Markets Today: Mixed emotions

It’s been a night of mixed emotions as far as risk sentiment is concerned. It was not helped initially by yesterday’s weaker China manufacturing reading, and the quickly emerging shadow of Volkswagen’s issues.


It’s been a night of mixed emotions as far as risk sentiment is concerned.  It was not helped initially by yesterday’s weaker China manufacturing reading, and the quickly emerging shadow of Volkswagen’s issues, but there was something of a soothing balm from the flash Euro Manufacturing PMIs with France’s bouncing back above 50, Germany’s at a still relatively solid 52.3 and for the single currency area virtually steady at 52.0, as expected.  Draghi held back on any immediate sign of more QE  European stocks managed a gain after a rocky start, though US equities had a weak mid-session staged a rally in the afternoon but still closed down.

While the Euro managed to eke out some net gains.  ECB President Draghi has been testifying and hinting at possible likely downward revisions to their forecasts, but contingent on how the uncertainty in emerging markets plays out.  The ECB is certainly apparently prepared to do more on QE if needed, but is not at that point now/yet.  He said that renewed downside risks to the outlook for growth and inflation have emerged. In his words, “for many of these changes, it is too early to judge with sufficient confidence whether they will cause lasting slippage from the trajectory that we initially expected inflation to follow when we decided to expand our asset purchase program in January”.

The EUR made some gains, helped by the in-line EZ Manufacturing reads pointing to more growth (and a minor upward revision to French GDP recent history), and no more QE as yet, the Euro has been the exception, with the USD rising against most of the other majors and again for currency specific reasons.  The AUD had the hangover from yesterday’s worse than expected flash China Manufacturing PMI and was the worst performer of the majors, while the CAD has also been weighed down by a miss on July core retail sales (including downward revisions) and a pull-back in oil prices overnight.

The AUD dropped half a cent after the release of the Caixin China flash PMI to around the 0.7030/40 area, steadied through most of the London session before testing 0.70, and is trading close to that level in early Asia trade this morning.  Chinese spot iron ore prices fell 1.62% yesterday but remains above $50/t at $55.3.

And just out this morning for Kiwi watchers, courtesy of my BNZ colleague Raiko Shareef, Fonterra’s 2015/16 payout has been upgraded to $4.60kgMS, from $3.85kgMS prev. Pretty much in line with what the futures market would have suggested going forward. Some in the market were looking for $5.00 at this juncture. The upgrade he thinks is a tad positive for NZD, but won’t overwhelm the broader risk-negative stance.  The NZD has been bid in the immediate aftermath of the announcement, trading up from 0.6247 to around 0.6280.  The AUD has popped its head back above 0.70.

Coming up today/tonight

We have NZ trade figures at0845 AEST and for the AUD, a speech from the RBA’s Head of Economic Analysis Alex Heath to an Urban Development Institute gathering in Perth at 14.00 AEST (1200 AWST).

There’s more data events in the overnight session with the German Ifo Survey (conducted in the middle of the month so likely before the VW issue), then in the US there is Durable Goods Orders, New Home Sales and weekly Jobless Claims are the most sensitive.


Risk sentiment tentative: Eurostoxx 600 +0.1%, Dax +0.4%, CAC +0.1%, FTSE +1.6%.  Dow -51 points to 16,280, -0.3%, S&P 500 -0.3%, Nasdaq -0.1%, VIX 22.13 -1.4%.  Shaghai -2.2%, Mumbai -2.2%, Nikkei 225 -0.1% and ASX 200 -2.1%; ASX SPI futures this morning +0.2%.  US bond yields: 2s at 0.70% (3), 10s at 2.15% (+2).  WTI oil at $44.61 (-3.8%), Brent at $47.80 (-2.6%), Malaysian Tapis (yesterday) $49.20 (+3.5%).  Gold at $1129.50/oz (+0.4%). Base metals: LME copper -0.4%, nickel +0.6%, aluminium -0.8%. Iron ore $55.3/t -1.6% Chinese steel rebar futures +0.2%. Soft commodities spot futures: wheat +2.4%, sugar -0.2%, cotton -0.1%, coffee 0.6%.  Euro Dec 14 CO2 emissions at €8.08/t (0.6%). The AUD/USD’s range overnight 0.6989-0.7065; indicative range today 0.6975-0.7030; the AUD/USD is 0.7009 now

China’s Caixin Flash Manufacturing PMI (Sep) 47.0 (L: 47.3; E: 47.5)

French flash Markit PMI Manufacturing (Sep) 50.4 ((L: 48.3; E: 48.6); Germany’s 52.5 (L: 52.3; E: 52.6); Euro-zone’s 52.0 (L: 52.3; E: 52.0); French GDP, revised (Q2) 0.0%/1.1% (L: 0.0%/1.0%)

Canadian retail sales (Jul) 0.5% (L: 0.4%, revised down from 0.6%; E: 0.7%) ex-auto sales were flat (L: 0.8%, revised down from 0.8%; E: 0.5%)

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