Market Roundup
• U.S. Fed chief Powell defends policy of gradual rate hikes.
• Fed's Bullard wants to pause rate hikes, Mester does not.
• US Jul Durable Goods, -1.7%, -0.5% forecast, 0.8% previous, 0.7% revised.
• US sanctions on Russia tied to UK attack to take effect Monday.
• Prosecutors grant Trump Organization CFO immunity in Cohen probe –WSJ.
• Trump accuses social media firms of 'silencing millions'.
• Trump calls off Pompeo's planned trip to North Korea.
• Weaker competition may require looser central bank policy - BoE's Haldane.
• Saudi reforms to boost growth despite any Aramco IPO delay – IMF.
• Iran says some OPEC members act in accordance with U.S. policy –report.
Looking Ahead - Economic Data (GMT)
• 27 Aug 01:30 China Jul, Turnover/Sales cum y/y, 17.2% previous
Looking Ahead - Events, Other Releases (GMT)
• 25 Aug 16:25 - Bank of Canada Governor Stephen Poloz participates in panel discussion -Jackson Hole, Wyoming
Currency Summaries
EUR/USD is likely to find support at 1.1518 levels and currently trading at 1.1624 levels. The pair has made session high at 1.1638 and hit lows at 1.1577 levels. The euro strengthened against dollar on Friday after Federal Reserve Chair Jerome Powell said steady rate hikes are the best way to protect U.S. economic recovery but suggested the Fed funds rate was getting closer to neutral. His statement that rate hikes are keeping job growth strong and inflation under control was a high-profile endorsement of the central bank's current policy approach after U.S. President Donald Trump criticized the pace of rate hikes this week. The dollar index was down a quarter of a percent from its position at 10:00 a.m. EST when the speech began, and down more than half a percent over the day. Analysts suggested the currency fell overall because Powell's speech suggested the central bank may be approaching its neutral federal funds rate. Neutral monetary policy means the federal funds rate has reached an equilibrium where it neither stimulates nor suppresses economic growth. Once interest rates reach equilibrium, the Fed will cease its rate-hiking path. With the dollar down, the euro jumped 0.84 percent to $1.1624, recouping some losses after shedding more than half a percent during the previous session. The single currency weakened on Thursday after Italian Deputy Prime Minister Luigi Di Maio threatened his party would vote to suspend funding to the European Union next year unless other EU countries agreed to take in migrants.
GBP/USD is supported in the range of 1.2789 levels and currently trading at 1.2843 levels. It reached session high at 1.2881 and dropped to session low at 1.2883 levels. Sterling declined against greenback on Friday as sterling was hurt by concerns about whether Britain can secure a post-Brexit trade deal with the European Union. The currency has had a tough August, whacked by mounting concerns Britain could crash out of the EU without new trading arrangements in place on its scheduled exit day in March 2019. The biggest losses this month have come against a resurgent dollar, with weakness against the euro more contained. Britain's Brexit minister Dominic Raab said this week London could meet an informal October deadline to agree a deal, but has also laid out the government's plans in the case of a no-deal and disorderly exit. EU leaders expect to miss the deadline and are likely to have to hold and emergency summit in November to consider any Brexit agreement struck with Britain, diplomats in Brussels said this week. Market analysts say most investors have already priced in a delay beyond October. Reaching a deal is also only the first of several hurdles the EU and UK need to clear, such as parliamentary ratification of any agreement, before the March 2019 deadline.
USD/CAD is supported at 1.2984 levels and is trading at 1.3029 levels. It has made session high at 1.3036 and lows at 1.3009 levels. The Canadian dollar strengthened against its U.S. counterpart on Friday, recovering from an earlier one-week low as oil prices rose and investors awaited potential clues on the outlook for monetary policy in Canada. The U.S. dollar fell against a basket of major currencies after a speech by U.S. Federal Reserve Chairman Jerome Powell at an economic symposium in Jackson Hole, Wyoming reaffirms rate-hike policy. Investors hope the talk will provide an indication of the central bank's plans for monetary tightening and reaction to recent criticism by U.S. President Donald Trump. The Canadian central bank hiked last month for the fourth time in a year to leave its benchmark interest rate at 1.50 percent. Money markets expect another hike by October. The price of oil, one of Canada's major exports, was supported by signs that U.S. sanctions on Iran are already reducing global crude supply. U.S. crude prices were up 1.8 percent at $69.01 a barrel. The Canadian dollar traded 0.2 percent higher at C$1.3028 to the greenback. The currency, which fell 0.6 percent on Thursday, touched its weakest since Aug. 17 at C$1.3102.
AUD/USD is supported around 0.7235 levels and currently trading at 0.7324 levels. It hit session high at 0.7342 and made session lows at 0.7287 levels. The Australian dollar bounced off lows on Friday after Treasurer Scott Morrison surprisingly won a three-way battle for the leadership of the Liberal Party, paving the way to become Australia's 30th prime minister. There were three challengers in the leadership battle: former home affairs minister Peter Dutton, Morrison, and former deputy leader and foreign minister Julie Bishop. New Australian Prime Minister Scott Morrison promised generational change in the warring Liberal party on Friday, seeking to end an internecine battle that has scarred the conservative government ahead of an election due by May 2019.Morrison, who was treasurer under outgoing prime minister Malcolm Turnbull, emerged the surprise winner in a three-way challenge for the leadership of the Liberal party brought on by a right-wing rival this week. Stepping up to become Australia's sixth prime minister in less than 10 years, Morrison has inherited leadership of a coalition between the Liberal and National parties whose one-seat majority will have to be defended when a by-election is held for a safe Sydney seat that Turnbull is set to vacate. The Australian dollar jumped a quarter of a U.S. cent when Morrison was announced the victor. The Aussie was last up 0.5 percent at $0.7326 from a day's low of $0.7238.
Equities Recap
European shares were steady on Friday as investors were cautious after the latest round of U.S.-China trade talks yielded no breakthrough.
The UK's benchmark FTSE 100 closed up by 0.3 percent, FTSEurofirst 300 ended the day up by 0.12 percent, Germany's Dax ended up by 0.3, and France’s CAC finished the up by 0.3 percent.
The S&P 500 and the Nasdaq hit new record highs on Friday after Federal Reserve Chairman Jerome Powell affirmed U.S. economic strength and said the central bank's gradual interest rate hikes were the best way to protect the economic recovery.
Dow Jones closed up by 0.52 percent, S&P 500 ended down 0.62 percent, Nasdaq finished the day up by 0.86 percent.
Treasuries Recap
The Treasury yield curve reached its flattest level since 2007 on Friday as comments by Federal Reserve Chairman Jerome Powell affirmed expectations that the U.S. central bank will continue raising rates.
The yield curve between two-year and 10-year notes has flattened to 19 basis points, from 33 basis points at the beginning of August and 83 basis points in February, as investors price rate hikes into shorter-dated notes.
Commodities Recap
Gold prices rose on Friday as the dollar came under pressure from clues about the direction of U.S. monetary policy from Federal Reserve Chairman Jerome Powell, which market watchers interpreted as dovish.
Spot gold had increased 1.8 percent to $1,206.14 an ounce by 1:43 p.m. EDT (1743 GMT), heading for a 1.9 percent weekly gain. U.S. gold futures for December delivery settled up $19.30, or 1.6 percent, at $1,213.30 per ounce.
Oil prices rose on Friday, but pared gains ahead of the close, as the market remained on edge about potential oversupply despite signs that Iran sanctions could curb output and that a trade war may not curb China's appetite for U.S. crude.
Brent crude oil rose $1.01 a barrel to $75.73 by 1:57 p.m. EDT [1757 GMT] after earlier touching a high of $76.42. U.S. crude was 83 cents higher at $68.66.
