September 11, 2015

Markets Today: Stiff upper lip

It was the makings of a risk-on mood for markets overnight and a night when the Bank of England’s Monetary Policy Committee (MPC) was hanging tough about the healthy outlook for the UK economy and still harbouring thoughts of a UK rate rise coming into focus in the first part of next year.

It was the makings of a risk-on mood for markets overnight and a night when the Bank of England’s Monetary Policy Committee (MPC) was hanging tough about the healthy outlook for the UK economy and still harbouring thoughts of a UK rate rise coming into focus in the first part of next year.  The MPC again voted 8:1 to keep policy unchanged and pretty much holding to the positive domestic economic outlook and emerging inflation risks as outlined in last month’s Inflation Report.

There was not much net reaction neither from either sterling nor in the gilt market to the BoE, even though they were probably more upbeat than might have been expected.  In a night of “risk on”, Cable underperformed relative to the likes of the AUD and the Euro.

In the BoE’s view, external headwinds must be weighed against the prospects for a continued healthy domestic expansion, the BoE expecting inflation to pick up at around the turn of the year though the drop in oil prices had raised questions about the near term outlook and uncertainty about how the Pound’s strength will feed through into prices.

In a night for second tier data releases, US Jobless claims were right in line with expectations printing at 275K while the market had another reminder of the deflationary impact of lower oil prices and the strong dollar on upstream US inflation from still falling import prices.  Import prices in August were down another 1.8% and off 11.4% y/y; even excluding petroleum, import prices are down 3.0% y/y, some late inflation mail for the Fed heading into next week’s FOMC.  There are two big US releases ahead of the FOMC, retail sales Tuesday and CPI Wednesday after consumer sentiment tonight.

The AUD overnight continued on in the wake of yesterday’s post-employment report bounce.  In a risk-on mood, it’s has been a strong performer among the majors, up 0.8%, eclipsing the NZD that was still languishing after yesterday morning’s rate cut and the “prepared to do more” tone from RBNZ Governor Wheeler’s comments yesterday.

Coming up today/tonight

It’s a very light day data wise with some second tier NZ releases.  NZ’s Manufacturing PMI is first up this morning, due at 8.30 AEST, then NZ food prices for August 15 minutes later, our BNZ colleagues expecting a flat outcome for the month.  There is also NZ Non-Resident Bond Holdings data at 13.00.

In Europe there is Germany’s second release of its August CPI with no revision expected from its preliminary flat m/m, +0.2% y/y print.  The BoE’s Forbes is speaking too.

In the US, it’s the UoM Consumer Sentiment index preliminary reading for September that will get most of the market’s interest among the releases in tonight’s session, though the PPI will at least get a glance.  Whatever the outcomes, neither is critical as far the Fed deliberations next week are concerned.

For the opening of the Aussie on Monday, Sunday’s China activity indicators for August will help set the tone as the market also positions into the FOMC announcement on Thursday morning.  All three Chinese releases have been slowing in trend terms and while steady-to-somewhat better outcomes is the consensus, should they surprise on the downside, there may well be some discounting of that for the impact of the Tianjin explosion and curbs to activity around Beijing to lift air quality (at least if industrial production is weaker).  The market has also had growth-supportive comments from China’s Premier this week that they are capable of supporting the economy if growth slips out of a reasonable range.

Overnight

US$ eases; commodities higher: Eurostoxx 600 -1.2%, Dax -0.9%, CAC -1.5%, FTSE -1.2%.  Dow +77 points to 16,330, +0.5%, S&P 500 +0.5%, Nasdaq +0.8%, VIX 24.37 -7.1%.  Shaghai -1.4%, Mumbai -1.4%, Nikkei 225 +0.8% and ASX 200 -2.4%; ASX SPI futures this morning +0.4%.  US bond yields: 2s at 0.73% (-1), 10s at 2.22% (+2).  WTI oil at $45.72 (+3.6%), Brent at $48.77 (+2.5%), Malaysian Tapis (yesterday) $48.66 (-2.6%).  Gold at $1110.70/oz (+0.8%). Base metals: LME copper +0.6%, nickel +3.5%, aluminium +0.5%. Iron ore $59.0/t +1.4% Chinese steel rebar futures +0.1%. Soft commodities spot futures: wheat +1.2%, sugar -1.0%, cotton +0.2%, coffee -3.9%.  Euro Dec 14 CO2 emissions at €8.29/t (0.1%). The AUD/USD’s range overnight 0.7021-0.7100; indicative range today 0.7045-0.7100; the AUD/USD is 0.7073 now

  • The Bank of England again voted 8:1 to keep rates steady
  • US Import prices (Aug) -1.8%/-11.4% (L: -0.9%/-11.4%; E: -1.6%/-11.1%); Jobless claims (w/e 5/9) 275K (L: 282K; E: 275K); Wholesale inventories (Jul) -0.1% (L: 0.9%; E: 0.3%)
  • Canadian house prices (Jul) +0.1% (L: 0.3%; E: 0.2%), capacity utilization rate (Q2) 81.3% (L: 82.7%; E: 81.7%)

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