Markets struggled for traction during Wednesday with caution ahead of next week’s Fed policy meeting.
Markets struggled for traction during Wednesday with caution ahead of next week’s Fed policy meeting. Wall Street equities posted significant net gains on the day amid firm business confidence data. Risk appetite was hampered by on-going reservations over the economic and financial situation in China. Asian equity markets lost ground as Chinese losses undermined sentiment.
The US dollar was held in tight ranges during the day with buying support on dips. EUR/USD failed to gain traction and traded just above 1.1800. Sterling posted limited net gains on expectations of a more hawkish BoE tone following the inflation data. The Canadian dollar was underpinned by higher inflation data and a jump in energy prices. Weaker than expected employment data undermined the Australian dollar.
Euro-zone industrial production increased 1.1% for July well above consensus forecasts of 0.6% with the year-on-year increase still slowing to 7.7% from 10.1% previously. Overall confidence in the Euro-zone outlook remained steady which provided an element of Euro support.
Narrow ranges prevailed ahead of the New York open with markets considering that the US inflation data had not triggered a new dynamic.
The New York Empire manufacturing index strengthened sharply to 34.3 for September from 18.3 previously and well above consensus forecasts of 19.0. New orders and shipments also increased at a much faster rate on the month while there was a smaller increase in unfilled orders.
There was a strong increase in the work week and employment while upward pressure on costs and prices remained elevated with little net change from the August data. Companies were slightly more optimistic over the outlook with only a slight easing of pricing pressures over the next six months.
Import prices declined 0.3% for August with a decline in fuel prices, but the year-on-year increase was 9.0%.
The data helped underpin confidence in the outlook, although there was only a limited market impact, especially with the Federal Reserve focusing on employment.
EUR/USD consolidated just above the 1.1800 level at the European close and narrow ranges continued to prevail into the Wall Street close.
There was little change on Thursday with caution in evidence ahead of next week’s Federal Reserve policy decision and EUR/USD held just above 1.1800. The latest US retail sales data will be released on Thursday which will have a significant impact on confidence in the consumer spending outlook.
US industrial production increased 0.4% for August which was in line with consensus forecasts with a 0.2% increase in manufacturing output.
US Treasuries were resilient following the strong New York Empire survey with the 10-year yield just below the 1.30% level. The Japanese yen also held a firm tone after the US open and USD/JPY dipped to 4-week lows near 109.10 while EUR/JPY tested the 129.0 area.
US equities continued to post gains into the Wall Street close, but USD/JPY secured only a limited recovery to 109.35.
There were further concerns over the Chinese economy, especially with fresh coronavirus outbreaks in the country. The potential impact was, however, offset by increased speculation that the central bank will ease monetary policy to support internal demand conditions.
Asian equity markets, however, were fragile on Thursday which hampered underlying risk appetite and the yen maintained a firm tone. Japanese export data remained strong which helped underpin confidence in the outlook. USD/JPY held close to 109.30 in early Europe and EUR/JPY just above the 129.0 level.
Sterling gained ground after the UK inflation data with the larger than expected increase in the inflation rate triggered fresh speculation that the Bank of England would have to adopt a more hawkish policy stance. There was a shift in money-market pricing with expectations of two rate increases in 2022 with an element of Sterling buying ahead of next week’s policy statement. There will be speculation that more MPC members will call for a slowdown in asset purchases.
Following the Cabinet reshuffle, Liz Truss was nominated as Foreign Secretary. Markets will be monitoring developments surrounding UK trade deals which were handled by Truss as Trade Secretary as well as relations with the EU. Sunak will remain as Chancellor which will maintain expectations of policy continuity.
Sterling was able to post limited gains after the New York open, although there was GBP/USD resistance close to 1.3850 while the Euro retreated to the 0.8535 area. There was little change on Thursday with GBP/USD held below 1.3850 against a slightly firmer dollar.
|08:00||SECO Economic Forecasts|
|10:00||Euro-Zone Trade Balance(JUL)||18.1B|
|13:00||European Central Bank President Lagarde Speaks|
|13:15||CAD Housing Starts(AUG)||272.2K|
|13:30||USD Core Retail Sales (M/M)(AUG)||0.10%||-0.40%|
|13:30||USD Advance Retail Sales (M/M)(AUG)||-1.00%|
|13:30||CAD Foreign Securities Purchase(JUL)||19.63B|
|13:30||CAD Wholesale Sales (M/M)(JUL)||-2.00%|
|15:00||USD Business Inventories(JUL)||-0.80%|
|21:00||USD TIC Net Long-Term(JUL)||110.9B|