A hectic start to the week has seen oil jump by around 15% following on from the attack on the Saudi oil refinery, which has then created waves in other markets. Stocks closed down 0.5%, breaking an 8 day winning streak, while Gold spiked up by around 2% in early trade but has since given back around half of those gains to sit at familiar territory, at 1500oz.
In the FX markets, the US$ is firm on Tuesday, with the DXY back at 98.65, helped along by Donald Trump’s authorisation of the use of an emergency crude stockpile in response to the attack, which also cooled a further surge in the oil price. The Euro came under some downside pressure after the attack because of fears that the surge in the price could hurt the EU’s balance of payments, with the added weight of some dovish comments from various ECB board members. Sterling was also under pressure, not helped by some heated remarks by the Luxembourg Prime Minister, indicating that the gap between the UK and EU positions on Brexit remains far apart. UK PM Boris Johnson received a hostile reception in Luxembourg and did not appear for a press conference, adding to the general downside pressure. The Jpy saw early demand on safe haven demand, but by the end of the session US$Jpy is back above 108 and sits pretty much unchanged from the Friday close. The commodity currencies were mixed, with the Cad$ firm, because of the oil price, but the Aud$ and particularly the Nzd$ are heavy, mainly due to the concerns of a possible slowdown in economic growth prospects, partly due to the chances of reduced demand for oil at these lofty prices. A dovish Fed tomorrow will be required to reverse the drift lower for each of the Aud and the Kiwi.
Tuesday will begin with the Australian House Price Index and will be closely followed by the RBA Minutes which may create some waves for the Aud$, albeit unlikely, although the minutes will be closely read for any clues regarding the likelihood of a rate cut at the next meeting on 1 Oct. After that the only European data of note will be the German/EU ZEW Economic Sentiment Survey (exp; Current Situation -15, Sentiment -38) while the US will see the August Capacity Utilisation (exp 77.6%) and the Industrial Production (exp +0.2%) as well as the September NAHB Housing Market Index (exp 66). The Global Dairy Trade Index and the weekly API Weekly Crude Oil Stock Inventory are also due for release. All up, a fairly rangebound session may lie ahead while we wait on tomorrow’s FOMC Meeting, where a 25bp rate cut is pretty much fully priced in, with the oil strike unlikely to cause any change in the Fed’s thinking at this point in time. Political headlines may change this but in the meantime I don’t expect to see too much volatility on the evidence of the upcoming calendar. Have a good day.
Economic data highlights will include:
Tue: Australian House Price Index/Investment Lending for Homes, RBA Minutes, China House Price Index, German/EU ZEW Economic Sentiment Survey, US Industrial Production, Capacity Utilisation, NAHB Housing Market Index, API Weekly Crude Oil Stock Inventory, Global Dairy Trade Index
Market moves, in brief:
FX: DXY 98.65 (+0.81%)
Bonds: US10Y; 1.845% (-2.8%), German 10Y; -0.479% (-5.86%), UK 10Y; 0.616% (-9.35%), Australian 10Y; 1.199% (+2.63%), NZ 10Y; 1.344% (+1.05 %), China 10Y; 3.062% (-0.84%)
Stock Indices: DJI; -0.52%, S+P; -0.31%, NASDAQ; -0.28%, EUStoxx50; -0.89%, FTSE100; -0.62%, Shanghai Composite; -0.02%,
Metals: Gold $1499 oz (+0.68%), Silver $17.87 oz (+2.46%), Copper $2.6425 lb (-2.22%), Iron Ore $94.37 per tonne (NYMEX) (-0.42%),
Oil: WTI $61.73 pb (+12.50%)
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