Market News Today – USD (USDIndex 92.90) softens from a spike to 93.10 yesterday , Yields made big gains (10yr 1.342%), and USA500 & 100 closed at ATH’s. (USA500 closed +0.22% @ 4496 & FUTS softer at 4485 now). Durable goods headline missed but CORE data better, German IFO missed again. Overnight – Record high delta cases in NSW, 66/107 Equity Analysts say rally in stocks running out of steam and expect a correction (10% fall) before year end. German GFK Consumer Sentiment missed (-1.2 vs -0.5). USOil spiked over $68.00, (drawdown in inventories larger than expected -3.0 vs -2.0) back to $67.65. Gold down to test yesterdays low at $1785 now. “Imminent” threat of IS attack at Kabul airport before August 31 deadline.
European Open – EGBs sold off yesterday after surprisingly upbeat comments from ECB Vice President Guindos revived taper fears ahead of the Jackson Hole Symposium like Treasuries local bonds are finding some buyers in opening trade. The BoK’s unexpected decision to hike the key rate by 25 bp will add to concerns, however, that the turning point for central policies has come. It seems we are at getting close to the point where it becomes evident that keeping rates too low for too long will only make it more difficult to start taking the foot off the accelerator.
Financial imbalances are building as debt levels rise and the arguments for taking the foot off the accelerator are getting stronger. The US rate has corrected -0.8 bp to 1.33% after rising sharply yesterday and the German Bund yield is also -0.6 bp lower in opening trade, although it remains to be seen if bonds can hold those gains. Equity markets are more circumspect and DAX and FTSE 100 futures are down -0.4% and -0.3% respectively, with U.S. futures also in negative territory.
Fed policy outlook: all eyes are on Friday’s Jackson Hole speech from Fed Chair Powell. Though this meeting of central bankers has been used as a venue for policy hints or announcements, we expect it to be a non-event this time with indications on the QE path. However, the uncertainties over what he might say are leaving the markets rather directionless. Treasuries are little changed with the 10-year at 1.30%, about in the middle of the range from mid July. Wall Street is also on hold, albeit with the indexes at or just off of all-time highs. QE is a policy matter and there was no indication in the July FOMC minutes that a decision was made. Additionally, since that meeting at the end of July, the rise of the Delta variant has added to downside risks. Plus we believe the Fed will need to see the August jobs report on September 3 before deciding on a course of action. – Action Economics
Today – ECB Minutes, US GDP (2nd), Weekly Claims, Fed’s Kaplan, Bullard, as Jackson Hole convenes, ECB’s Schnabel.
Biggest FX Mover @ (06:30 GMT) AUDUSD (-0.32%) Cooled from week’s rally high (0.7280) yesterday to 0.7250 currently. Broke 21 EMA earlier at 0.7263, next support 0.7237 Faster MA’s aligned lower, MACD signal line & histogram still above 0 line but declining. RSI 41.00 and falling. Stochs in OS zone. H1 ATR 0.00077, Daily ATR 0.685.
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Stuart Cowell
Head Market Analyst
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