The US market holiday was important in dampening market activity on Monday.
US bond yields overall edged higher in Asia on Tuesday. US equity futures edged higher, although narrow ranges prevailed. Asian equity markets secured a significant net advance after the Chinese trade data.
The dollar was held in tight ranges, but recovered some ground on a trade-weighted basis EUR/USD settled marginally lower around 1.1870. Sterling drifted lower amid concerns over potential tax increases. Commodity currencies overall edged lower in tight ranges. The Australian dollar was resilient after the Reserve Bank extended bond purchases, but gains were faded quickly.
German factory orders increased 3.4% for July after a revised 4.6% increase for the previous month and much stronger than consensus forecasts of a 1.0% monthly decline for the month which helped underpin Euro sentiment to some extent.
The Euro-zone Sentix investor confidence index retreated to 19.6 for September from 22.2 the previous month even though the current conditions assessment remained strong. The overall reading very close to market expectations while the survey also indicated further evidence of a slowdown in the global economy.
The market impact was limited with narrow ranges prevailing, but the Euro tended to drift lower amid expectations that the Federal Reserve would push ahead with a tapering of asset purchases this year given that the labour market overall remains robust.
There was still an element of caution ahead of Thursday’s ECB policy meeting amid speculation that the hawkish voices would gain traction within the committee. Narrow ranges prevailed with EUR/USD around 1.1870 at the European close. The dollar secured a limited advance against commodity currencies in Asia on Tuesday, but EUR/USD held steady and traded around 1.1870 as German industrial production was close to expectations with a 1.0% increase for July.
Trading conditions were inevitably subdued on Monday given that US markets were closed for a holiday. US equity futures edged higher which limited the potential for defensive yen demand, but narrow ranges dominated markets.
Markets were waiting for further comments from Federal Reserve speakers with a particular focus on whether Friday’s jobs report has shifted their assessment of the economic outlook and potential timetable for slowing asset purchases. There will be significant comments over the remainder of the week.
Overall, USD/JPY settled little changed around 109.85 at the European close with slight net gains for the Euro against the Japanese currency.
Japanese Prime Minister candidate Kishida stated that he wants a fiscal support package of JPY30trn which provided some support to yen sentiment.
The latest Chinese trade data on exports was mixed, but the import data was much stronger than expected which helped underpin confidence in Chinese demand.
Asian equities overall held firm on Tuesday and the dollar overall was held in tight ranges as USD/JPY traded around 109.85 with EUR/JPY around 130.35.
The UK PMI construction index declined to a 6-month low of 55.2 for August from 58.7 the previous month and below market expectations of 56.9. Growth in new orders also slowed to a 5-month low for the month with a slowdown in all main sectors for the month. Underlying demand for labour remained strong, but with evidence that a lack of skilled labour was curbing employment growth. There were further severe supply-chain disruptions which curbed activity and cost pressures remained strong with the second-highest rate of increase in input costs on record.
The data maintained some concerns that the economic recovery will falter over the next few months, especially with important supply-side difficulties, although the inflation implications will also be potentially important with Bank of England rhetoric remaining under close scrutiny.
The latest YouGov survey recorded that one-year inflation expectations were unchanged at 3.1% with long-term expectations edging higher to 3.5% from 3.4%.
The currency edged lower with some concerns over the risk of renewed Brexit tensions as the government expected to announce a further delay to some of the customs regulations on goods entering Northern Ireland.
Markets will monitor any announcement by Prime Minister Johnson on tax increases to fund social care programmes. Consumer spending evidence was mixed with a slowdown in retail sales, but strong card-spending data according to Barclaycard. GBP/USD consolidated just above 1.3830 in early Europe on Tuesday.
|07:00||GBP Halifax HPI (M/M)(AUG)||1.10%||0.40%|
|07:00||German Industrial Production (M/M)(JUL)||0.90%||-1.00%|
|10:00||German ZEW Survey (Current Situation) (SEP)||30||29.3|
|10:00||German ZEW Survey (Economic Sentiment)(M/M)(SEP)||56.7||40.4|
|10:00||Euro-Zone GDP (Y/Y)||-1.80%||13.60%|
|10:00||Euro-Zone GDP (Q/Q)||-0.60%||2.00%|
|10:00||EUR Euro-Zone ZEW Survey (Economic Sentiment)(SEP)||42.7|