesterday on a variety of goods, including smart-watches, flat panel televisions and footwear, which will make for an interesting PBOC fix in today’s USDCNY. Note that the US stock indices have opened with a gap lower in early Monday trade, down around 1%, as some early safe haven demand sets in following the implemetation of the tariffs and some weekend rhetoric from both sides of the argument. There are increasing concerns over the HK situation which is not helping matters either, with reports that the US are increasingly concerned about Beijing’s treatment of activists in Hong Kong.
Elsewhere, oil prices fell sharply on Friday, with WTI down by 3%, as production from OPEC rose for the first time this year, while Russia’s output missed its agreed production-cut levels.
In terms of data on Friday, the Eurozone CPI was unchanged at 1.0% yy in August and matched expectations but the Core CPI, also unchanged at 0.9% yy, missed expectation of 1.0% yy. The Eurozone unemployment rate was unchanged at 7.5% in July and matched expectations.
US consumer spending increased solidly in July, which could further allay financial market fears of a recession, but the strong pace of consumption is unlikely to be sustained amid tepid income gains. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% last month, above expectations of 0.5%, after an unrevised 0.3% gain in June.
Over the weekend, the China PMIs have been released and showed a mixed outcome. While the Manufacturing PMI remains in contraction territory at 49.5, the Services and Compsite PMIs (53.8/53.0) held up well, and these combined should have limited market impact on Monday. The Australian dollar has a started with a minor chart gap lower of around 10pips, while the Jpy is a bit stronger as some early safe haven demand is apparent, but that is about it. The Australian Mfg PMI has just been released but with minimal market impact – so far – after a better than expected reading of 53.1.
Looking ahead, the week’s starts with a US holiday so liquidity will be thin and any directional movement is likely to be limited. The global Manufacturing PMIs are due today though, so the Euro will probably remain under pressure, as will the Aud$ if the domestic figure fails to meet expectations. Tuesday/Wednesday will both be big days fo the Aud$, with the Australian Retail Sales and the RBA Interest Rate Decision due on Tuesday – where no change in Monetary Policy is expected this monthso the interest will therefore be in the Statement – while Wednesday will feature the Autradlian Q2 GDP, where a downbeat assessment is expected and could well add to the downside pressure on the currency. Elsewhere, Christine Lagarde – the President-elect of the ECB – will be speaking on Tuesday, so traders will be eager to see her outlook on the EU economy, while the other main event of the week will be the US Jobs/NFP/Average Hourly Earnings data, due on Friday. Expectations are for an unchanged headline rate of 3.7%, NFP +159K, Average Hourly Earnings 3.1%yy, and Average Weekly hours of 34.4. Have a good week
Economic data highlights will include:
Mon: US Labor Day Holiday, NZ Terms of Trade, Australian CBA/AIG Performance of Mfg Index, TD Inflation, ANZ Job, RBA Commodity Index, Nikkei Mfg PMI, Caixin China Flash Mfg PMI, EU/UK Mfg PMIs,
Tue: Australian Current Account, Retail Sales, RBA Interest Rate Decision/Statement, ECB – Lagarde Speech, EU PPI, US Mfg PMI, ISM Mfg PMI/Prices Paid, Total Vehicle Sales, Construction Spending, Fed’s Rosengren Speech, Global Dairy Trade Index, API Weekly Crude Oil Stock Inventory
Wed: Australian CBA/AIG Performance of Services Index, Australian Q2 GDP, Caixin China Services PMI, EU/UK Services PMIs, ECB’s Lane Speech, US Trade Balance, US Composite PMI, Fed Speakers; Williams/Bullard/Bowman/Kashkari/Evans
Thur: Australian Trade Balance, German Factory Orders, UK Court Hearing on No-Deal Brexit, ADP Jobs data, ISM Non-Mfg PMI, Services PMI, Jobless Claims,
Fri: Australian AIG Performance of Services Index, Japan Coincident Index, Leading Economic Index, German Industrial Production, UK Consumer Inflation Expectation, UK Q2 GDP, Unemployment, SNB’s Jordan SpeechUS Jobs/NFP/Average Hourly Earnings data,
Market moves, in brief:
FX: DXY 98.81 (+0.37%)
Bonds: US10Y; 1.502% (+0.07%), German 10Y; -0.704% (-1.49%), UK 10Y; +0.409% (+12.79%), Australian 10Y; +0.895% (+1.28%), NZ 10Y; 1.075% (+0.94 %), China 10Y; 3.065% (+0.99%)
Stock Indices: DJI; +0.16%, S+P; +0.06%, NASDAQ; -0.13%, EUStoxx50; +0.45%, FTSE100; +0.32%, Shanghai Composite; -0.16%,
Metals: Gold $1521 oz (-0.42%), Silver $18.35 oz (+0.49%), Copper $2.5365 lb (-0.90%), Iron Ore $84.64 per tonne (NYMEX) (+3.8%),
Oil: WTI $55.01 pb (-2.80%)
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By September 2, 2019