U.S safe-haven appeal diminishes

Thursday September 20: Five things the markets are talking about

It’s not been easy, two and two do not add up when trading these Twitter directional asset classes. Fundamentals have been temporary ignored as the ‘lemming’ trades takes a grip.

Fading market fears over a Sino-U.S trade row has the U.S dollar trading within striking distance of its two-month lows. Even emerging-market currency pairs have found some traction after China said it would not retaliate with competitive currency devaluations.

Global equities are beginning to struggle as U.S yields approach their highest level this year.

In Europe, U.K Consumer spending remains buoyant despite Brexit uncertainties. Norway raises interest rates for the first time in seven-years and the Swiss kept rates on hold.

1. Stocks mixed results

In Japan, the Nikkei ended little changed overnight as an extended rally in financial sector was largely offset by profit taking after this weeks rally. The Nikkei inched up +0.01%, just about staying in positive territory for the fifth consecutive session. The broader Topix added +0.11%.

Down-under, Aussie shares slipped overnight, led lower by banks and consumer staples as investors shifted funds to emerging markets as they became less worried about a U.S-China trade war. The S&P/ASX 200 index fell -0.3% at the close of trade. The benchmark gained +0.5% yesterday. In S. Korea, the Kospi index rallied +0.65%, supported again mostly by Samsung.

Stocks in China fell overnight, as investor sentiment remained fragile following the latest hit of tariffs in the Sino-U.S. trade war. At the close, the Shanghai Composite index and the blue-chip CSI300 index were both down -0.1%.

In Hong Kong, there were mixed results as some investors held on to hopes that China and the U.S would eventually reach an agreement to avert an all-out trade war. The Hang Seng Index rose +0.26%, while the Shanghai Composite Index slipped -0.06%.

In Europe, regional bourses have opened broadly higher. Market will focus on the ‘informal’ E.U leaders summit comments.

U.S stocks are set to open little changed (+0.0%).

Indices: Stoxx50 +0.3% at 3,379, FTSE +0.1% at 7,334, DAX +0.2% at 12,248, CAC-40 +0.4% at 5,415, IBEX-35 +0.4% at 9,526, FTSE MIB +0.5% at 21,396, SMI +0.4% at 8,974, S&P 500 Futures flat

2. Oil steady, supported by U.S. stocks and supply concerns

Oil prices trade steady, nevertheless, the market remains a tad better ‘bullish’ after this week’s U.S crude inventory reports and on signs that OPEC may not raise production enough to compensate for the loss of Iranian exports hit by U.S. sanctions.

Brent crude oil is unchanged at +$79.40 a barrel, while U.S light crude oil is +40c higher at +$71.52 after rising nearly +2% in yesterday’s session.

Note: Brent has been trading below $80 for the past week after conflicting reports of the market views of Saudi Arabia, the biggest producer in OPEC. They wanted oil to stay between +$70 and +$80 a barrel for now, seeking a balance between maximizing revenue and keeping a lid on prices until U.S midterms. However, giving the market a bid undertone are reports yesterday indicating that the Saudi’s were happy with prices above +$80 a barrel.

EIA data Wednesday showed that U.S crude oil stockpiles fell for a fifth consecutive week to a three-year low in the week to Sept. 14, while gas stocks also showed a larger than expected draw on unseasonably strong demand. Crude inventories fell by -2.1m barrels, compared with expectations for a decrease of -2.7m.

Note: OPEC and other producers, including Russia, meet on Sunday in Algeria to discuss how to allocate supply increases to offset the loss of Iranian barrels.

Ahead of the U.S open, gold prices have inched higher as the ‘big’ dollar softened amid easing Sino-U.S trade tensions. Nevertheless, expect investors to remain cautious ahead of next week’s Fed meeting. Spot gold is up +0.1% at +$1,204.69, after rising +0.5%yesterday.

3. Norway hikes rates for the first time in seven years, SNB on hold

Earlier this morning, Norway’s central bank hiked its key interest rate for the first time in more than seven-years. Norges Bank increased the rate to +0.75% from +0.5%.

The central bank said another rate increase is likely in the first three months of next year, with a gradual series of moves taking it to +2% by the end of 2021.

“If the key policy rate is kept at the current level for too long, price and wage inflation may accelerate and financial imbalances build up further,” said Governor Olsen. “That would increase the risk of a sharp economic downturn further out.”

Note: Sweden has also indicated that it may raise its key rate before the end of the year, while the ECB plans to end QE in December.

Elsewhere, the Swiss National Bank (SNB) kept its deposit rate at -0.75%, as expected. The accompanying statement painted two different pictures – the negative rate and willingness to intervene in FX markets “remain essential in order to keep the attractiveness of CHF low and thus ease pressure on the currency.” That said, policy makers also painted a brighter economic future and raised its 2018 GDP forecast to between +2.5% and +3%.

4. Dollar downfall

The CHF ($0.9659) is a tad weaker after the Swiss National Bank (SNB) left rates on hold. The fact that the franc remains “highly valued and has appreciated noticeably” has investors wary of the bank’s next moves.

EUR/NOK (€9.6068) initially fell following the Norges rate hike, but has since reversed and is trading down -1% outright after the bank cut its policy rate forecasts.

GBP/USD (£1.3226) has rallied sharply, again testing yesterday’s intraday highs, on Brexit talk and on stronger than expected U.K retail sales (see below).

USD/ZAR is down by -1.5% at $14.4793 – some investors are anticipating a surprised rate hike this morning. Nevertheless, the consensus expects rates to remain unchanged, given that prices remain within the bank’s inflation target range and that the economy has slid into a recession.

5. U.K retail sales slowed in August

Data this morning showed that U.K. retail sales slowed in August but continued to point to buoyant consumer spending in Q3, which suggests that the economy has kept expanding despite uncertainty over Brexit.

According to the ONS, U.K retail sales rose +0.3% on month in August, after a revised +0.9% rise in July.

Digging deeper, consumer spending continues to power the U.K economy as sales increased across most store categories with the exception of food and clothing outlets.

But is it sustainable, given high inflation, low wage growth and rising interest rates? Uncertainty over the U.K’s future continues to deter investment.

Forex heatmap

Where to hide? That’s the next million-dollar question

Tuesday September 18: Five things the markets are talking about

It was coming, the market new it was coming, just when, and how much, were the unknown variables.

President Trump has imposed an additional +10% tariffs on about +$200B worth of imports from China, rising to +25% by the turn of the New Year. Trump has threatened additional duties on about +$267B more if China contemplates hitting back on the latest U.S action, beginning next Monday.

Of course China is going to retaliate, but how, is part of the guessing game – “to protect its legitimate rights and interests and order in international free trade, China is left with no choice but to retaliate simultaneously.”

There are a few tech exceptions – which benefit Apple/Fitbit for now – and the tiered deployment is to help U.S companies find alternative supply chains. However, if the U.S needs to go to phase three, it would consume all remaining U.S imports from China and Apple products and its competitors would not be spared.

The problem for China is that they do not import enough U.S goods to go head-to-head with the U.S leverage strategy. They will want to cause U.S pain and will probably focus even more on the tech sector. Nevertheless, watch the Yuan’s value, it may be one of China’s strongest weapons. It has weakened by about -6.0% in the past three-months, offsetting any -10% tariff rate by a substantial margin.

From an asset price viewpoint, it’s been a rather ‘subdued’ reaction to Trump’s announcement. Buying U.S dollars in response to trade conflicts does not seem to be as appealing anymore. The delay in imposing +25% tariffs may explain the lack of movement, in addition to the fact that the tariffs have been widely anticipated.

1. Stocks mixed results

In Japan, the Nikkei rallied overnight to its highest close in seven-months, led by insurers thanks to rising U.S Treasury yields. However, no surprises, capping gains were electronic suppliers, which underperformed as the market weighs the new U.S China, tariff impact. The index closed out +1.4% higher, while the broader Topix rallied +1.8%.

Down-under, materials and energy stocks pushed Aussie equities lower as the escalating Sino-U.S trade war pressured commodity and oil prices. The S&P/ASX 200 index fell -0.4% at the close. The index rallied +0.3% yesterday. In S. Korea, the Kospi stock index closed +0.26% higher along with some of its regional bourses as Chinese markets largely shrugged off trade tariff threats.

In China, stocks staged a late rebound as the blue-chip index CSI300 rallied +1.9% as some investors bet that authorities will increase their investment in infrastructure to offset the impact of the latest tariff penalties from Trump. In Hong Kong, the Hang Seng index closed out +0.6% higher.

In Europe, regional bourses have shrugged off early weakness following the ‘telegraphed’ U.S tariff announcement after the yesterday’s U.S close. Autos lead the gains, while the materials sector and consumer discretionary are under early pressure.

U.S stocks are set to open in the ‘black’ (+0.2%).

Indices: Stoxx50 +0.5% at 3,363, FTSE +0.1% at 7,318, DAX +0.6% at 12,164, CAC-40 +0.6% at 5,383; IBEX-35 +0.4% at 9,446, FTSE MIB +0.2% at 21,148, SMI -0.3% at 8,908, S&P 500 Futures +0.2%

2. Oil prices fall as U.S-China trade war questions demand, gold lower

Oil markets have eased a tad as the Sino-U.S trade war questions the outlook for crude demand from the world’s two largest economies.

Brent crude futures have dropped -29c, or -0.37% to +$77.76 per barrel, while U.S West Texas Intermediate (WTI) crude is down -15c, or -0.22%, at +$68.76 per barrel.

U.S crude ‘bears’ believe that these tariffs are likely to limit economic activity in both China and the U.S – a hit to growth is a hit to consumption.

Note: Refineries stateside consumed about +17.7m bpd of crude oil last week, while China’s refiners used about +11.8m last month.

Crude ‘bulls’ are currently clinging to the potential supply cuts caused by U.S sanctions on Iran (third-largest producer in OPEC) as reason enough to support short-term oil prices.

Ahead of the U.S open, gold prices are under pressure as the ‘big’ dollar steadies amid concerns of an escalation in Sino-U.S trade tensions. Spot gold is -0.3% lower at +$1,197.51 an ounce, after rising +0.6% in Monday’s session. U.S gold futures are down -0.3% at +$1,202.20 an ounce.

However, if the ‘big’ dollar loses its ‘tariff haven’ appeal, expect the ‘yellow’ metal to find support on pullbacks.

3. Sovereign yields rally

U.S Treasury yields have backed up along the curve on growing expectations that the Fed could raise interest rates a few more times this year after recent data showed wages spiking last month, elevating concerns about inflation.

Note: U.S data last week showed that wages in August posted their largest annual increase in more than nine-years, rising +0.4% m/m and +2.9% y/y.

Yesterday, U.S 10’s touched +3.022%, the highest level in four-months, along with U.S 30-year yields at +3.159%. As to be expected, the short end rallied to a 10-year high, backing up to +2.799%.

Elsewhere, German Bund yields continue drifting upward to the +0.50% level amid better sentiment around Italy. The 10-year Bund yield is trading at +0.46%, up +0.05%. In the U.K, the 10-year Gilt yield has rallied +1 bps to +1.536%.

4. Dollar muted reaction

EUR/USD (€1.1680) shows a muted reaction to the U.S announcement that it will charge +10% on another +$200B of Chinese imports starting from next Monday. Typically trade tensions have been positive for the ‘big’ dollar; maybe attitudes will change once China shows its hand.

GBP/USD (£1.3126) pulls back from recent six-week highs as the market awaits Thursday’s E.U summit.

TRY ($6.3670) continues to weaken, down another -0.7% as investors remain confident in fading last weeks bigger than expected Central Bank of the Republic of Turkey (CBRT) rate hike.

An interest rate increase by the Norges Bank on Thursday is widely expected and already broadly priced into EUR/NOK (€9.5406). However, NOK bulls believe the central bank will likely signal more rate increases, which should provide further support for this commodity currency.

5. Reserve Bank of Australia (RBA) stays true to its ‘hawkish’ stance

In its minutes released overnight there were no surprises. The RBA maintained its interest-rate guidance in the minutes from its meeting a fortnight ago, reiterating that increases will eventually come amid anticipated economic strength.

RBA also noted that a number of G10 central banks, including the Fed, were expected to continuing rate hikes. This had been reflected in the markets, “most notably a broad-based appreciation of the US dollar” that “raised risks” for some, especially for “fragile emerging” markets. However, “the modest depreciation of the AUD was helpful for domestic economic growth.”

The copy and recent rhetoric suggests that Aussie policy makers remains highly confident its current stance – interest rates at record lows will ultimately bring lower unemployment, higher wage growth and an uptick in inflation over time.

Forex heatmap

No tariffs, now tariffs, what gives?

Monday September 17: Five things the markets are talking about

The possibility of a new round on tariffs on Chinese goods is not helping equity markets this Monday morning. The ‘big’ dollar is holding onto Friday’s gains as investors try and acclimatize themselves to the ever-fluid trade situation that President Trump seems to be creating himself.

Deflection or negotiation, whatever the reason, markets continue to wait for the counter punch before throwing all in. China is not expected to be a willing dance partner in proposed trade talks later this month if the Trump administration goes ahead with the additional tariffs expected later today.

Note: Tariff level likely to be around +10%, and below the +25% previously announced.

Last week, the outlook for global trade looked improved, however, true to form, inconsistency seems consistent with this Trump administration.

This week, on the central bank front, the Bank of Japan (BoJ) dominates proceedings (Sept 18). However, recent domestic data remains mixed – Q2 GDP was revised upward while monthly core-machine orders rebounded from June’s decline and PPI edged downward – and certainlgly disappointing news to Governor Kuroda’s inflation fight.

On tap: AUD monetary policy minutes (Sept 17), BoJ rate announcement (Sept 18), U.K CPI and NZD GDP (Sept 19), SNB monetary policy decision & U.K retail sales, CAD retail sales (Sept 21)

1. Stocks see mostly red

The Nikkei 225 was closed for a bank holiday.

Down-under, Aussie stocks were the best performer in the region, as other Asia-Pacific indexes struggled with Sino-U.S trade worries. The ASX 200 rose +0.3% as energy and financial stocks logged solid gains and telecom rallied +1.5%. The negatives were elder care providers due to a planned government probe into the sector. In S. Korea, the Kospi closed down -0.66% on global trade worries.

Stocks in Hong Kong finished lower while China’s main Shanghai Composite index fell to its lowest close in four-years overnight on fears that Washington is expected to unveil new tariffs on imported Chinese goods this week.

In Hong Kong, the Hang Seng index ended -1.3% lower, while the China Enterprises index closed down -1.1%. In China, the Shanghai Composite index dropped -1.1%, while the blue-chip CSI300 index also declined -1.1%.

In Europe, regional bourses reverse earlier losses to trade mostly unchanged after weakness in Asia.

U.S stocks are set to open in the ‘red’ (-0.1%)

Indices: Stoxx50 +0.1% at 3,348, FTSE -0.2% at 7,291, DAX -0.2% at 12,100, CAC-40 flat at 5,351; IBEX-35 +0.6% at 9,417, FTSE MIB +0.7% at 21,019, SMI -0.3% at 8,936, S&P 500 Futures -0.1%

2. Oil higher as U.S Iran sanctions raise supply concerns, gold higher

Oil prices remain better bid as the market focuses on the potential impact of U.S sanctions on Iran despite promises by Washington that the Saudis, Russia and the U.S could together raise output fast enough to offset falling supplies.

Brent crude oil is up +45c a barrel at +$78.54, while U.S light crude (WTI) is up +43c at +$69.44.

Note: Washington aims to cut Iran oil exports to force Tehran to re-negotiate a nuclear deal. Iran exports have declined by -580k bpd in the past 90-days.

On Friday, U.S Energy Secretary Rick Perry said that he did not expect any price spikes and that the world’s top three oil producers could raise global output in the next 18-months.

Also capping oil prices, U.S drillers added two oilrigs in the week to Sep. 1, bringing the total count up to 749 according to Baker Hughes energy services.

Note: A Joint Technical Committee of OPEC and non-OPEC producers are due to meet today to coordinate production.

Ahead of the U.S open, gold prices have inched a tad higher as speculators look for short-term gains, amid increasing Sino-U.S trade tensions and prospects of further Fed interest rate hikes. Spot gold is up +0.2% at +$1,195.83 an ounce, after falling -0.6% on Friday when it marked its third straight weekly decline. U.S gold futures are down -0.1% at +$1,199.80.

3. Sweden’s Riksbank ready to hike despite low inflation

This morning minutes from Sweden’s Riksbank suggests that the board has become more tolerant of downside surprises to inflation and that it is now ready to hike rates before core-inflation has returned all the way to target.

Board members indicated that inflation expectations are “firmly anchored at the target, indicating that this is sufficient to start a very gradual tightening of the currently very expansionary monetary policy.” The bond market is pricing in a +25 bps hike in early Q1, 2019. The SEK is rallying, with EUR/SEK down -0.4% at €10.4774.

Elsewhere, the yield on U.S 10’s has fallen -1 bps to +2.99%. In Germany, the 10-year Bund yield is unchanged at +0.45%, while in the U.K, the 10-year Gilt yield has rallied less than -1 bps to +1.53%. The spread of Italy’s 10-year BTP’s over Bunds has narrowed -8 bps.

4. Sterling rallies on Irish border hopes

GBP (£1.3095) trades atop of the psychological £1.31 handle on optimism of progress on the Irish border question ahead of this week’s E.U summit.

E.U chief negotiator Michel Barnier is supposedly working on a plan to minimise physical checks at the Irish border by tracking goods using barcodes on shipping containers.

Note: The first of three Brexit summits will be held on Thursday, and E.U leaders hope a deal can be struck within the next two months.

EUR/USD (€1.1636) little changed. The ‘big’ dollar is expected to remain contained this week due to the absence of Tier 1 U.S data releases, while EUR gains may be capped on ongoing Italian concerns.

Emerging market currency’s trade under pressure once again on tariffs threats, with the USD/TRY over +1.6% ($6.2554) higher, while the USD/INR is +0.8% higher as the Reserve Bank of India (RBI) plans over the weekend to curb INR’s fall fail to lift the rupee.

5. Annual inflation down to +2.0% in the euro area

Data this morning from Eurostat showed that the euro area (19 members) annual inflation rate was +2.0% in August, down from +2.1% in July. A year earlier, the rate was +1.5%.

For the European Union (28 members) annual inflation was +2.1% in August, down from +2.2% in July. A year earlier, the rate was +1.7%.

Digging deeper, the lowest annual rates were registered in Denmark (+0.8%), Ireland and Greece (both +0.9%). The highest annual rates were recorded in Romania (+4.7%), Bulgaria (+3.7%), Estonia (+3.5%) and Hungary (+3.4%).

Forex heatmap

Trade Tensions Return as US Tariffs on China Lift Dollar

The dollar bounced back on Friday, after a couple of economic indicator misses this week, the greenback is higher against all major pairs. Major pairs and commodities are lower against the greenback ahead of the weekend. The American currency did not manage to overturn the losses posted during the rest of the week. On a weekly basis the USD is lower against all majors except the Japanese Yen.

A slowdown in the pace of inflation, miss in retail sales expectations and a softer tone on trade from the Trump administration were the three major factors for the softness of the currency.

Rate differentials also helping the USD. This week was mostly a non event for the Bank of England (BoE) and the European Central Bank (ECB). Although the Sept rate hike by the Fed is priced in, it also shows its the only economy with some momentum to even lift rates. Next up in the economic calendar are the Bank of Japan (BOJ) and the Swiss National Bank that are not expected to modify their monetary policies.

Euro Scored a Win on a Weekly Basis but Falls as Trade Tensions Rise

The escalation of trade tensions was a positive for the US dollar as investors sought a safe haven during times of uncertainty. As potential olive branches are put forward there is optimism that Canada will join the US-Mexico agreement and talks with China could lead to closing the gap between the two points of view on trade. US President Trump tweeted on Friday that the a meeting with China is no guarantee of anything and reports in the media suggest the $200 billion US tariffs are still on the table.

A September rate hike is still fully priced in, but the inflation and retail sales miss did slim down the probabilities of a follow up rate hike in December.

The American economic calendar is short on blockbuster releases with Washington development to guide markets as trade tensions have eased, but are far from resolved.



The euro rose almost 1 percent this week with risk appetite returning to markets and strong wage growth in Europe. The European Central Bank (ECB) did as expected and held rates signalling that it will end its QE program at the end of the year and continued to maintain interest rates low through the 2019 summer.

Investors were not given any new information and instead bought the currency on improved international trade environment. The olive branches are just now entering the picture, and ECB economists could not have predicted the timing as they also announced a downgrade of their economic projections, citing trade worries.

Upcoming European inflation along with service and manufacturing PMIs will bookend the economic calendar in the EU. The gap between interest rates will continue to grow as the U.S. Federal Reserve pushes on its tightening policies as growth fails to spark momentum in Europe.

Fed rate hikes are priced in into the USD, but signs of European slowdown or the US economy hitting a higher gear could be a gift for dollar bulls.

Canadian Dollar Awaits News on NAFTA as US Gets Tough on China

The Canadian dollar fell on Friday. After the Trump administration softened its stance on international trade, in particular by reopening trade talks with China, NAFTA optimism boosted the loonie. Traders did not feel confident in carrying over short dollar positions into the weekend and the greenback saw a recovery on Friday.


Canadian dollar weekly graph September 10, 2018

The loonie advanced 1 percent during the week and next week’s inflation and retail sales data on Friday are crucial for the fate of a Bank of Canada (BoC) interest rate hike. NAFTA headlines will roll in as the team of negotiations get back to work with the aim to add Canada to to US-Mexico agreement.

Expectations are mixed on NAFTA, as Canada seems ready to make concessions on dairy but the US and Mexico continue to press for a trilateral deal while also adding they are ready to forge ahead if its only a bilateral one.

China Tariffs Cap Rise of Oil as Growth Concerns Hit Commodities

Oil fell 0.35 percent on Friday compounding on losses seen on Thursday, but will head into the weekend with a 1.09 percent gain. Supply disruptions have lifted prices after the 2014, be it the Organization of the Petroleum Exporting Countries (OPEC) and major producers agreement to limit their output to weather and geopolitical disputes.

Hurricane Florence in the US was downgraded and with it the negative short term effect on potential disruptions. IEA reported today that OPEC is starting to ramp up production by 420,000 daily barrels more than making up for the impact that the sanctions on Iranian exports will have on supply.

Global demand for crude has not shown signs of recovery and if producers start pumping there is a risk that oversupply could once again bring instability to oil prices.

Geopolitical factors like the US-China trade tensions will continue to put downward pressure on crude prices as higher levels of protectionist measures tend to slow down global growth.

Yellow Metal Falls as Risk Aversion and Fed Rate Hikes Advance

Gold fell 0.46 on Friday after a bounce in the US dollar at the end of the week. Risk aversion has been the main dollar of US strength as trade war concerns could have a deep impact in global growth. Commodities have recovered this week after the Trump administration has softened its tough stance with China with bilateral talks to restart in a couple of weeks.



Friday’s move is also explained by investors limiting their exposures as the weekend approaches, given that geopolitical risk could rise at any moment. The move gave some breathing room to the greenback as it is on its way to erase the majority of its losses against the yellow metal.

Erdogan hurts TRY ahead of CBRT decision

Thursday September 13: Five things the markets are talking about

U.S. equity futures and euro regional bourses trade steady after the overnight Asian session put an end to its longest losing streak since 2002 on fresh hopes that the worlds’ two largest economies will again sit down and talk trade.

The EUR (€1.1617) and the pound (£1.3040) are little changed ahead of their respective central banks key policy decisions in a few hours.

In anticipation of the European Central Bank’s (ECB) rate announcement (07:45 am EDT) – no rate change is expected – however, investors will be searching for clues about the ECB’s ‘reinvestment policy.’ The bank is expected to downgrade its 2018 eurozone GDP. The reason is likely to be a slowdown in global trade amid trade war uncertainty, rather than a eurozone-specific factor. Eurozone inflation projections are expected to remain unchanged.

Sterling bulls are looking for the pound and short-term interest rates to gain from this morning’s Bank of England (BoE) rate call (07:00 am EDT). Touted support will come from the recent flurry of stronger U.K GDP growth and wage data.

Brexit comments are not expected to have an effect on the pound , as Governor Carney is likely to reiterate that he “assumes a smooth and orderly exit from the E.U.” Also, Carney will want to avoid becoming politicized at such a vital occasion in U.K politics.

For volatility, the market will be looking closely at this morning’s Central Bank of the Republic of Turkey (CBRT) rate announcement. The CBRT needs to raise rates to slow inflation and reverse some of the recent sharp falls in TRY ($6.5345), but faces political pressure from President Erdogan not to. He would cut high interest rates, as he believes high inflation is a result of CBRT’s wrong steps. TRY is expected to weaken further without a sufficient rate increase. The market is pricing anything from zero to +725 bps hike.

Elsewhere, crude oil prices have retreated a tad, mostly on the outlook for tighter supply. Also, the potential impact on commodities from Hurricane Florence has eased along with lower wind speeds.

On tap: Both China and the U.S will release its I.P numbers and retail sales data Friday.

1. Stocks see the light

Global stocks have pared some of this month’s loss overnight; climbing on the news that the U.S had invited China to a new round of trade talks.

In Japan, the Nikkei rallied to two-week highs overnight as news of a proposed fresh round of trade talks between China and the U.S lifted risk appetite. The Nikkei share average soared +1.0%, while the broader Topix surged +1.1%.

Down-under, Aussie stocks were the outlier, falling Thursday as banks and insurers were sold on the back of damaging testimony at a public inquiry, though gains in miners on a recovery in commodity prices capped the losses. The S&P/ASX 200 index fell -0.8%. In S. Korea, the Kospi stock index rallied +0.18% following Sino-U.S trade talk news.

In Hong Kong, Chinese banks helped push the Hang Seng index +2.5% higher, while in China, the Shanghai Composite Index was up +1.2%, although that index still remained down almost -19% on the year after the release of subdued credit growth and new loans figures out of China.

In Europe, regional bourses trade mixed as investors focus on upcoming macro events with rate decisions by ECB and BoE on tap.

U.S stocks are set to open in the ‘black’ (+0.1%).

Indices: Stoxx50 +0.4% at 3,341, FTSE -0.2% at 7,299, DAX +0.5% at 12,090, CAC-40 +0.4% at 5,351; IBEX-35 +0.3% at 9,322, FTSE MIB -0.2% at 20,930, SMI +0.2% at 8,974, S&P 500 Futures +0.1%

2. Oil slips as economic concerns counter tighter supply, gold steady

Oil prices are under pressure, falling from their four-month highs as investors focused on the risk that EM crises and trade disputes could dent demand.

Benchmark Brent crude oil is down -70c a barrel at +$79.04, while U.S light crude (WTI) fell -$1.15 to a low of +$69.22 a barrel.

The IEA indicated this morning that although the oil market was tightening at the moment and world oil demand would soon reach +100M bpd, global economic risks were mounting.

Note: Brent rallied above +$80 per barrel yesterday for the first time since May, supported by expectations that U.S sanctions against Iran’s oil exports, which will start in November, will tighten global markets. U.S light crude pushed over +$70 on Wednesday due to falling U.S crude inventories and production levels.

Ahead of the U.S open, gold prices trade steady, atop of their one-week high, amid hopes for a new round of Sino-U.S trade talks. However, a firmer U.S dollar is expected to keep gains in check. Spot gold is at +$1,205.78 an ounce, after hitting its highest since Aug. 31 at +$1,208.48.

Note: The ‘yellow’ metal gained +0.7% in yesterday’s session, its biggest single-day rise since Aug. 24.

3. Yields steady ahead of ECB and BoE

Both the ECB and BoE are not expected to make any major policy changes this morning.

The demand for safe-haven government debt has also been weak this month by declining fears about the political situation in Italy, where a new populist government is working on its first budget proposal. They expect to adhere to the E.U rules and regulations.

This week’s selling of high-grade sovereign bonds has been led by Europe, with the 10-year German Bund yield backing up to +0.431% from Wednesday’s +0.404%. In the U.K, the 10-year Gilt yield increased to +1.498% from +1.470%.

Stateside, U.S government bond prices are also lower as the market braces for the possibility of tighter monetary policy – a further two rate hikes are been priced in by Fed by the end of 2018. U.S 10’s are trading just shy of the psychological +3% level at +2.97%.

4. A sufficient CBRT hike could weaken the dollar vs. EM FX

If the CBRT were to aggressively hike interest rates this morning, this would likely dampen investors’ appetite for the U.S dollar against EM currency pairs. It may also help the EUR (€1.1616), given that European banks are lenders to Turkish businesses.

However, most EUR moves will be driven by the CB rhetoric. The ECB’s Draghi will likely sound “dovish” by lowering growth forecasts for 2018, which should prevent the ‘single’ currency from gaining on any other factors.

It too would not be a surprise if the CBRT were to disappoint, especially after President Erdogan reiterated this morning his view that interest rates should be cut. USD/TRY is last up +3% at $6.5433. EUR/USD is down -0.1% at €1.1619.

Note: If the Fed continues to raise interest rates, the currencies of Turkey, South Africa, Malaysia, India and Indonesia would be hardest hit. The less vulnerable currencies would be those of South Korea, China, Thailand and Russia.

5. Aussie employment

Overnight, Australia added a stellar +44K jobs in August, the second-highest monthly add in the last nine-months. Even more impressive was the fact that nearly all of the jobs, +33.7K, were in the full-time category and despite a higher participation rate, 65.7% from 65.5%; the unemployment rate remained steady at 5.3%.

This strong report will be much welcomed by the Reserve Bank of Australia (RBA) – more workers mean more tax revenue, and possibly a long-awaited uptick in wage growth as household budgets are strained.

It does not signal an imminent interest-rate increases, but ‘hawkish’ rhetoric could enter the fray.

Forex heatmap

CAD rallies on Nafta optimism

Wednesday September 12: Five things the markets are talking about

It’s ‘hump’ day and despite the contained trading ranges across the various asset classes, investors have a lot to contend with, and strategize for, as we head towards the Autumn months which are expected to bring heightened volatility and risk aversion to financial markets.

China and EM crisis risk – can they both be pushed deeper at the same time?

U.K and E.U are preparing for a “special” summit in November – will the Irish be blamed for a “hard” Brexit and can PM Theresa May survive a leadership challenge?

Telegraphed Fed rate hikes – is the market willing to accept two more Fed hikes by year-end?

Trump, tariffs and trade – will the President go too far and hurt the U.S economy?

U.S Midterms – pro-Democratic November election results?

This morning across the asset classes, global equities mostly see red as investors’ assesse the outlook for global growth amidst heightened trade tensions. Oil prices are well supported as dealers try to get a handle on Hurricane Florence potential impact.

U.S two-year yields trade atop a decade high as dealers nail down two more Fed rate hikes to close out this year. U.S 10’s have stalled their advance towards +3%, which is providing for a steady U.S dollar against G-10 currency pairs.

On tap: The next three-days are busy on the data front. Today, it’s the release of U.S PPI (08:30 am EDT) and Aussie employment numbers (09:30 pm). Tomorrow, both the ECB and BoE deliver their monetary policy rate announcement and on Friday, both China and the U.S release their industrial production (IP) and retail sales prints.

1. Stocks see mostly red

Market worries about escalation in the Sino-U.S trade war and the outcome of U.S-Japan trade talks negatively impacted Asian regional bourses in the overnight session.

In Japan, the Nikkei fell -0.3% as chip-stocks followed the weakness of their U.S counterparts’ performance yesterday. Not helping was agriculture equipment maker Kubota plummeting after admitting falsifying data. The index closed out the previous session +1.3% higher. The broader Topix lost –0.7%.

Down-under, Aussie shares ended lower on financials and miners. The S&P/ASX 200 index fell -0.1% at the close of trade, having risen +0.6% Tuesday. The index has now fallen for nine of the last 10 sessions. In S. Korea, the KOSPI stock index closed steady (-0.02%) overnight amid investor concerns about EM and the latest round of verbal threats in the Sino-U.S trade conflict.

In China, stocks fell Wednesday morning, dragging the Shanghai Composite and the blue-chip CSI300 indexes down to new multi-year lows, on Sino-U.S trade worries, with China seeking WTO sanctions. The Shanghai Composite index was down -0.33%, while China’s blue-chip CSI300 index was down -0.61%.

The declines continued for Hong Kong equities. The Hang Seng Index was off a further -0.5% as it officially entered bear-market territory.

In Europe, regional bourses opened higher, in contrast to Asia, mostly supported by some positive Brexit comments from E.U’s Juncker, who welcomes PM Theresa May’s Brexit proposal and on robust oil and mining stocks

U.S stocks are set to open in the ‘black’ (+0.2%).

Indices: Stoxx600 +0.5% at 373.6, FTSE +0.12% 7282, DAX +0.% at 12030, CAC-40 -0.8% at 5326, IBEX-35 +0.2% at 9285, FTSE MIB +0.27% at 20909, SMI +0.6% at 8970, S&P 500 Futures +0.2%

2. Oil prices rally on falling stockpiles, looming sanctions and Florence

Oil prices have rallied overnight after a report of a decline in U.S crude inventories and pending sanctions against Iran raised expectations of tightening supply, while top Russia warned of a fragile global market. U.S oil prices also found support from hurricane Florence that is threatening U.S East Coast fuel markets.

U.S West Texas Intermediate (WTI) crude futures are at +$69.93 per barrel, up +68c, or +1% from Tuesday’s close – WTI futures gained +2.5% yesterday. Brent crude futures have climbed +30c, or +0.4%, to +$79.36 a barrel – Brent gained +2.2% yesterday.

Also providing support is U.S inventories. API data Tuesday showed a large drawdown in inventories. Stocks fell by -8.6m barrels in the week to Sept. 7 to +395.9M.

Expect dealers to take their cue from today’s EIA inventory report.

Ahead of the U.S open, gold prices have edged a tad lower as the key technical resistance level (+$1,200) continues to act as a deterrent for the ‘yellow’ metal and as the Yuan weakened outright on fears the U.S-China trade war could escalate. Spot gold is down -0.3% at +$1,194.08 an ounce, after hitting its lowest since Aug. 24 at +$1,187.21 yesterday. U.S gold futures are down -0.3% at +$1,198.90 an ounce.

3. German Bund yield steadies above +0.40%

Both the ECB and BoE will hold their respective policy meetings tomorrow. Neither CB is expected to make any major policy changes.

The demand for safe-haven government debt has also been weak this month by declining fears about the political situation in Italy, where a new populist government is working on its first budget proposal. They expect to adhere to the E.U rules and regulations.

Overnight, the selling of high-grade sovereign bonds was led by Europe, with the 10-year German Bund yield backing up to +0.431% from Tuesday’s +0.404%. In the U.K, the 10-year Gilt yield increased to +1.498% from +1.470%.

Stateside, U.S government bond prices are also lower as the market braces for the possibility of tighter monetary policy – a further two rate hikes are been priced in by Fed by the end of 2018. U.S 10’s are trading just shy of the psychological +3% level at +2.97%.

4. CAD rallies on Nafta optimism

Late yesterday afternoon, USD/CAD (C$1.3048) encountered a heavy sell-off on Nafta optimism comments by President Trump. Currently, the pair remains under pressure with the 20-period moving average standing below the 50-period one. According to the techies, the RSI has broken below the ‘over-sold’ area of 30, showing a strong downside momentum.

Investors should expect key resistance to be located just north of C$1.3100 and as long as this key resistance is not penetrated, intraday “bearishness” should remain in vogue.

Sterling (£1.2998) briefly penetrated the £1.3000 support level after the BBC reported a group of about 50 lawmakers in PM Theresa May’s government had met to discuss “how and when” they could force her out of her job. The pound (£1.3040) was able to rebound and recoup all of its Euro-session losses on favourable Brexit comments E.U’s Juncker.

Finally, SEK (€10.4848) remains in ‘no man’s land’ after last Sunday’s inconclusive general election, which witnessed the rise of ‘right.’ As Sweden requires political clarity and if the parliamentary deadlock cannot be broken and new elections are announced, some of the political risk premium in the run-up to the vote could easily return.

5. Aussie consumer confidence weakest in 10-months

Data down-under overnight showed that Australian consumer confidence plummeted -3% in September in the wake of the political row among the ruling conservatives.

Digging deeper and politics aside, rising Aussie mortgage rates and household-budget pressures are also weighing on consumer optimism. All index components fell versus last months prints, while the reading for the next five-years’ economic outlook slid the most at -5.8%.

Forex heatmap

Focus on the three T’s – trade, tariffs and Trump

Tuesday September 11: Five things the markets are talking about

The three T’s – trade, tariffs and Trump are driving capital market asset prices in September.

Today, thus far, is a good feel-day as market sentiment seems to be improving, supported by renewed optimism that the U.K can cut a Brexit deal in a timely fashion. This has pushed sterling (£1.3067) to a five-week high overnight.

However, be forewarned, emerging markets and recent commodity price weakness provides enough reasons for caution. This market is still waiting for the “other shoe to drop” in the Sino-U.S trade dispute after President Trump signalled late last week that he is ready to impose tariffs on even more goods.

This Thursday, the European Central Bank (ECB) is expected to deliver caution regarding concerns about protectionism and turmoil in EM at its monetary policy meeting. Draghi is likely to continue stressing that the eurozone’s economic recovery remains “robust” and that policy makers are confident of a recovery in inflation, which will keep its monetary ‘normalization’ intact.

Dollar ‘bulls’ will be looking to strong data due later in the week for support – U.S core-CPI release on Thursday and retail sales on Friday are likely to come in strong and boost the buck.

In commodities, WTI crude speculators are looking to Hurricane Florence approaching the U.S east cost – will there be much disruption in supplies? Crude ‘bulls’ are pushing WTI prices towards $68 bp.

1. Global equities mixed results

European stocks and U.S equity futures are a tad lower after a mixed session in Asia.

In Japan, equities had their best session in a month overnight, with exporters lifted by the yen weaker outright (¥111.48) and tech stocks boosted by gains stateside yesterday. The Nikkei ended the day +1.3% higher, while the broader Topix closed +0.67% stronger.

Down-under, Aussie shares rallied overnight, ending its eight consecutive days of losses, supported by financials and energy stocks. The S&P/ASX 200 index rose +0.6% at the close. In S. Korea, the Kospi weakened, tracking losses from China as Sino-U.S tariff worries continue to linger. At the close, the index lost -0.24%.

In Hong Kong, shares fell into bear market territory on Tuesday as the Hang Seng index ended atop of its 14-month low, on fears of further escalation in the U.S-China trade war. The Hang Seng index ended down -0.72%, while the China Enterprises Index lost -0.96%.

In China, shares hit a 31-month closing low on trade worries. At the close, the Shanghai Composite index was down -0.2%, while he blue-chip CSI300 index was down -0.18%.

In Europe, regional bourses trade lower across the board as the downtrend continues tracking U.S futures lower.

U.S stocks are set to open in the ‘red’ (-0.2%).

Indices: Stoxx600 -0.5% at 373.6, FTSE -0.6% 7233, DAX -0.9% at 11879, CAC-40 -0.2% at 5257, IBEX-35 -0.3% at 9240, FTSE MIB -0.7% at 20775, SMI -0.1% at 8919, S&P 500 Futures -0.2%

2. Oil prices climb ahead of U.S. sanctions on Iran, gold lower

Oil prices have rallied overnight as U.S sanctions begin to squeeze Iranian crude exports. This is tightening global supply despite U.S encouraging other producers to increase output.

Note: It’s not in the U.S’s best interest to push up oil prices – it could depress economic activity or even triggers a slowdown in global growth.

Brent crude oil is up +50c at +$77.87 a barrel, while U.S light crude is +15c higher at +$67.69.

Note: Russia, the U.S and Saudi Arabia are the world’s three biggest oil producers, delivering around a third of the world’s almost +100M bpd of daily crude consumption.

U.S Energy Secretary Rick Perry met the Saudi’s yesterday, and will meet the Russians on Thursday to encourages big oil-producing countries to keep output high.

Note: Before the year-end, OPEC and allies are to discuss cooperation post-2018 in Algeria. OPEC has the tools to use “quotas” if the market requires it. However, OPEC believes cooperation can continue without output quotas in 2019.

Ahead of the U.S open, gold prices are little changed, mostly capped by U.S rate hike concerns, while trade tensions weigh on the ‘yellow’ metal. Spot gold is unchanged at +$1,195.79 an ounce, while U.S gold futures have rallied +0.1% to +$1,201.60.

Note: After last week’s strong U.S payrolls, fixed income dealers are pricing in another Fed rate hike for September – it would be the third hike in 2018, with expectations of one rise more in December.

3. German Bund yields at five-week highs, Italian yields plummet

German 10-year Bund yields have backed up to their highest level in five-weeks overnight, as growing hopes of fiscal restraint in Italy and a Brexit deal being completed in the coming weeks.

Italy’s BTP yields fell for a seventh consecutive session, with long-dated yields hitting their lowest level since late July. Comments from Italian politicians this month that E.U fiscal rules would be respected in next year’s budget have supported the markets demand for Italian debt.

Note: Italy’s 10-year BTP yield fell to its lowest in more than six weeks at +2.7%, while Germany’s Bund yield rose more than +2 bps to a five-week high at +0.423% – the spread is +225 bps, its tightest since the start of August.

Elsewhere, the yield on U.S 10-year notes has backed up +1 bps to +2.95%, the highest in almost five-weeks. In the U.K, the 10-year Gilt yield increased +2 bps to +1.493%, the highest in 16-weeks.

4. Dollar falls, but is looking to regain momentum

The dollar trades lower ahead of the open, with EUR/USD up +0.3% at €1.1626, GBP at £1.3040 and JPY at ¥111.35, but strong U.S data, due later in the week, could give the ‘buck’ some needed TLC – U.S core-CPI figures on Thursday and U.S retail sales on Friday are likely to come in strong.

The EUR has found support as easing concerns about Italian debt boosted the single currency for a second day, while broader moves in forex markets remain contained until there is further clarity in the Sino-U.S. trade dispute.

GBP (£1.3040) gets another Brexit boost. Market headlines appear more positive as the E.U seems more willing to compromise to achieve an agreement with the U.K. Also, domestic wage data beat expectations (see below) and justified the recent BoE rate hike.

The TRY ($6.4783) is little changed as investors wait for the Central Bank of the Republic of Turkey (CBRT) rate decision on Thursday. Current consensus is looking for the CB to hike 1-week repo auction rate by +325 bps to +21.00%.

5. U.K jobs and wage data

U.K data this morning provided the pound with some support. Stronger-than-expected U.K jobs data, pushed EUR/GBP briefly to a five-week low of €0.8887.

U.K. earnings for the three-months to July rose by +2.9%, up from a +2.7% increase in the previous period and above the market consensus of a +2.8%.

Other data showed that the U.K unemployment rate stayed flat at +4% in July vs. expectations of a +4.1% rise.

The Bank of England (BoE) meets Thursday and further proof of rising U.K wage growth may concern Governor Carney and company, however, ongoing Brexit uncertainty is expected to weaken any chances of another rate rise any time soon.

Forex heatmap

Trump trade war worries

Monday September 10: Five things the markets are talking about

Trade talks, tariffs threats, EM contagion fears and central bank decisions are dominating asset price moves this month.

Add geopolitical risks and U.S impeachment possibilities, market volatility is expected to remain elevated for some time.

Global equities are trading mixed, with Euro stocks drifting while U.S futures are a tad higher after losses in Asia as the market continues to weigh the possibility of escalation of a Sino-U.S trade war.

The ‘big’ dollar has extended last week’s gains, while U.S yields have come under pressure again. In commodities, oil has rebounded from its biggest weekly loss in two-months on speculation of a crude-supply shortage.

Elsewhere, the Swedish Krona (€10.4565) has edged higher after yesterday’s inconclusive general election – neither the Social Democrat-led nor the opposition Alliance bloc won enough votes to form a majority government.

On the central bank front, the Bank of England (BoE) and European Central Bank (ECB) will dominate proceedings this week (Sept 13), while the Fed will release its Beige Book in preparation for its FOMC meet later this month. Japan will publish its revised Q2 GDP.

On tap: U.K GDP & manufacturing production (Sept 10), U.S PPI & AUD employment (Sept 12), ECB & BoE monetary policy announcement (Sept 13) and U.S retail sales (Sept 14)

1. Stocks mixed results

A sell-off in Chinese stocks pushed a number of Asian bourses to a 14-month trough this morning as the market braces itself for a potential escalation in the Sino-U.S tariff row.

However, there were a few exceptions. In Japan, the Nikkei share average snapped a six-day losing streak after robust revised GDP data trumped trade war worries. The Nikkei share average rose +0.30%, while the broader Topix gained +0.20%.

Down-under, Aussie shares ended flat as health care, energy gains were offset by financials and materials losses. The S&P/ASX 200 index fell -0.03% at the close of trade, its eighth straight session of losses. The benchmark declined -0.3% on Friday. In S. Korea, stocks ended a three-day losing streak. The Kospi edged higher and was up +0.31%.

In Hong Kong, equities ended lower as the market braces for trade war escalation. The Hang Seng index ended down -1.3%, while the China Enterprises Index lost -1.2%.

In China, stocks ended lower on new tariff threats as Apple suppliers were hit by another Trump tweet. At the close, the Shanghai Composite Index was down -1.2%, while the blue-chip CSI300 index was down -1.45%.

In Europe, regional bourses trade higher, tracking U.S futures higher after a weaker session in Asia. In Particular, Italy is outperforming after Italian Finance Minister said that Italy would improve its budget balance.

U.S stocks are set to open deep in the ‘black’ (+0.4%).

Indices: Stoxx600 +0.3% at 374.90, FTSE +0.1% 7285, DAX 0% at 11961, CAC-40 +0.2% at 5260, IBEX-35 +0.6% at 9223, FTSE MIB +1.8% at 20816, SMI +0.8% at 8909, S&P 500 Futures +0.4%

2. Oil higher as U.S drilling stalls and Iranian sanctions bite

Oil prices have rallied overnight as data shows that U.S drilling stalled and as investors anticipated lower supply once new Iranian sanctions kick-in from November.

Brent crude oil has rallied +$1.09 a barrel, or +1.4%, to +$77.92, while U.S light crude is +7c higher at +$68.45.

Data from Baker Hughes on Friday showed that U.S drillers cut two oilrigs last week, bringing the total count to 860.

Note: The number of rigs drilling for oil in the U.S has stalled in the last four months, which suggests an increase in well productivity.

Outside the U.S, Iranian crude oil exports are declining ahead of a November deadline for the implementation of new U.S. sanctions.

Ahead of the U.S open, gold prices have fallen further on Fed rate hike views and as Sino-U.S trade war worries supports the ‘big’ dollar. Spot gold is down -0.2% at +$1,193.15, having declined -0.4% in Friday’s session. U.S gold futures fell -0.2% to +$1,198.60 an ounce.

3. BTP/Bund yields tighten

The gap between Italian and German 10-year borrowing costs is at its tightest in six-weeks, after Italy’s Economy Minister Giovanni Tria predicted yields would drop as the government laid out its budget for 2019.

Tria said yesterday that Italian bond yields would fall as the new government began to implement policies to boost the economy with prudent fiscal measures.

Note: Italian debt rallied this month after the government indicated that Italy’s upcoming budget would stay within E.U fiscal rules.

Italian yields are down -11 to -16 bps across the curve.

The BTP/BUND 10-year bond yield spread has tightened to +234.1 bps, its tightest level in six-weeks, and -55 bps below last week’s widest levels.

Elsewhere, the yield on 10-year Treasuries fell -1 bps to +2.93%.

4. Dollar in demand on pullbacks

Global trade tensions sees the USD in demand on pullbacks as President Trump tweeted that the U.S has more potential tariffs against China in the works if needed.

EUR/USD (€1.1583) off its worst level as Italian official continued their pacifying comments on the 2019 budget. Techies note that €1.1750 remains the key resistance for now.

On the emerging market front, currency pairs again remain on the defensive. USD/INR hit a fresh record high at $72.68 that prompted India to perform some verbal intervention. The rupee weakness is attributed to the release of the Q2 current account balance that recorded its widest deficit in five-years.

5. U.K economy accelerated in July

Data this morning showed that economic growth in the U.K accelerated in July, as warm weather powered consumer spending and construction.

According to the ONS, the U.K economy expanded +0.3% on month in July – a faster pace than the +0.1% monthly expansion recorded in June.

Note: Growth in the three-months through July was +0.6% compared with the previous three-months, or +2.4% on an annualized basis.

The data would suggest that the U.K economy is set for another quarter of growth despite little progress in Brexit negotiations.

Digging deeper, ONS data showed that the U.K’s goods trade deficit with the rest of the world narrowed in July, to +£10B from +£10.7B in June, as exports grew faster than imports.

Forex heatmap

Phew! Turkey bashing takes a break for now

Tuesday August 14: Five things the markets are talking about

Tuesday sees a tentative reprieve for global equities in the wake of Turkey’s induced turmoil and the forex market has managed to stabilize a tad, aided by reports this morning that the Turkish Finance Ministry has scheduled an investor call for Thursday, Aug 16.

The ‘big’ dollar has managed to slip from its 15-month highs against G10 currency pairs as U.S Treasury prices ease as a degree of calm returns to Turkish markets – USD/TRY is down -4.75% at $6.5622.

Nevertheless, a sizable rate increase by the Central Bank of the Republic of Turkey (CBRT) followed by drastic measures to reduce the fiscal deficit still appears to be the most viable option to re-anchor the lira and pull the country’s economy from the brink. Currently, fixed income dealers are pricing in a +10% rate hike by the CBRT to stem the lira’s depreciation.

Is it economic suicide or attack? President Erdogan knows what needs to be done, but will he allow it? The U.S. has nothing further to negotiate until the detained American pastor is freed.

Elsewhere, crude oil has pared some of its recent losses, while gold finds a bid on a weaker dollar and BTC is again under pressure dropping below $6,000.

On tap: U.S retail sales data appears stateside tomorrow, followed by housing data on Thursday. In Brussels Thursday, Brexit talks between the E.U and the U.K resume.

1. Stocks mixed results on bargain hunting

In Japan, the Nikkei posted its biggest gain in five month after the Turkish lira pared some of yesterday’s losses. Export-driven firms benefited from a pause in the safe-haven yen’s (¥111.01) strengthening. The Nikkei share average surged +2.3%, while the broader Topix rallied +1.6%.

Note: Japanese trading volumes remain thin as many domestic investors are on holiday.

Down-under, Aussie shares closed firmer, supported by the financial and material sectors. The S&P/ASX 200 index rose +0.8% at the close of trade. The benchmark slipped -0.4% on Monday. In S. Korea, both the Kospi stock index and the won gained overnight, supported by recovering confidence after the Turkish turmoil. The Kospi closed up +0.47%.

In Hong Kong and China, stocks fell for a third consecutive session overnight, after data showed further signs of cooling in China’s economy and as trade war worries lingered. In Hong Kong, the Hang Seng index fell -0.7%, while the China Enterprises Index lost -0.2%. In China, the blue-chip CSI300 index fell -0.5%, while the Shanghai Composite Index closed down -0.2%.

Note: Overnight, China July data missed market expectations amid trade frictions – industrial production y/y, +6.0% vs. +6.3%e and retail sales y/y, +8.8% vs. +9.1%e.

In Europe, regional bourses have opened higher across the board as concerns over geopolitical issues, as well as improved outlook over Turkey is helping to support risk sentiment.

U.S stocks are set to open in the ‘black’ (+0.3%).

Indices: Stoxx50 +0.4% at 3,246, FTSE +0.1% at 7,655, DAX +0.5% at 12,415, CAC-40 +0.4% at 5,432; IBEX-35 +0.2% at 9,550, FTSE MIB +0.4% at 21,047, SMI +0.4% at 9,0.42, S&P 500 Futures +0.3%

2. Oil edges up on Saudi output cut and Iran sanctions, gold higher

Crude oil prices are better bid this morning after Saudi Arabia said it had cut production in July. However, market concerns over a slowdown in global economic growth is capping prices for now.

Brent crude oil is up +50c at +$73.11 a barrel, while U.S light crude has gained +55c to +$67.75.

Saudi Arabia has told OPEC that it had reduced crude output by -200Kbpd to +10.29M bpd in July.

Note: Saudi Arabia is OPEC’s biggest producer and the only major exporter that can easily adjust output to balance global supply. A self-imposed cut in product would suggest that Saudi’s are keen to avoid a repeat of a global glut that has depressed prices over the past few years.

Ahead of the U.S open, gold prices are better bid, edging away from yesterday’s 18-month low print (+$1,191.25). Support is coming from a weaker U.S dollar and a break below some key psychological levels has triggered some technical buying interest. Spot gold is up +0.2% at +$1,195.51 an ounce. U.S gold futures are up +0.3% at +$1,202.50 per ounce.

3. Italian bond yields fall from two-month highs

Italian bond yields have pared some of yesterday’s sharp rise on reassuring comments from the government and as fears about contagion from Turkey has eased for now.

PM Conte and his top ministers discussed the 2019 budget yesterday – investors have been concerned that the government’s high-spending plans would lead to a further deterioration in Italy’s finances. However, the Italian government have agreed to preserve the “stability of state finances and lower public debt.”

Italy’s 10-year BTP yield has fallen – 7 bps to +3.03%, off two-month highs of +3.109% set yesterday, with its 5-year note yield down -6 bps at +2.32%.

Elsewhere, the yield on U.S 10-year Treasuries have backed up +2 bps to +2.89%, the largest gain in a week. In Germany, the 10-year Bund yield has gained +2 bps to +0.33%, the first advance in a week, while in the U.K, 10-year Gilt yield has also climbed +2 bps to +1.277%, the largest surge in almost a fortnight.

4. Indian rupee hits new all time low

Emerging-market currencies remain under pressure despite today’s TRY reprieve that Turkey’s Finance Ministry has scheduled an investor call for Thursday, Aug 16. Overnight, INR fell to new record low of $70.08 outright, retaining its position as one of Asia’s worst performing currencies this year. It’s believed that the Reserve Bank of India (RBI) has been trying to defend the $70 level by selling USD.

Note: The rupee has fallen -9.5% in 2018. Among other major emerging markets, only BRL, RUB and ZAR currencies have weakened more.

EUR (€1.1401) is trading above yesterday’s intraday low (€1.1367) after German Q2 GDP data suggested that the slowdown in Q1 was temporary. The single unit still faces resistance from Italian discussions on their 2019 budget. Italy Deputy PM Di Maio believes that Italy is not at risk of financial market attack.

GBP (£1.2783) saw its best levels of the session erode (£1.2809) despite its ILO Unemployment falling to its lowest level since 1975.

And cryptocurrencies are stung by ETF Delay – Bitcoin and ethereum continue to fall as reports from earlier this month that the application of a Bitcoin exchange traded fund has been postponed is keeping global institutional money on the sidelines. Bitcoin is down-3.6% to around +$6,035.

5. Eurozone avoids Q2 Slowdown, supported by German growth

Data this morning shows that Germany’s economic growth accelerated in Q2, guaranteeing the eurozone as a whole avoided a slowdown. Nevertheless, expect global trade tensions to cloud the outlook for businesses.

The Federal statistics office reported Germany’s GDP grew at a quarterly rate of +0.5%, or +1.8% in annualized terms. It also raised its Q1 growth estimate to an annualized +1.5% from +1.2% growth reported in May.

And because of Germany’s expansion, the agency has also raised its growth estimate for the eurozone as a whole to +1.5% in annualized terms from +1.4% reported in late July.

Forex heatmap

Loonie hanging tough against the crosses, forget USD/CAD

CAD ‘bulls’ are looking to the crosses for some early week wins, especially GBP (£1.6766) and EUR (€1.4980) and will avoid the pain of the long dollar positions in this ‘risk off’ emerging market debacle.

Demand for the U.S dollar does not look like slowing down any time soon and with three-month U.S T-Bills at +2% certainly makes the ‘long’ dollar position the safe haven of choice.

From a technical perspective, the EUR now trading through the €1.1500 outright now looks more vulnerable, especially if the market begins to focus any further negative attention on Italy in respect to its exposure to Turkey and by the country’s 2019 budget process.

GBP/CAD has fallen to around £1.6767 from around £1.7037 since the Bank of England increased the interest rate to +0.75% on Aug. 2, mostly due to the fact that the market has switched their attention to Brexit uncertainties and the possibility of a no-deal scenario.

Canadian fundamentals support the loonie on any sell-off

After last Friday’s employment numbers where Canada added a net +54.1K jobs in July on a seasonally adjusted basis and an unemployment rate ticking down to +5.8% adds to the probability the Bank of Canada (BoC) will hike the benchmark interest rate one more time in 2018. Don’t expect the BoC to stray too far away from the Fed’s rate normalization plan.

So, look to the loonie to fly against contagion angst EUR or a no-Brexit deal pound. Even positive Nafta rhetoric will support the currency’s crusade!