Ten Bullets on What is Shaping Today’s Markets

Asia and Australia, Global World

There are ten major factors shaping the markets today.

Price action: The dollar is mixed against the majors. The Aussie and the Loonie are outperforming, while the Kiwi and the yen are underperforming. NZD was hurt by the dovish RBNZ stance, and has given up all of this week’s gains. The euro was unable to get past the 200-day MA near $1.1250 and is trading lower now near $1.1190. Sterling is firmer ahead of today’s BOE decision but continues to have trouble breaking above the $1.54 area. Dollar/yen is moving further above 121 after breaking above its 200-day MA near 120.85. EM currencies are mostly weaker. RUB, TWD, and THB are outperforming while ZAR, IDR, and KRW are underperforming. MSCI Asia Pacific was down 1.5%, with the Nikkei shedding 2.5%. Chinese markets were lower too, with the Shanghai Composite down 1.4% and the Shenzen Composite down 1.6%. Euro Stoxx 600 is down 0.2% near midday, while S&P futures are pointing to a higher open. The US 10-year yield is up 1 bp to 2.21%, while European bond markets are narrowly mixed. Commodity prices are mostly higher, with oil up nearly 1% ahead of US DOE inventory data.

  1. RBNZ cut rates 25 bp to 2.75%. It was already discounted, but what punished the kiwi was the intimation by Wheeler of the scope for additional rate cuts. Another cut looks likely by the end of the year. The New Zealand dollar is off by nearly 2%, fully retracing the past two days of gains. Stops are thought to lie below $0.6240. There is a large option struck at $0.6300 which reportedly expires tomorrow.
  2. China CPI was stronger than expected at 2.0%, reflecting the increase in food prices. Non-food inflation was unchanged at 1.1%, while food prices were up 3.7%. The PPI was -5.9%. This was more deflation than expected.
  3. Australian employment was better than expected, with unemployment falling to 6.2% from 6.1%. July job growth was revised up. Yet the Aussie was weighed down by its cousin Kiwi, falling to about $0.6945 before finding a strong bid. After breaking the monthly uptrend line going back to 2001, the Aussie is flirting with it from underneath. It is set to challenge yesterday highs near $0.7070.
  4. Japan‘s August PPI was -3.6% and July machine tool orders fell 3.6% on the month (consensus was 3.0%). The data point to weak price pressures and softer capex, which helped spur interest in Japan MP and economic advisor (from growth wing of LDP) comments that the BOJ should consider increasing QQE in October by JPY10 trln. Despite the equity market weakness, the dollar remains firm against the yen and briefly traded above yesterday’s highs. It pushed above the 20-day moving average for the first time since August 19 (~JPY121.15). A retest of the Asian high near JPY121.35 looks likely, but the late August high (~JPY121.75) may be too much to expect over the near-term.
  5. Following the slide in US shares yesterday, Asia shares were lower, including China. Korea was the lone exception. The European bourses are set to snap a three-day advance. However, the S&P 500 appears likely to stabilize after yesterday’s sharp decline.
  6. The PBOC fix was at CNY6.3770. Spot had closed at CNY6.3782 previously. Today, spot closed at CNY6.3856. The fix should be within about 20 pips of this tomorrow. Of note, the spread between the onshore (CNY) and offshore (CNH) yuan has narrowed from 0.114 to below 0.07 today.
  7. Brazil‘s downgrade below investment grade (S&P) is not surprising and Brazil bonds had already been trading more like that in any event. S&P often seems to be more aggressive than the others. The negative outlook warns of the likelihood of another cut in the next 9-12 months. According to S&P, the negative outlook means that there is “greater than one-in-three” chance of “another downgrade in the near future.” COPOM minutes will be released today from its last meeting, when it kept rates steady at 14.25%.
  8. The BOE meets today. A surprise could be that McCafferty gives up his lone dissent, but more likely he kept it. After a strong two-day advance, sterling was drifting lower for the second session before mounting another run at $1.54. The initial retracement objective is found near $1.5320. On the other hand, a hawkish surprise by the BOE could quickly see sterling break above the $1.5400 area.
  9. US JOLTS data yesterday showed large jump in total job opening though hires lagged behind (for the sixth month). Market volatility more the economy per se seems to be the main factor encouraging ideas that the Fed does not hike rates next week. The Hilsenrath piece in WSJ says there is no consensus yet at the Fed. Of course there is no consensus. There is a dovish wing that does not want to raise rates until next year. There is a hawkish wing that thinks economic fundamentals no longer justify a near-zero interest rate stance. During the North American session today, the US will report August import price index, weekly jobless claims, July wholesale inventory data, and weekly DOE oil inventory data.
  10. The euro built on yesterday’s gains to reach $1.1245 in early Asia. It has been drifting lower ever since to slip below $1.12 in early Europe. There is scope for additional losses into the $1.1150 area. A break of yesterday’s lows near $1.1130 is needed to signal anything of importance.