September 28, 2015

Markets Today: A big week

Friday’s tone was set by Fed Chair Yellen, early in the Sydney session. In this, she backed up the Fed speakers post the FOMC, which have reiterated that the Fed are looking to raise interest rates this year.

Friday’s tone was set by Fed Chair Yellen, early in the Sydney session. In this, she backed up the Fed speakers post the FOMC, which have reiterated that the Fed are looking to raise interest rates this year.

The optimism that started in the European session (on little news, maybe content with the new VW boss), and allowed equities there to rise solidly, didn’t last through the US session, where equity markets were decidedly mixed.

However, the USD and bond yields took Yellen’s discussion of higher rates seriously. The USD gained ground across a range of currencies and returned EM currencies to the back foot, after a short positive spell. Yields were also higher across the board.

US Speaker Boehner announced he would step down at the end of October. This is being seen as making the debt ceiling continuation bill easier to pass this week.

There were a few Fed speakers other than Yellen: Bullard and George (both hawks, 2016 voters) who added to the calls for hikes this year.

Two speakers from the ECB were a little unexpected in that both Praet and Weismann were cautious about the need for more QE from the ECB. The ECB also suspended the purchase of ABS backed by VW loans.

This morning we have news that the Catalan regional elections in Spain have been won by the separatist party; which may have a short term negative effect on EUR.

There was little data of import, but US GDP was revised higher, as was the University of Michigan consumer sentiment.

Coming Up

Domestically, things start to get a little more interesting. Building approvals should be a little softer, after strength last month. Retail sales, in contrast, are expected to pick up. The domestic situation is perhaps on the backburner for markets, as long as it continues to tick along in a “not too hot, not too cold” fashion. In this case, it may be the global data which drives market direction.

In this regard, it is a big week in the US. The market still has to price a 2015 hike more fully, and so the US data becomes important again. First up we get the August Core PCE deflator, which is one of the Fed’s favoured inflation gauges. The ISM and Chicago PMIs for September may be a little soft. House prices might come and go with little interest. Then on Friday, non-farm payrolls are expected to be a little better, with the unemployment rate steady at 5.1%. There are (again) a raft of Fed speakers this week (Yellen, Dudley, Evans, Williams, Bullard, Brainard) but after all we heard last week it will take a particularly dovish view to move markets.

Yellen has told us it would take something surprising to stop them hiking this year: to be honest, there are a growing majority who want the Fed to just get on with in in order to stabilise markets and we can move on to something other than “lift-off.” Perhaps the Fed is coming to this realisation as well. Today’s Dudley interview with the WSJ’s Hilsenrath could be interesting nonetheless.

The US debt ceiling is expected to be reached by Oct 1; requiring a shut down of government services. Compared to the hoopla last time, the present situation is extraordinarily calm on the rhetoric front. Legislation to allow for more spending is expected to be presented early in the week, the initial to include riders that Obama has said he will not approve, followed by a Bill with no riders, that is expected to pass. Any hint that these do not get through in time will start to see markets wobble.

With all the goings on with VW (and potentially other German car manufacturers), the German data might be a little superfluous until we get the September/October numbers. We do get retail sales and CPI data, but they may not get much attention. The sentiment surrounding the decline in the equity market and the potential economic impacts of VW’s predicament are likely to be more directional. It is busier in the UK, but nothing significantly market moving. We get money data, nationwide house prices, final GDP and the Markit PMI.

In Japan, the quarterly Tankan survey is one of the only Japanese economic data that has the potential to move markets. It is expected to be a little weaker. Additionally, we get industrial production (prelim), retail sales, and the jobs-to-applicants ratio. Japanese data is not often very exciting but the markets are presently torn between the need for more QE to weaken the JPY, and reassurances from the BoJ that the economy is perfectly fine and they will hit their targets. This may make any big misses of data from expectations possibly more market moving than usual.

In NZ, we get building permits and business confidence.


On global stock markets, the S&P 500 was +0.00%. Bond markets saw US 10-years +3.57bp to 2.16%. On commodity markets, Brent crude oil +0.89% to $48.6, gold-0.7% to $1,146, iron ore +3.0% to $56.98. AUD is at 0.7027 and the range was 0.6980 to 0.7043

  • US GDP 3.9%A, 3.7E, P
  • US Uni Mich F 87.2A, 85.7P
  • Catalan Separatists win Spanish regional election

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