Market Roundup
- Yen, euro buoyed by risk aversion as China worries weigh.
- Nikkei falls 3%; investors on edge over China, US rates.
- China PBOC to require banks trading currency forwards for clients to hold USD FX reserves.
- China NBS manufacturing PMI 49.7 vs previous 50.0, 49.7 expected.
- China NBS non-manufacturing PMI 53.4 vs previous 53.9.
- China August Caixin/Markit manufacturing PMI final 47.3 vs previous 47.1.
- China August Caixin services PMI 51.5 vs previous 53.8.
- Japan August Nikkei manufacturing PMI 51.7 vs previous 51.9.
- Japan Fin Min Aso- China to be topic at G20 meeting this week.
- Japan Suga- Will responds appropriately to sharp stock falls.
- Japan Aso- Structural issues may be behind stock market moves.
- German August Markit manufacturing PMI48.3 vs previous 53.2, 53.2 expected.
- German August Unemployment rate 6.4% vs previous 6.4%, 6.4% expected.
- Eurozone August Markit manufacturing final 52.3 vs previous 52.4, 52.4 expected.
- Eurozone July Unemployment rate 10.9% vs previous 11.1%, 11.1% expected.
- Swiss sight deposits rose to 463.885bln w/e Aug 28 from 463.443 bln last week.
- Swiss August manufacturing PMI 52.2 vs previous 48.7, 49.7 expected.
- UK July BoE consumer credit +1.173bn vs previous 1.220bn, 1.200bn expected.
- UK August Market/CIPS manufacturing PMI 51.5 vs previous 51.9, 52.0 expected.
Economic Data Ahead
- (0830 ET/1230 GMT) Statistics Canada is set to release gross domestic product data for Q2.
- (0945 ET/1345 GMT) US August Markit PMI manufacturing final; flash 52.9.
- (1000 ET/1400 GMT) US August ISM PMI manufacturing, 52.6 eyed; last 52.7.
- (1000 ET/1400 GMT) US July construction spending, +0.6% m/m eyed; last +0.1%.
- (1030 ET/1430 GMT) US August Dallas Fed services sector outlook/revenues; last 7.9/19.1.
- (1330 ET/1730 GMT) US August total vehicle sales, 17.3 mln AR eyed; last 17.55 mln.
- (1400 ET/1800 GMT) Brazil 's trade balance for August is likely to have risen to $2.90 bln vs $2.37 bln in July.
Key Events Ahead
- (1145 ET/1545 GMT) Fed Trade operation 30-year Ginnie Mae, max $950mn.
- (1310 ET/1710 GMT) Federal Reserve Bank of Boston President Eric Rosengren speaks on the economic outlook before the Forecasters Club of New York.
FX Recap
EURUSD: Pair is currently supported above 1.1200 levels and trading at 1.1257 levels. It made intraday high at 1.1332 and low at 1.1208 levels. The euro climbed on concerns about China's economy, as investors unwound bets against the currency widely used to fund positions in riskier assets. The pair has retreated from session highs in the 1.1330/35 band following the initial bias towards the risk-off sentiment and mixed results from manufacturing PMIs. However, the spike to multi-day tops around 1.1330 lacked of follow through and triggered the current correction lower. In the data front, US ISM Manufacturing and Markit's Manufacturing PMI are due later, ahead of Non-farm Payrolls due on Friday and against the backdrop of increasing expectations of a Fed's lift-off in September. Initial support is seen around 1.1210 levels and resistance at 1.1425 levels.
USDJPY: Pair is supported below 121.00 levels. It made intraday high at 121.24 and low at 119.54 levels. It is currently trading around 120.12 levels. The safe-haven yen too rose on the concerns about China's economy. Appetite for risk assets was reduced during the Asian session, when Chinese PMIs for August decreased from the previous levels, pointing to yet another slowdown in the second biggest economy of the world. Furthermore on Tuesday, manufacturing PMI is expected, along with Fed's Rosengren speech in the evening. Traders are likely to ignore macro numbers as the situation is getting messy again on Tuesday, and a possible turmoil later in the session is likely. Initial support is seen at 118.23 and resistance at 122.01 levels.
GBPUSD: Pair is supported below 1.5400 levels. It made intraday high at 1.5408 and low at 1.5311 levels. It is currently trading at 1.5356 levels. Pair trades 0.10% higher at 1.5356, recovering from fresh session lows hit at 1.5311 after UK PMI release. The major attempts a recovery from lows and edged higher in a bid to conquer 1.5400 levels once again as markets continue to dump the greenback amid worries that China slowdown fears may push back Fed rate hike bets this year. In August, the Markit/CIPS PMI measure fell to 51.5, down from last month's 51.9, and below expectations of a 52.0 reading. Ahead in the day, the US ISM figures could affect the pair. The sentiment in the major European equities and on Wall Street could influence the Fed rate hike bets and the market's appetite for the US dollars. Initial support is seen at 1.5321 and resistance at 1.5592 levels.
NZDUSD: Pair is supported below 0.6400 levels and trading at 0.6352 levels. It made intraday high at 0.6389 and low at 0.6317 levels. Pair is trading range bound as Oil prices fell on Tuesday after surging in the previous session, as worries over demand from China returned following the fresh PMI figures. Later in the day, the American Petroleum Institute will report its weekly stockpiles data for the week to August 28. Analysts forecast a fall of about 1.5 million barrels. Initial support is seen at 1.3187 and resistance at 1.3322 levels.
AUDUSD: Pair is supported below 0.7100 levels and trading around 0.7073 levels. It made intraday high at 0.7153 and low at 0.7065 levels. The Reserve Bank of Australia left interest rates on hold at record-low levels on Tuesday as board members continued to assess the positive impact past rate cuts and the weaker exchange rate have on growth. For the second time in as many months the Reserve Bank of Australia signaled in its cash-rate statement that the Australian dollar was at a level which was assisting economic growth rather than hampering it. Initial support is seen at 0.7040 and resistance is seen around 0.7236 levels.
Equities Recap
World shares and commodity prices dropped on Tuesday, as poor Chinese data shows fears about its economic state intensify.
FTSEurofirst 300 was down 2.5 percent in early trade after its worst month in four years. London, Frankfurt and Paris all dropped 2.3 to 2.5 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6 percent to extend the more than 10 percent it had lost in August. Chinese shares were relatively steady, with the Shanghai Composite Index down a modest 1.2 percent and the CSI300 index almost flat. Japan's Nikkei fell 3.8 percent after tanking 8.2 percent in August. Australian, Indonesian and Hong Kong stocks were all down by more than 2 percent.
Commodities Recap
Oil prices dropped more than 3 percent on Tuesday after official data showed China's giant manufacturing sector contracted at the fastest pace in three years. Benchmark Brent crude LCOc1 fell $2.13 to a low of $52.02 a barrel, and was trading around $52.15 by 0815 GMT. U.S. crude was down $2.00 at $47.20 a barrel. It settled up $3.98, or 8.8 percent, in the previous session.
Gold climbed nearly 1 percent on Tuesday as the dollar and global equities dropped on fresh signs of economic weakness in China and uncertainty over the timing of the Federal Reserve's first interest rate increase in nearly a decade. Spot gold rose 0.7 percent to $1,142.40 an ounce by 0911 GMT, while U.S. gold for December delivery climbed 0.8 percent to $1,142.
Treasuries Recap
U.S. 10-year treasuries yield stood at 2.184 PcT vs U.S. close of 2.200 pct on Monday. While German 10-year bond yields reached six-week high of 0.82 percent up 3 basis points on the day.
UK Gilts opened 13 ticks lower than Friday's settlement of 117.19, as predicted, as Gilts got their first chance to react to the hawkish undertones noted from Jackson Hole economic symposium over the weekend.
JGB prices closed the day marginally mixed, with the belly of the curve slightly firmer from yesterday's afternoon close. JGBs opened softer on weaker German Bunds and US TSY overnight, briefly sending yields on the current 10-yr, 20-yr, and 30-yr JGBs as high as 0.40% (+2bp), 1.165% (+2bp), and 1.425% (+3bp), respectively, in the AM session. But JGBs in the 7-yr to 20-yr zone turned firmer after the MoF published stronger-than-expected results of today's monthly JPY2.4tn 10-yr JGB auction. See [page:26273].
New Zealand government bonds rose, pushing yields two basis points lower along the yield curve. Australian government bond futures were also a bit firmer, with the 3-year bond contract steady at 98.230. The 10-year contract added 3 ticks to 97.3350.
