The US$ is generally firm on Thursday ahead of the upcoming ECB Meeting, with the Euro leading the way lower in otherwise relatively quiet markets as traders adjust positions ahead of today’s interest rate decision. Elsewhere in the FX markets there has been little change although the Jpy remains under pressure while risk sentiment remains positive ahead of the proposed trade talks between the US/China. Stocks had a decent session in rising by 0.5%-0.75%, led by Apple and the tech sector, and generally underpinned by trade optimism, with the major indices now back near their all-time highs, a prospect that may be achieved if the Fed cuts interest rates at its meeting next week. Donald Trump’s Twitter account had a busy session, largely spent in berating the Fed for not taking rates to 0% or below, like other major central banks. Regardless of the President’s tweets, the market is pricing in less Fed rate cuts over the next year, not more, and the dollar is in demand because Treasury yields remain globally attractive, if historically at very low levels, particularly on the long end of the curve. The US10Y closed the day at 1.75%
In other markets, WTI fell by around 2% because of growing speculation that US sanctions against Iran may be dropped after the sacking on Tuesday of US National Security Advisor, John Bolton, by Donald Trump. On the other hand, Gold rallied, after a four day selloff, as buyers returned on expectations that the ECB will cut rates today, with further hopes hanging on to the prospect that the Fed will follow through with a similar move at the next FOMC meeting.
Thursday will be all about the ECB Meeting, at which an easing was flagged by the Finnish Central Bank chair Ollie Rehn a couple of weeks ago. Given that the Euro- area data remains weak and that EU inflation remains at stubbornly low levels, such a move would not really be a surprise, so the risk may be that the ECB sits on its hands and does nothing, which would send the Euro sharply higher. It is Mario Draghi’s penultimate meeting before he retires, so I think he will follow his usual dovish self at the press conference, and an easing will be the most likely outcome. I will be short Eur/Usd heading into the meeting.
Ahead of the ECB, we have some minor data to come from Asia (NZ Food Price Index and Australian Consumer Inflation Expectation) but not much else until Europe get up and running, when the German CPI for August will be released – just ahead of the ECB, (CPI, exp -0.2%mm, +1.4%yy; HICP, exp 1.0%yy). Once the ECB is done, it will be a busy US session, with the release of the August CPI (CPI, exp 0.1%mm, 1.8%yy; Ex F/E, exp 0.2%mm, 2.3%yy) and the weekly release of the Jobless Claims.
Economic data highlights will include:
Thur: NZ Food Price Index, Japan PPI, Tertiary Industry Index, Australian Consumer Inflation Expectation, Investment Lending for Homes, China Foreign Direct Investment, German CPI, EU Industrial Production, ECB Interest Rate Decision/Press Conference, US CPI, Jobless Claims, Monthly Budget Statement
Market moves, in brief:
FX: DXY 98.61 (+0.30%)
Bonds: US10Y; 1.746% (+1.08%), German 10Y; -0.564% (-2.92%), UK 10Y; +0.5610% (-2.90%), Australian 10Y; 1.151% (+6.13%), NZ 10Y; +1.26% (+5.44 %), China 10Y; 3.033% (+0.32%)
Stock Indices: DJI; +0.85%, S+P; +0.72%, NASDAQ; +1.05%, EUStoxx50; +0.51%, FTSE100; +0.96%, Shanghai Composite; -0.41%,
Metals: Gold $1496 oz (+0.73%), Silver $18.11 oz (+0.64%), Copper $2.6175 lb (-0.40%), Iron Ore $92.34 per tonne (NYMEX) (+1.06%),
Oil: WTI $55.97 pb (-1.88%)
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