August 29, 2017

Markets Today: Rain

With Jackson Hole out of the way, markets and related news have been more focussed on Hurricane Harvey, some more news stories out of the West Wing and the resumption of UK-EU Brexit talks. It was a bank holiday in the UK.

Just in the last few minutes, there’s new reports of another North Korean missile toward Japan, USD/JPY dipping slightly, Japanese PM Abe saying it’s passed over Japan.

In currency markets, the post-Jackson Hole softening up further of the USD continued a little further, the Bloomberg spot dollar index down 0.06% and the Euro-heavy DXY index off 0.53%.  The AUD (+0.32%), EUR (+0.34%), GBP (+0.26%), and the NZD (+0.0.24%) have all continued to make some progress against the big dollar. The US data set was light with only the July Advanced Goods Trade balance and Wholesale inventories.  The trade deficit, at -$65bn, was a little larger than expected, inventories slightly faster.

Net net, perhaps a small downward shaving of prospective Q3 US economic growth might have resulted.   The Atlanta Fed’s GDPNow estimate, currently 3.4% will be updated again after Thursday’s personal spending/PCE deflators report.  Whether the trade figures had anything to do with a news story out of the West Wing with President Trump demanding from Chief of Staff John Kelly some tariffs (“get me some tariffs”) is not known.

Meanwhile, the rain has continued in Houston in the aftermath of Cyclone Harvey with current weather maps showing forecasts of another 175mm of rain over the next 24 hours or so (7” for those thinking in inches) on top of as much as 50 inches rain hitting Houston so far. Some very early estimates are doing the rounds, but refining capacity has been closed, Texas refining capacity supplying around one third of the US’s requirements.  Near term gasoline prices surged (September by 5.87%) refineries closed for preventative shutdowns.  A hiatus in local refinery crude demand has seen WTI down, the October contract by $1.13/bbl, currently trading at $46.81/bbl.  The impact on refineries will still take time to be assessed and how quickly they can re-start.  President Trump is scheduled to go to Texas Tuesday to get first hand knowledge as local and Federal authorities come to grips with the scale of devastation.

As the Brexit countdown clock ticks (1 year and 212 days to go) talks are formally resuming again this week.  The testy war of words continued.  There are four days of talks ahead discussing the Irish border, EU citizens’ rights and the Brexit bill. Europeans are saying that only when progress is made on these will they move on to discuss a future trading deal.  The divorce cost continues to be a major hurdle for both sides with big numbers being bandied around on the European side.  To state the obvious, it’s all very unhelpful for consumer and business confidence in the UK, now with the clock ticking and the EU holding most of the cards.  Though down marginally from late trade in APAC yesterday, EUR/GBP has over recent days continued on a path higher.  It’s back to the highest levels seen since the 2009 pre-European debt crisis peaks.

Coming up

Though we rarely write on the weekly ANZ-Roy Morgan Consumer Confidence index, the divergence between business and consumer confidence has been evident for a while now, and widening.

If anything, the weekly measure – due this morning at 9.30 – had been holding up better than the monthly WMI counterpart.  But it’s taken a turn for the worse again through the middle of August to its lowest point since late 2015.  Rising utility prices, low wage rises, and housing affordability may well be dogging sentiment despite still positive news on the labour market after another solid report this month.  Though a very noisy series, it’s again testing low levels and we’ll be taking a glance at the latest weekly reading this morning.

The monthly Japanese labour market and overall household spending reports will likely again garner little market attention.  Despite what is expected to be a still low unemployment rate of 2.8% and a rising jobs-to-applicants ratio at its highest level of net labour demand since the early 1990s, labour cash earnings in June were only rising by 0.4% y/y.  Labour cash earnings have averaged 0.1% y/y since 1990, still not apparently getting any renewed push from another spring “shunto” wage round.

In the APAC time zone (16.00 AEDT), the latest monthly UK Nationwide House price monthly report is due, this one for August (L: 0.3%/2.9%) with growth slowing and steady prices expected this month.  In the US tonight, the Conference Board’s measure of Consumer Confidence will come in for attention, not only headline Confidence but the Jobs Plentiful/Hard to Get Index that to July had continued to improve signifying the improvement in the labour market.  In the weeks to come the market will begin to calibrate the financial, economic and market fallout from Harvey, aside from the heavy personal and business dislocations.


On global stock markets, the S&P 500 was +0.05%. Bond markets saw US 10-years -0.88bp to 2.16%. In commodities, Brent crude oil -0.67% to $52.06, gold+1.3% to $1,310, iron ore -1.6% to $77.15, steam coal +0.3% to $97.75, met. coal +0.0% to $196.00. AUD is at 0.7959 and the range since yesterday 5pm Sydney time is 0.7914 to 0.7973.

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Good luck.