By Arnaud Masset, Market Analyst at Swissquote
As expected, the Reserve Bank of New Zealand has cut the OCR by 25bps to 2.75% and left the door wide open for further easing as it claimed it will remain data dependent. The Central Bank revised downward its growth projection to around 2% from 3% in its June statement, arguing that “the economy is adjusting to the sharp decline in export prices, and the consequent fall in the exchange rate”. On a more positive note, Graeme Wheeler noted that growth was supported by “robust tourism, strong net immigration, the large pipeline of construction activity in Auckland and other regions”. As a result, the New Zealand dollar dropped 2.30% against the US dollar and is now trading around $0.6270. We were already bearish on the NZD and this dovish statement has only reinforced our view that the RBNZ wants to see a weaker Kiwi. On the data front, house sales jump 41.7%y/y in August, according to REINZ, after increasing 37.8% in July.
In a surprise move, Standard & Poor’s lowered Brazil’s long-term credit rating to junk, from BBB- to BB+, while maintaining a negative outlook. The New York based credit-rating agency argued that “The political challenges Brazil faces have continued to mount, weighing on the government’s ability and willingness to submit a 2016 budget to Congress consistent with the significant policy correction signaled during the first part of President Dilma Rousseff’s second term”. Traders will therefore price in the new information in USD/BRL today and it won’t be pretty as the move wasn’t anticipated so soon (S&P cut the outlook to negative on July 28th).
In the Asian session, stocks partially erase yesterday’s strong gains as mounting uncertainties about Fed’s next interest rate decision push traders to take their recent profits. The Shanghai Composite edges lower by 0.87%, while its tech-heavy counterpart, the Shenzhen Composite lost 0.28%. In Japan, the Nikkei 225 lost 2.51% of yesterday’s 7.71% gain while the Topix index falls 1.85%. Only the Kospi index from South Korea manages to stay in positive territory and rises 1.44%. In Australia, the S&P/ASX falls 2.42%, despite an encouraging job report. Unemployment rates fell to 6.2% in August from 6.3% in July as the economy created 17.4k jobs, beating expectations of 5k but below. The Australian dollar rebounded above the 0.70 threshold against the US dollar, erasing early session losses.
In Europe, equity futures follow the Asian lead with the Euro Stoxx 50 down -1.16%, DAX down -0.96%, CAC 40 down -1.10% and the SMI down -0.82%. In UK, the Footsie is down -0.93% while the sterling proves rather resilient given the disappointing data released yesterday. July’s industrial production contracted -0.4%m/m versus 0.1% median forecast while manufacturing production printed at -0.8%m/m versus 0.2% consensus. GBP/USD is grinding slower and lost 0.40% from yesterday’s high. The closest support stands at 1.5165 (low from September 4th) while on the upside, a resistance can be found at 1.5413 (high from September 8th).
***YannQuelenn, Market Analyst: “It is likely that the Bank of England will leave its rate unchanged today. We believe that policy makers are not only considering domestic conditions but also global conditions. Markets are currently driven by the next U.S. Fed rate hike, China’s current turmoil and lingering low oil prices.
At the last BoE meeting one member voted “yes” for a rate hike, however, we think there is no reason for others members, at least for the time being, to vote favourably. Nonetheless, UK domestic conditions seem supportive of a rate hike. Only inflation remains of concern, which printed at 0.1% y/y in August. On the other side, retail sales currently stand at 4.2% y/y despite a minor setback in August. GDP is also on its way up with a read of 0.7% for Q2.
What’s really weighing on the minds of BoE members is that global growth and productivity remain low. The WTI is holding below $50 a barrel on fears of China’s slowdown and on the current OPEC oversupply. It is likely that this negative outlook will weigh on the decision to increase rates as the UK may be affected by a slower global economy. Therefore we think the BoE will sit tight and wait for more supportive domestic data before making any move. We expect the GBP to strengthen against the EUR in the medium term. However, it is likely that BoE minutes will provide some dovish comments which could provide some positive traction to the single currency.”***
Today traders will be watching: Inflation reports from Sweden and Norway; the interest rate decision from the BoE in UK; manufacturing production from South Africa; COPOM minutes, IPCA inflation from Brazil; new housing prices from Canada; import price index and initial jobless claims from the US.
Risk currencies, bitcoin recover as yields steady
By Julien Ponthus
LONDON (Reuters) – The Australian dollar and other riskier currencies rebounded against the U.S. dollar on Monday as U.S. Treasuries recovered from last week’s losses.
The benchmark 10-year U.S. bond traded at 1.4153%, well off Thursday’s one-year high of 1.614%.
“The bond market and risk assets are showing signs of stabilisation after the big sell-off last week”, ING analysts commented, expecting that “the dollar’s corrective rally should pause for breath”.
Equities and commodities sold off last week as the debt rout unsettled investors and lifted demand for safe-haven currencies, including the U.S. dollar. [MKTS/GLOB]
Early today, the risk-friendly Australian dollar jumped 0.5% to $0.7743 following a 2.1% plunge on Friday.
The Reserve Bank of Australia will hold its monthly policy meeting on Tuesday, and markets expect it to reinforce its forward guidance for three more years of near-zero rates.
The New Zealand dollar strengthened 0.46% to $0.7259, recovering some of Friday’s 1.9% slide.
The dollar index rose 0.26% to 91.02 after posting its biggest surge since June on Friday.
The euro fell 0.12% to $1.2056, after dropping 0.9% at the end of last week, the most since April.
Pressure has been growing on the European Central Bank to act against rising yields in the euro zone. Traders will focus on a speech later this afternoon by President Christine Lagarde.
“There is little doubt in my mind that central banks will eventually lean quite hard against a sustained rise in yields. They simply can’t afford to see it happen with debt so high”, Deutsche Bank strategist Jim Reid told his clients in a morning note.
The British pound drew additional support from bets on a faster vaccine-led economic recovery. Resurgent risk appetite pushed the safe-haven Japanese yen to a six-month low versus the dollar.
Sterling rose 0.17% to $1.3945.
Against the yen, the dollar hit a six-month high of 106.70.
In cryptocurrency markets, bitcoin rose 4% to $47,069 but was still off a record high of $58,354.14 hit on Feb. 21.
(Reporting by Julien Ponthus, editing by Larry King)
European stocks rebound as bond markets stabilise
(Reuters) – European stocks bounced on Monday after sharp losses last week as a selloff in bond markets eased, while optimism over COVID-19 vaccination programme and U.S. stimulus package further aided sentiment.
The pan-regional STOXX 600 index rose 1.6% by 0811 GMT following strong gains in Asian stocks despite weaker-than-expected manufacturing activity data out of China.
The European equities benchmark fell to a near one-month low on Friday as investors grew fearful that rising inflation due to another large U.S. stimulus package and the re-opening of the global economy could drive major central banks to tighten monetary policy.
The German DAX rose 1.3%, while France’s CAC 40 and UK’s FTSE 100 gained 1.5% each.
Miners, up 2.2%, were the top sectoral gainers, while travel & leisure and retail stocks jumped over 2%.
British Airways-owner IAG was the top gainer on STOXX 600, jumping 5.4% after Peel Hunt upgraded the stock to “buy” on expectations of a rebound in travel demand during summer.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva)
Risk currencies recover from Friday carnage, dollar consolidates
TOKYO (Reuters) – The Australian dollar and other riskier currencies recovered some lost ground against the U.S. dollar on Monday, after suffering their biggest plunges in a year at the end of last week amid a hefty sell-off in global bond markets.
The greenback weakened broadly early in Asia trade, but barely enough to trim its biggest surge since June from Friday.
Currency markets have taken cues from the global bond market, where yields have surged in anticipation of an accelerated economic recovery.
The aggressive bond selling implies a bet that global central bankers will need to tighten policy much earlier than they have so far been forecasting.
Equities and commodities have also sold off as the debt rout unsettles investors.
“USD direction is likely to hinge on not only the direction, but also the pace, of global bond moves,” Commonwealth Bank of Australia strategists wrote in a research note.
Bond moves are trumping economic data as the driver of foreign-exchange markets, with yields moving “well in advance” of economic fundamentals, they said.
“The risk is tilted to a firmer USD this week because we doubt central banks will intervene in any meaningful way yet.”
The Aussie jumped 0.6% to $0.7754 early in the Asian session on Monday, following a 2.1% plunge on Friday.
The New Zealand dollar strengthened 0.6% to $0.7270, recovering some of Friday’s 1.9% slide.
The euro gained 0.2% to $1.20910, after dropping 0.9% at the end of last week, the most since April.
The dollar slipped 0.1% to 106.415 yen , but still near the six-month high of 106.69 touched Friday.
Federal Reserve Chair Jerome Powell, who last week repeated the U.S. central bank will look through any near-term inflation spike and tighten policy only when the economy is clearly improving, will speak on the economy this Friday, the same day as the usually closely watched monthly payrolls data is due.
The Reserve Bank of Australia will hold its monthly policy meeting on Tuesday, and markets are widely expecting it to reinforce its forward guidance for three more years of near-zero rates, while also addressing the market dislocation.
Currency bid prices at 050 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar $1.2095 $1.2070 +0.22% -1.00% +1.2102 +1.2070
Dollar/Yen 106.4420 106.5700 -0.15% +3.02% +106.5670 +106.4000
Euro/Yen 128.74 128.60 +0.11% +1.43% +128.8000 +128.6000
Dollar/Swiss 0.9075 0.9086 -0.13% +2.57% +0.9086 +0.9060
Sterling/Dollar 1.3983 1.3923 +0.45% +2.37% +1.3990 +1.3931
Dollar/Canadian 1.2693 1.2740 -0.35% -0.31% +1.2732 +1.2690
Aussie/Dollar 0.7747 0.7799 -0.64% +0.73% +0.7757 +0.7706
NZ 0.7271 0.7231 +0.57% +1.27% +0.7280 +0.7234
Tokyo Forex market info from BOJ
(Reporting by Kevin Buckland; Editing by Lincoln Feast.)
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