The Asian Relief Rally and the USD Soften, with UK Employment Data Keeping the Pound in the Spotlight

Bob Mason

Earlier in the Day:

Asian equities saw appetite on the softer side through the session this morning, with the gains in the Nikkei less impressive than through the start of the week and the Hang Seng and ASX200 in the red at the time of the report.

The softness comes despite all three of the major U.S indexes closing at record highs on the same day for the first time in 6-weeks, with Apple news weighing on the tech sector in Asia and comments from the North Koreans on its intentions to accelerate its nuclear program to be able to strike U.S soil certainly not driving market risk appetite for a 3rd consecutive day.

To make matters worse, the U.S warned China of possible sanctions, should the Chinese government fail to enforce the latest UN Sanctions that were passed on Monday, the relationship between the two global superpowers certainly having deteriorated of late.

At the time of the report, the Dollar was down 0.04% against the Yen at ¥110.13, recovering from an intraday low ¥109.98, with the markets now looking to see whether the North Koreans will respond with more than just words in the coming days.

On the data front, Australia consumer confidence recovered according to this morning’s September Westpac Consumer Sentiment Index figures, providing the AUD with support following two consecutive days of losses, though the fate of the AUD through the week will lie in tomorrow’s August employment figures. 3rd quarter manufacturing data out of Japan was also upbeat ahead of tomorrow’s finalized July industrial production figures, though the stats had little impact on the Yen upon release.

The Day Ahead:

For the day ahead, focus remains on the Pound with July’s average earnings index plus bonus and August’s claimant count change figures scheduled for release this morning. We have seen the Pound rally to $1.33 levels in the wake of the surge in inflation in August, according to the figures released on Tuesday, which comes ahead of tomorrow’s BoE monetary policy decision.

Last month we saw the BoE take a more dovish stance on policy, with a first rate hike being forecasted for the 3rd quarter of next year. BoE Governor Carney has been quite vocal on his concerns over inflation overshooting the BoE’s 2% target for an extended period of time. Tuesday’s figures together with the pickup in wholesale input price inflation suggests that the BoE may need to take a more hawkish stance on policy, supported by some relatively upbeat stats out of the UK last week.

This morning’s employment figures will provide the markets with further evidence on whether the BoE will need to shift its outlook, a low claimant count and a pickup in wage growth likely to see the Pound take another leap forward ahead of tomorrow’s retail sales figures and monetary policy decision.

At the time of the report the Pound was up 0.2% against the Dollar at $1.33102, with another half-a-cent gain certainly on the cards should the numbers impress, though with Brexit looming large, we will expect there to be limits on how far the Pound can go.

While focus will be on the Pound this morning, stats out of the Eurozone included finalized August inflation figures out of Germany and Spain this morning, which were in line with prelim figures, with the Eurozone’s industrial production figures for July scheduled for release later this morning, which may weigh on the EUR ahead of the U.S session, following last week’s disappointing figures out of Germany.

At the time of the report, the EUR was up just 0.05% at $1.19731, with stats out of the U.S this afternoon limited to August’s producer price index figures, which likely be Dollar positive, though we will expect the markets to be holding back ahead of tomorrow’s inflation figures and a heavy day of stats at the end of the week, which will include August’s retail sales data.

The Dollar Spot Index was down 0.08% at 91.806 at the time of the report, with some softness in the EUR expected to provide some much needed support for the Dollar through the European and U.S sessions.

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