Market Roundup
- China Prem Li - China growing at reasonable pace despite pressures.
- Fed liftoff uncertainty, weak China stocks hurt Asia FX.
- China's Yuan up on suspected intervention, set for August loss.
- Investors pull record $29.5 bln from equity funds in China-driven rout.
- Japan July Industrial output preliminary -0.6% m/m vs previous 1.1%, 0.1% expected.
- Japan July Housing starts +7.4% y/y vs previous 16.3%, 11.0% expected.
- Japan July Construction orders -4.0% y/y vs previous 15.4%.
- Australia, NZ dlrs hindered by rate views, China.
- Australia August TD-MI inflation gauge 0.1% vs previous 0.2%.
- Australia HIA July new home sales -0.4% m/m but still historically high.
- German July Retail sales 1.4% m/m vs previous -2.3%, 1.0% expected.
- German July Retail sales 3.3% y/y vs previous 5.1%, 1.9% expected.
- Swiss August KOF indicator 100.7 vs previous 99.8, 99.5 expected.
- Eurozone August Inflation flash 0.2% y/y vs previous 0.2%, 0.1% expected.
- BoE Gov Carney- BoE rate stance unchanged by China.
- BOE Gov Carney- Sharper relief on policy around turn of year.
Economic Data Ahead
- (0830 ET/1230 GMT) Canada Current account C$ Q2, consensus -16.9bn, previous -17.47bn.
- (0945 ET/1345 GMT) US August Chicago PMI, 54.7 eyed; last 54.7.
- (1030 ET/1430 GMT) US August Dallas Fed manufacturing business index; last -4.6.
Key Events Ahead
FX Recap
USD: The dollar dropped against the yen and the euro on Monday as global stock markets weakened, prompting investors to trim bets against currencies popularly used to fund risky carry trades. The dollar index was at 95.968, down 0.2 percent on the day and about 1.5 percent lower for the month.
EURUSD: Pair is currently supported around 1.1200 levels and trading at 1.1205 levels. It made intraday high at 1.1262 and low at 1.1162 levels. Retail sales for Germany posted better-than-expected results in the seventh month of 2015, according to the latest report from the German statistical office released on Monday. Retail turnover rose 1.4% in real terms month-on-month in July, up from a 2.3% decline recorded in the previous month, coming in above market expectations of a 1.1% increase. Euro zone inflation rose 0.2% year-on-year, the same reading as in the previous month, according to preliminary data. The gauge has remained in positive territory for the fifth successive month. Initial support is seen around 1.1210 levels and resistance at 1.1425 levels. Option expiries are at 1.1200 (781M), 1.1270 (273M), 1.1410-15 (1.1BLN).
USDJPY: Pair is supported around 121.00 levels. It made intraday high at 121.74 and low at 120.88 levels. It is currently trading around 121.23 levels. Falling Asian equities added to heightened risk aversion on the markets which favors safe havens such as the Japanese yen. Pair failed to extend towards 122 handle and slipped to 121 support on a yet-another occasion as the Japanese yen benefitted from renewed round of risk-aversion spread across Asia following weaker Chinese stocks re-igniting China fears. Moreover, the yen rallied against the greenback despite downbeat Japan's industrial production data released earlier this session. Japan's industrial output unexpectedly fell in July, sapping a rebound in the economy from a slump last quarter. Output fell 0.6% from June, when it increased 1.1%, compared with the median forecast for a 0.1% gain in Bloomberg survey. Initial support is seen at 118.23 and resistance at 122.01 levels. Option expiry is at 119.75 (300M).
GBPUSD: Pair is supported above 1.5400 levels. It made intraday high at 1.5437 and low at 1.5380 levels. It is currently trading at 1.5406 levels. Sterling inched higher 0.2 pct against the dollar on last Friday, recovering from the previous day's 1 1/2-month lows after data showed UK growth was underpinned by robust exports and business investments in Q2. The UK economy grew at the rate of 0.7% between the first and second quarters, and rose 2.6% on a year-on-year basis. This was the tenth consecutive quarter of positive growth, the Office for National Statistics (ONS) informed on last Friday. Meanwhile, gains in the cable are expected to remain capped amid lack of fresh fundamental news as the UK is closed for a national holiday. Initial support is seen at 1.5321 and resistance at 1.5592 levels.
NZDUSD: Pair is supported above 0.6400 levels and trading at 0.6417 levels. It made intraday high at 0.6474 and low at 0.6409 levels. Both WTI and Brent saw their prices dropping on Monday after the rally last week, sparked by a drop in US crude stockpiles and the market calm down in China. The safe-haven currencies such as the yen, euro and the Swiss enjoyed solid gains on risk-off trades while the Antipodeans suffered with the Kiwi losing the most on NZ GDP downward revisions. Initial support is seen at 1.3187 and resistance at 1.3322 levels. Option expiry is at 0.6600 (2.3BLN).
AUDUSD: Pair is supported above 0.7100 levels and trading around 0.7136 levels. It made intraday high at 0.7171 and low at 0.7122 levels. The Australian dollar remained bearish on Monday, although it managed to bounce off its intraday lows. The main pressure comes from USD bulls, which is supported by a calmer market environment and the slowly approaching September meeting of the Federal Reserve (Fed). Aussie traders will focus on the Reserve Bank of Australia (RBA) rate decision due on Tuesday, while on Friday in the US the non-farm payrolls for August will come out. Initial support is seen at 0.7040 and resistance is seen around 0.7236 levels.
Equity Recap
Stocks in Europe and Asia looked set on Monday for their worst monthly losses in at least three years, with investors still concerned about growth in China and the prospect of higher U.S. interest rates.
The pan-European FTSEurofirst 300 stocks index fell 0.5 percent and was on track for its worst monthly performance since August 2011. Germany's DAX was down 1.4 percent.
MSCI's main index of Asia-Pacific shares excluding Japan was down 0.5 percent and headed for its biggest monthly losses in three years. Tokyo's Nikkei 225 index closed 1.3 percent lower, hit by weak Japanese industrial output data. The CSI300 index ended up 0.7 percent, after falling 4 percent at one point. The Shanghai Composite lost 0.8 percent on the day and 12.5 percent for the month
Commodity Recap
Oil fell below $49 a barrel on Monday after its biggest two-day rally in six years last week, pressured by a supply glut and renewed concern about a hard landing for China's economy. At 0835 GMT, Brent was down $1.28 at $48.77 a barrel and U.S. crude, which had rallied 12 percent last week, dropped $1.00 to $44.22.
Gold struggled on Monday to recover from last week's losses, even in the face of a softer dollar, amid concern that the Federal Reserve is on course to raise interest rates this year despite recent market turmoil. Spot gold was flat at $1,133.75 an ounce by 0630 GMT in quiet trade with London off on a bank holiday. Gold dropped more than 2 percent last week in its steepest decline in five weeks. For the month, the metal was up 3.5 percent.
Treasury Recap
JGB prices ended the day marginally mixed, with super-long JGBs softer, compared with last Friday's afternoon close. Super-long JGBs turned modestly weaker in late afternoon trading, though the BoJ bought JPY325bn of JGBs in the 10-yr to 25-yr zone and JPY425bn of JGBs in the over 25-yr zone under its massive JGB purchase program in addition to JPY800bn in the 1-yr to 5-yr zone. Like last week, a fall in Tokyo stocks forced some domestic pension funds to sell the most profitable super-long JGBs to rebalance their asset allocations between stocks and bonds.
The uncertainty about when the Fed might raise rates kept yields on German government bonds close to last week's highs. 10-year yields were last flat on the day at 0.72 percent.
New Zealand government bonds rose, pushing yields one basis point lower along the yield curve. Australian government bond futures rose, with the 3-year bond contract up 2 ticks at 98.200. The 10-year contract also added 2 ticks to 97.2600.
