It has been a relatively quiet night for markets with the moves in GBP probably the major highlight. BoE Governor Carney faced the Treasury Select Committee in parliament and was quick to give himself a nice pat on the back for the bounce in business and consumer surveys in August, noting that part of the recovery in sentiment was “because the bank took timely, comprehensive and concrete action and that action has had an impact”. Although the Governor acknowledged that risks of recession had somewhat diminished, he noted that the UK economy still faced a significant slowdown due to the EU referendum, adding that the monetary policy members were ready to cut the cash rate further if necessary. Carney’s appearance in parliament weighed on the Pound, but the currency was already under pressure following softer than expected manufacturing data. In July manufacturing output fell -0.9% vs 0.3% exp. and although industrial production beat expectations (0.1% vs 0.2%), the market focus was on the softer data print. The net effect is that the Pound is the worst G10 performer, down 0.74% against the USD.

The USD is a little bit stronger with the DXY index up 0.11%. That said the NZD and JPY have outperformed with yesterday’s theme still an influence in the overnight session. NZD has benefited from stop losses triggered on long AUD/NZD positions and the JPY strength over the past 24hrs has been driven by a report publish yesterday, noting that the BoJ is struggling to reach policy consensus ahead of its policy meeting on 21 September.

The AUD is little changed at 0.7673, however it did trade to an overnight high of 0.7691, suggesting a move above 77c still looks likely near term. The CAD lost a bit of ground against the USD after the BoC left the cash rate unchanged but noted downside risks to the economy’s outlook.

Looking at other markets, US stocks have ended the day slightly softer dragged lower by declines in grocery chains after Sprout Farms market cut earnings expectations. Meanwhile European equities played a bit of catch up from yesterday’s moves and closed the day marginally higher and core global yields are practically changed.

Out late yesterday, China’s FX reserves fell to $16bn to $3.19trn close to expectation. That said, if today’s trade surplus comes in line with consensus ($58.85bn), it would confirm capital outflows is still an ongoing theme in China.

Overnight the US Jolts report provided some food for thought. The number of job openings in July jumped 4% to a new cycle high of 5,871K (5,630K exp). The report was a pleasant surprise and is consistent with the NFIB jobs-hard-to-fill measure which hit a new cycle high in August. That said, these figures are for July and at best they only partially offset the weaker August numbers seen in ISM reports.

The Fed Beige book was also out last night and it showed the US economy grew at a modest pace in July and August, but there was no evidence of major upward pressure on wages and prices. So on this account, there is no need for the Fed to hike in September.

Coming Up

In Australia this morning (8:55am AEST) RBA Governor elect Phil Lowe gives a Welcome and Introductory remarks at an international conference organised by the Asian Development Bank in Sydney. Looking in the RBA website it appears that there won’t be a Q&A session and our assumption is that the Governor elect’s observations are unlikely to be policy relevant. Australia’s July’s trade balance is also out this morning and the market is looking for a deficit of AUD 2,700m slightly lower than the AUD3,195m deficit printed in June.

Looking at offshore markets this morning we get UK RICS house prices for August and Japan releases its current account balance for July along with its final Q2 GDP numbers. The market is looking for an unchanged Q2 GDP print (0.2%), but there are upside risks to the number driven by potentially better than expected investment figures.

All that said the focus in our APAC session is likely to be on China’s  trade data which is scheduled for release at 1pm AEST. The August trade balance in USD terms is expected to come at $58.85bn, $6.5bn higher than July. Exports in Yuan term are expected to be unchanged at 2.9%yoy while imports are seen at 0.7%yoy up from -5.7% recorded in the previous month.

Moving onto the overnight session, the ECB policy meeting is the major highlight. While no change is expected the Bank will release a new set of economic forecasts. We think there is a good chance we get a downgrade to the growth and inflation outlook and as a result the risk is that Draghi may hint at an extension of the asset purchase programme  which is due to end in March next year. At the margin such an announcement will be Euro negative. Lastly in the US we get weekly jobless claims along with July consumer credit figures and there are no Fed speakers on the roster.

Overnight

On global stock markets, the S&P 500 was -0.01%. Bond markets saw US 10-years +0.51bp to 1.54%. In commodities, Brent crude oil +2.49% to $48.54, gold-0.4% to $1,345, iron ore -1.2% to $58.46. AUD is at 0.7673 and the range since yesterday 5pm Sydney time is 0.7654 to 0.7695.

Good luck

For full analysis, download report:

•  Markets Today: 8 September 2016 (PDF, 91kb)

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