Asian Stocks and the Dollar Find Relief from North Korea’s Relative Silence, with no Materials Stats for the Day Ahead

Earlier in the Day:

Macroeconomic data through the Asian session were limited to New Zealand’s credit card sales figures for August and Japan’s Tertiary Industry Activity Index numbers early in the day.

While Japan’s Tertiary Industry Activity Index was in line with forecasts, rising by 0.1% in July, following a downwardly revised 0.2% decline in June, of more concern will be the 4^th consecutive decline in New Zealand’s retail sales using electronic cards, with sales falling by a further 0.2% in August, following July’s 0.6% decline.

The weaker numbers have been attributed to a combination of a slowdown in the housing market, weighing on household spending, together with softer imported consumer goods prices. With electronic card sales accounting for around two-thirds of retail sales, the RBNZ will be taking a close look at the numbers and the possible effects on the economy over the near-term, with the key being whether consumer confidence continues to remain positive, supported by relatively stable household income, softer consumer prices coming off the back of a bounce in the Kiwi Dollar and continued weakness in crude oil prices.

The stats had limited impact on risk appetite ahead of the European session however, with the U.S Dollar managing to find some much needed support and with Asian equities making solid gains, the Nikkei up 1.41% off the back of a weaker Yen, as the markets responded to the limited noise out of North Korea over the weekend, and in particular North Korea’s decision to celebrate its Founding Day rather than mar it with another intercontinental ballistic missile test that would have undoubtedly raised tensions further.

The Day Ahead:

There are no material stats out of Europe or the U.S for the day ahead for the markets to consider, as the positive market sentiment through the Asian session looks set to be passed through to the European and U.S sessions.

At the time of the report, the Dollar was up 0.65% against the Yen at ¥108.543, as market risk aversion abated, not only on the lack of noise from North Korea, but also on news of Hurricane Irma being downgraded having made landfall over the weekend, damaging parts of Florida.

While it’s a quiet start to the week on the economic calendar, there are certainly some key stats due out this week from both sides of the Pond, with UK and U.S retail sales and inflation figures due out later in the week. The Pound will be under greater scrutiny ahead of Thursday’s BoE MPC monetary policy decision, data out of the UK last week showing some positive numbers, with the exception of construction and service sector activity, the softer service sector PMI number a concern.

Unsurprisingly, the pickup in market risk appetite, with the Dow Mini Futures up 115 points at the time of the report, has eased pressure on the Dollar, with the Dollar Spot Index up 0.25% at 91.581. The Dollar is not out of the woods yet, with the upside coming more from a lack of action from North Korea than a shift in sentiment towards FED monetary policy, though that could all change this week should U.S inflation and retail sales figures impress.

There will be relief amongst central bankers of the pickup in appetite for the Dollar, with the EUR down 0.22% at $1.2009 and the AUD down 0.30% at $0.8036, but current levels are likely to continue to be considered too strong for Draghi and Lowe, who remain concerned over the effects of currency appreciation on their respective economies, whilst bullish on the respective economies in general.

The risk on sentiment will likely see the EUR remain on the back foot through the remainder of the day, which could see the EUR give up $1.20 levels early in the session, with the only consideration for the day being any possible friction between the North Korean’s and the U.S, though a war of words is more palatable than actual missile or nuclear tests, as far as the markets are concerned.

There’s a long way to go for the Dollar and doubts will continue to linger on whether a full recovery is likely over the near-term, as the FED enters its blackout period ahead of next week’s FOMC meeting and release of its updated quarterly economic projections.