Previous Day's Market Highlights
The euro sank to its lowest levels in over 2 years on Friday, as mounting expectations of significant monetary policy easing, further weak economic data and fresh political risks in Italy all exerted downward pressure. The first two points are closely linked, with August's sluggish inflation data showing little sign of upward pressure on prices, heightening the chances that the ECB will not hold back at their policy meeting in less than 2 weeks' time. Flash CPI figures showed headline inflation increased at just 1% on a year-on-year basis, unchanged from July, and remaining at the slowest pace since November 2016. The lack of inflationary pressures was further emphasised by the dip in core CPI, which increased at 0.9% YoY, as both measures continue to drift away from the ECB's 2% inflation target. Such a benign pace of price increases, combined with increasing downside risks facing the economy, point to the ECB delivering a significant stimulus package next week; likely including a combination of at least a 10bps rate cut, tiering of the deposit rate and strengthening forward guidance, in addition to the possible restart of asset purchases. Meanwhile, Italian politics came to the fore once again, with the chances of fresh elections increasing after the Five Star Movement reportedly set further demands before entering into a coalition government. These concerns combined resulted in the common currency shedding a shade under 0.7% on Friday, closing at the lowest levels of the month against the dollar, and falling below the $1.10 handle for the first time since May 2017.
Speaking of the dollar, the greenback rose to the top of the FX leaderboard as August drew to a conclusion, aided by month-end demand as markets ignored concerning economic data. The dollar added 0.3% against a basket of peers, the buck's 3rd consecutive daily gain, despite August's final consumer sentiment figures from the University of Michigan showing the index falling to its lowest level since October 2016. The sentiment index slid to 89.8, largely due to mounting consumer concerns over the imposition of fresh trade tariffs. Such a slide is concerning for the US economy, where consumer spending remains the primary growth engine; any slowdown in consumer spending runs the risk of the US economy contracting.
Elsewhere, the pound held steady as market participants received a welcome break from any Brexit-related headlines. Sterling closed out a tumultuous August with a modest, 0.4% loss against a stronger dollar, while gaining 0.25% against the euro. Friday's only other notable mover was the Canadian dollar, which whipsawed in reaction to the release of second quarter GDP figures. At first glance, headline growth of 3.7% on an annualised QoQ basis would seem to be upbeat, however the details of the release took some of the shine off of the headline number. Flat consumption, combined with a contraction in business investment, result in significant doubts over whether such a solid pace of growth is sustainable. The loonie settled 0.15% lower, erasing an earlier pop higher.
Away from FX, equity markets ended the month in subdued fashion, with low volumes. The pan-European Stoxx 600 settled 0.7% higher, while the US benchmark S&P 500 was flat. Finally, oil prices lost ground amid concerns that the arrival of Hurricane Dorian may dampen demand. Global benchmark Brent settled 1.1% lower, while US WTI crude lost 2.8%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
A key week for the global economy and for attempts to prevent a no-deal Brexit begins today with a relatively quiet economic calendar. Furthermore, trading volumes and liquidity are likely to be significantly reduced, with US & Canadian markets both closed in observance of Labour Day.
With volatility set to be confined to the European session, the usual monthly round of manufacturing PMI surveys will be in focus. From the eurozone, final data for August is set to show the industry remaining in contraction for an 8th consecutive month, with the index set to print 47.0. Market participants will also be paying a close eye to the country breakdown of the report, especially Germany, where the economy seems to be approaching, or in the midst of, a recession. Meanwhile, in the UK, manufacturing PMI is expected at 48.4, which would be a 4th straight month below the key 50 dividing line between expansion and contraction. The impact of the data on the pound is however likely to be limited, with attention likely to remain on Parliamentary and legislative attempts to prevent a no-deal Brexit throughout the week. Parliamentary manoeuvring is set to begin once MPs return from recess on Tuesday, with the timescales for legislating against a no-deal exit having become significantly tighter, after the announcement that Parliament would be prorogued from mid-September. Sterling remains susceptible to any Brexit-linked headlines, though a significant degree of downside risk appears to have already been priced in.
Looking ahead to the remainder of the week, a number of key monetary policy events are scheduled. Firstly, both the Reserve Bank of Australia (Tues) and Bank of Canada (Weds) are set to announce their latest monetary policy decisions, though no rate changes are expected from either. However, the RBA should maintain their easing bias, while the BoC are likely to strike a more cautious tone as global trade tensions continue to escalate, despite the Canadian economy's solid performance. Staying with central banking, Wednesday also sees Bank of England policymakers taking part in their quarterly Inflation Report testimony, while Friday sees speeches from SNB Chairman Jordan and Fed Chair Powell; the latter's remarks being the last time investors will hear from the FOMC ahead of September's policy meeting.
On the data front, 2nd quarter GDP figures from Australia, the eurozone and Switzerland will be eyed, along with the continued release of PMI surveys, set to show the services sector holding up well, despite the manufacturing industry continuing to slow. Finally, the week concludes with labour market reports from Canada and the US, the latter including the all-important headline nonfarm payrolls figure.
Today's Economic Calendar
|9:00am||EUR||Final Manufacturing PMI (Aug)||47.0||47.0|
|9:30am||GBP||Manufacturing PMI (Aug)||48.4||48.0|
|5:30am (Tues)||AUD||RBA Interest Rate Decision & Statement||1.00%||1.00%|