Risk appetite deteriorated due to fears over global trade and currency wars.
US jobs data was close to expectations with a small pick-up in wages growth. The dollar was unable to sustain slight gains as trade fears dominated and triggered fresh concerns over the US outlook.
Risk appetite deteriorated further on Monday as a slide in the Chinese yuan beyond 7.00 increased fears over global trade and currency wars
US bond yields continued to decline sharply with the 10-year rate below 1.80%. Equity markets declined sharply with Asian equities at 6-month lows.
Demand for defensive assets increased strongly with further gains for the yen and Swiss franc.
Gold also made fresh gains to 6-year highs as risk fears dominated. Bitcoin advanced to 3-week highs as demand for alternative assets remained strong.
US non-farm payrolls increased 164,000 for July which was in line with market expectations while the June increase was revised down to 193,000 from the 224,000 reported previously. The unemployment rate held at 3.7%, also in line with consensus forecasts, although there was a strong reported employment increase according to the household survey.
The UK PMI construction index recovered slightly to 45.3 from 43.1 the previous month, but this was till the third consecutive reading below 50.0 and business confidence declined to the lowest level since November 2012. Brexit uncertainty continued to undermine confidence and delay the awarding of contracts. Sentiment remained weak following recent weak data while Bank of England Governor Carney warned that the economy would face a sudden dip in the event of a ‘no-deal’ Brexit.
CFTC data recorded a further increase in short, non-commercial positions in the latest week to just over 90,000 contracts, the largest net position since April 2017. The data will maintain the potential for a short squeeze, but this will be dependent on some positive UK developments.
Political manoeuvring continued during the weekend with MPs opposed to a ‘no-deal’ outcome looking to bolster their position while Prime Minister Johnson’s special adviser Cummings stated that it could not be stopped. EUR/GBP strengthened to 0.9180 while GBP/USD was blocked above 1.2150 despite dollar weakness.
Economic Calendar
| Expected | Previous | ||
|---|---|---|---|
| 07:30 | CHF Retail Sales (Y/Y)(JUN) | -0.60% | -1.70% |
| 07:45 | Industrial Output MM(JUN) | - | 2.10% |
| 08:50 | Markit Serv PMI(JUL) | - | 52.2 |
| 08:55 | EUR German PMI Services(JUL) | - | 55.4 |
| 08:55 | EUR German PMI Composite(JUL) | - | 51.5 |
| 09:00 | Euro-Zone PMI Composite(JUL) | - | 51.5 |
| 09:00 | Euro-Zone PMI Services(JUL) | 53.3 | 53.3 |
| 09:30 | GBP PMI Services(JUL) | 51 | 50.2 |
| 09:30 | Euro-Zone Sentix Investor Confidence(AUG) | 0.1 | -5.8 |
| 14:45 | USD Markit Services PMI(JUL) | - | 52.2 |
| 14:45 | USD Markit PMI Composite(JUL) | - | 51.6 |
| 15:00 | USD ISM Non-Manufacturing PMI(JUL) | 55.5 | 55.1 |
| 18:30 | FOMC Brainard Speaks | - | - |
| 23:45 | NZD Employment Change (Q/Q) | 0.40% | -0.20% |
| 23:45 | NZD Unemployment Rate | 4.30% | 4.20% |