It’s Risk-on Early as Focus Remains on Trade and Brexit

With economic data on the lighter side once more, we expect geopolitics to continue to drive the majors. Does China have the upper ahead of talks?
Bob Mason
US Stock Market, China, Netflix

Earlier in the Day:

It was a particularly busy day on the economic calendar through the Asian session this morning.

Japan’s household spending, Australian business confidence, and China’s Caixin Services PMI figures provided direction early on. For the Pound, the BRC Retail Sales Monitor report was also in focus.

While economic data was on the heavier side, geopolitics also influenced, ultimately providing support to riskier assets in the session.

For the Japanese Yen

Household spending rose by 2.4%, month-on-month, in August reversing a 0.9% fall from July. Economists had forecasted a 2.8% increase. Year-on-year, household spending rose by 1.0%, falling short of a forecasted 1.2% rise. Spending had risen by 0.8%, year-on-year, in July.

According to the Statistic Bureau,

  • Spending on furniture & household utensils surged by 13.2%, with spending on clothing & footwear rising by 4.7%.
  • There were also increases in spending on transportation & communication (+3.4%), food (+1.6%) and medical care (+1.0%).
  • Sales on fuel, light & water charges slid by 9.7%, however, with spending on education falling by 7.8%, pinning back total spending.
  • There was also a 1.8% fall in spending on housing.

The Japanese Yen moved from ¥107.266 to ¥107.259 upon release of the figures. At the time of writing, the Japanese Yen was down by 0.10% to ¥107.37 against the U.S Dollar.

For the Aussie Dollar

The NAB Business Confidence Index fell from 1 to 0 in September.

According to the September survey,

  • While confidence eased further, business conditions improved, with the index rising by 1 point to +2.
  • Both the conditions and confidence indexes remained below the average of +6 points in September.
  • Profitability and trading conditions also remained below their respective averages, while the employment index rose above its average in September.
  • The profitability, trading and employment indexes rose by 1 point each in the month.
  • Retail and wholesale reported the weakest figures, with manufacturing and construction also weak.

The Aussie Dollar moved from $0.67297 to $0.67296 upon release of the figures that preceded China’s service sector PMI figures.

Out of China

The Caixin Services PMI slipped from 52.1 to 51.3 in September, which was worse than a forecasted hold at 52.1.

According to the September Markit survey,

  • The services sector reported the softest rise in activity for 7-months, in spite of a sharp pickup in new orders.
  • New order growth rose at the sharpest pace since January 2018, with new export work rising for a 3rd consecutive month.
  • On the employment front, the services sector reported the largest increase in payrolls since January 2017.
  • Backlogs were also on the rise, driven by stronger demand, supporting the uptick in the pace of hiring.
  • In spite of some positive components, optimism in the sector fell to its lowest level since May.

The Aussie Dollar moved from $0.67349 to $0.67401 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.10% to $0.6740.

Elsewhere

At the time of writing, the Kiwi Dollar up by 0.29% to $0.6307.

The Day Ahead:

For the EUR

It’s another relatively quiet day ahead on the economic calendar. Germany’s August industrial production numbers are due out in the early part of the day.

Off the back of Monday’s factor order numbers and last week’s manufacturing PMI, the EUR could be in for another dip. Forecasts are for a 0.3% fall in production…

Outside of the numbers, expect Brexit chatter on trade and any further talk of U.S tariffs on EU goods to also influence.

At the time of writing, the EUR was up by 0.03% to $1.0974.

For the Pound

It’s a relatively quiet day ahead on the data front. Economic data is limited to 2nd quarter labor productivity numbers due out in the early part of the day.

We would expect the Pound to show little reaction to the numbers, however, with Brexit remaining the key driver in the week.

On the monetary policy front, Bank of England Governor Carney is also scheduled to speak ahead of the European open.

From earlier in the day, the UK’s BRC Retail Sales Monitor fell by 1.70% in September, year-on-year, following a 0.5% fall in August.

On the  Brexit front, time is running out and the chances of a deal ahead of 19th October Summit look slim as the EU rebuffs Britain’s proposals. Next up, a general election or a resignation?

At the time of writing, the Pound was down by 0.01% to $1.2292.

Across the Pond

It’s a relatively busy day ahead on the economic calendar, with wholesale inflation figures due out of the U.S later today.

While we can expect the Dollar to respond to the numbers, market sentiment towards the U.S and global economy and geopolitical risk will remain the key drivers.

The threat of impeachment could force Trump’s hand in delivering a deal…

On the monetary policy front, FED Chair Powell is scheduled to speak later in the day. Following a string of weak economic numbers, will the fall in the unemployment rate cause the FED to hesitate or deliver more cuts?

The Dollar Spot Index was down by 0.01% to 98.962 at the time of writing.

For the Loonie

It’s a  quiet day on the economic calendar. Economic data is limited August building permit figures. Barring particularly dire numbers, we would expect the numbers to have a muted impact on the Loonie.

On the day, sentiment towards the global economy and geopolitical risk will likely have the greatest influence on the day.

The Loonie was up by 0.10% at C$1.3298, against the U.S Dollar, at the time of writing.

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