A tempest in a cappuccino cup or mama mia, here we go again?

A tempest in a cappuccino cup or mama mia, here we go again?

The Italian headlines didn’t precisely toggle  the “risk on”  sentiment switch

The markets realize anything can happen in the next six weeks notwithstanding the fact 2 % is still a monster of a deficit and two years is an eternity when it comes to being budget compliant. Deficits tend to take on a life of their own and drag out if not move higher. Given the emotional nature of Italian politics, there will be lots of political manoeuvring ahead of the final decision, so the market will probably be less keen to extrapolate too much out of today’s headline. Indeed, curb your enthusiasm but do tune in the headlines in Europe.

Euro jumps as Italy revises budget plans

Oil prices
Brent remains firm despite consolidating recent gains as the market rebalance positions based on a further decline in Iranian crude oil production versus the September increases in overall OPEC supply and Russian record output. But Oil bulls are sitting tight and are looking for a catalyst to take over the top and clear a path for the assault on $100

The Russia output number 11.36 million barrels per day is indeed an eye-catcher. It looks like we could be setting up for a battle of the Oil producing colossal giants to determine the new heavyweight champion of the oil patch, Russia vs the USA. This contest could make for some exciting banter through 2019 no doubt.

Rupee and Oil
There is some concern a weaker INR could weigh on India’s oil demand. But as we move towards the USDINR 74, it could be catastrophically destabilising for India capital markets as India would have increased problems servicing their US dollar-denominated debt. While the direct currency impact of a weaker INR to Oil demand remains debatable, what’s not, is a possible capital market meltdown in India that will undoubtedly hurt oil demand. The RBI intervened today but with oil prices poised to move higher but likely a day late and a dollar short.

Asia markets
Investors are on pins and needles digesting Italy, India warships, and of course China trade war. It’s challenging to have a bullish conviction while navigating the myriad of challenges.

Risk sentiment is shifting and headline-driven

Tuesday Oct 2: Five things the markets are talking about

Capital markets are in a sombre mood as a number of reasons for caution come to the fore.

Brexit rhetoric and the Italian government’s fiscal plans top the agenda, followed closely by trade deals and tariffs and political drama in Washington.

Amid the risk-off mood the ‘big’ dollar again has found support against G10 pairs. Euro stocks and U.S futures are currently following Asian declines, as Treasuries and bund prices advance.

The EUR (€1.1517) remains under pressure for a fifth consecutive day, pressured by remarks from Italy’s Deputy PM Luigi Di Maio that they will not change its budget deficit targets despite pressure from Brussels and its E.U partners.

Elsewhere, the pound (£1.2960) succumbs to Brexit rhetoric at the Conservative Party annual conference.

On tap: Fed Chair Powell is due to speak (12:45 pm EDT) about the outlook for employment and inflation at the National Association for Business Economics Annual Meeting, in Boston. Audience questions expected.

1. Stocks mostly see ‘red’

Asian equity markets traded generally lower as China remains on holiday, with Japan being the exception.

In Japan, the Nikkei edged up to a fresh 27-year high overnight, building on recent strength thanks to upbeat earnings hopes, mostly on the back of a weaker yen. The Nikkei share average ended +0.1% higher, while the broader Topix was up +0.3%.

Down-under, Aussie shares closed at their lowest in more than three-months overnight as financial stocks extended losses following a Royal Commission interim report on the sector. The S&P/ASX 200 index fell -0.8%, after dropping -0.6% on Monday. In S. Korea, stocks saw their worst day in nearly two-months on heightened U.S-China tensions. The Kospi fell -1.25%, marking its biggest percentage loss since August 13.

In Hong Kong, stocks also fell overnight on signs of weakness in China’s manufacturing sector. Resuming trade after a public holiday yesterday, the benchmark Hang Seng Index was down -1.64%.

In Europe, regional bourses open down across the board with Italy at the fore, as concerns over Italian finances keeps risk sentiment depressed. Four year high Brent prices are supporting energy stocks. The financial sector remains the worst performer.

U.S stocks are set to open in the ‘red’ (-0.4%).

Indices: Stoxx50 -1.2% at 3,374, FTSE -1.1% at 7,447, DAX -1.0% at 12,220, CAC-40 -1.1% at 5,449, IBEX-35 -1.2% at 9,297, FTSE MIB -1.4% at 20,324, SMI -0.7% at 9,060, S&P 500 Futures -0.4%

2. U.S oil hits four-year peak ahead of sanctions on Iran, gold higher

Earlier this morning, U.S oil prices hit their highest level since November 2014, while Brent crude trades atop of yesterday’s four-year high print, as markets prepare for tighter supply once U.S sanctions against Iran begin to hit in November.

U.S West Texas Intermediate (WTI) crude futures are at +$75.90 a barrel – WTI has rallied +18% since mid-August, while Brent crude oil futures are at +$85.28 per barrel, up +30c, or +0.4%, from Monday’s close. Brent has risen by more than +20% from its lows in August.

Market sentiment also got a boost from yesterday’s announcement of a “new” trilateral pact between the U.S, Mexico and Canada (USMCA), saving a +$1.2T a year open-trade zone that had been on the verge of collapse.

Iran’s oil industry, which at its most recent peak this year, supplied +3% of the world’s almost +100M barrels of daily consumption. U.S sanctions are set to start on Nov. 4.

Ahead of the U.S open, gold prices have found some support as risk appetite wanes, one day after getting a boost from the USMCA deal. Spot gold is up +0.5% at +$1,193.80, after declining about -0.3% in yesterday’s session. U.S gold futures are +0.5% higher at +$1,197.60 an ounce.

3. BTP/Bund yield gap at its widest in five-years

The Italian/German 10-year bond yield spread trades atop of its five-year highs as eurozone officials warned of a return to crisis days and an Italian lawmaker said most of Italy’s problems would be solved if it returned to its own currency.

As Italian bond yields surged +11-20 bps, the yield premium investors demand to hold Italian paper over German debt shot higher. The BTP/Bund 10-year bond yield gap has widened out to +302 bps.

Note: Bunds remain exposed to opposing forces, with safe-haven runs triggered by Italy jitters pushing German yields lower, but expectations of rate raises by the ECB next year is pointing to higher Bund yields.

The yield on U.S 10’s has decreased -2 bps to +3.06%. In Germany, the 10-year Bund yield has decreased -3 bps to +0.44%, the lowest in almost three weeks, while Italy’s 10-year yield has gained +12 bps to +3.421%, the highest in more than four-years.

4. Pound under pressure

As the market waits for PM May’s new Brexit draft proposal on the Irish border, uncertainties continue to threaten sterling (£1.2966) and this morning’s weaker construction PMI survey has caused it to fall further. Sterling fell to a three-week low of £1.2957, from 1.2987 beforehand, after data showed construction PMI fell to 52.1 in September from 52.9 in August, signalling “the weakest upturn in output for six-months.”

The EUR (€1.1517) continues to decline falling over -0.4% against the U.S dollar and -0.6% against the Yen (€130.98) on Italian Budget uncertainty.

Down-under, AUD/USD (A$0.7173 down -0.77%) has retraced earlier gains after the Reserve Bank of Australia (RBA) left rates on hold (see below), while the NZD/USD has declined after yesterday’s NZIER Business Confidence (-30 vs. -20) fell to the lowest level in nine-years.

5. RBA rate statement

It was as expected from the Reserve Bank of Australia (RBA), leaving the key policy rate at record lows (+1.5%) and traders with the impression that the RBA plans to remain sidelined for some time.

Nevertheless, Governor Lowes’s big concerns remain low wage growth and higher debt levels – a potential combo that could dissuade consumer spending and in turn ‘slows’ the country’s economy.

However, global expansion and recent domestic growth are positives and the RBA continues to expect GDP growth of more than +3% through 2019 and for the unemployment to drift down towards +5% over time.

Forex heatmap

OANDA Trading Asia market update : HSI,OIL ,XAU,JPY,EUR,CAD,GBP

Hong Kong

HSI is trading with a negative bias playing catch up from yesterday holiday in reaction to the weaker China PMI data. But at least for today, it’s more than apparent HK investors are in no mood to join the revamped NAFTA festivities.

Oil

Oil markets are holding onto the astonishing overnight gains ahead tomorrows API inventory data. But, oil traders are biding time and waiting for another cause and effect to buy more barrels.

Gold

Gold has been nudging higher as risk has been trading a bit unsettled in Asia as expressed by the HSI mini melt, and Italian EU risk. The  USD is consolidating recent gains vs the Yen but looking to bully the EURO lower on early London flow.

G-10 currencies

Japanese Yen 

While the USDJPY is following the more hawkish FOMC playbook, but the lack of follow-through above 114.00 suggesting positions are getting a bit crowded  and  USD bulls are  in need of some absolute “risk on” to breakout topside

The Euro.

The EURUSD is getting squashed by a toxic combination of higher US interest rates and Italy risk, look  for more downside momentum on this trade

The Canadian Dollar

The USDCAD is merely biding time, but eventually, 1.2800 give way. Perhaps Asia  CAD traders are waiting for Bay Street to run with the baton given RM chatter around 1.2800. Short EURCAD continues to be the favourable  expression on a bullish CAD view

The Pound

The Pound, on the other hand, should continue trading like an old beach roller coaster, getting moved by the latest BREXIT iteration

RBA
In the battle for the most dovish G-10 central banker award, as expected the RBA held rates in check. With nothing explicitly standing out in the statement, I think the Aussie trade is on hold till Fridays NFP

OANDA Trading Podcast: MONEYFM 89.3 OIL markets and China risk

OANDA Commodities Weekly: Short gold positions increase as prices drop 

Picking up the pieces post FOMC

US President Trump said to suggest he is going to call China President Xi tomorrow, which should be soothing news for a lot of cross assets none more so than Chinese equity markets. Keeping an eye on this one.!

US Markets

US stocks ended the day lower as the Fed is expected to stay the dot plot course for the foreseeable future, but nothing too unusual from what usually happens to equity markets every time there is a US interest rate hike. The modest wobble suggests little more than profit taking as there is nothing in the Feds policy statement to raise a red flag about US economic growth. Investors will be sponging up these dips even more so if the US-China trade tensions de-escalate. Of course, back channels were always open, but with the President offering to reach out to XI, this is indeed a very positive sign and likely in response to China very measured approach to the US tariffs. Notably, in keeping the Yuan as stable as can be.

Oil Markets

The DOE data for last week largely confirmed the silhouette offered up by Tuesday’s American Petroleum Institute survey, with unexpected builds of 1.9 million barrels in US commercial crude stocks including 0.5 million barrels at the Cushing, Oklahoma delivery WTI hub while refinery crude runs dropped 901,0000 bpd. But one bullish surprise in the broader data set was that distillate inventories fell 2.2 million barrels last week on a drop-in refinery production.

But oil markets rebounded after Rick Perry quashed any notion of tapping SPR, suggesting that selling of strategic reserves would” have a fairly minor and short-term impact ” Frankly, using this emergency response tool as a means of controlling oil prices was a bit of a stretch, given the storied history when the SPR’s were released in the past.

History of the SPR releases

Not to mention the sale would probably end up doing little more than widening Brent -Crude spreads since the SPR sales would effectively make US oil cheaper and not necessarily the rest of the words supply.

Without sounding like a broken record, Oil prices remain in the Bulls domain amid concern that US sanctions on Iranian crude oil exports will result in much tighter physical market conditions once they take effect in November. While the US oil inventory data counts, the fact that the markets could still be underestimating the supply crunch from Iran sanction has many Oil investors running with the bulls.

Gold Markets

Gold prices fell after the US Federal Board raised interest rates despite the nonplussed initial reaction from G-10 currency traders. There was way too much hand-wringing leading up this FOMC that much of the key focal points were somehow lost in translation.

What should have been an easy exercise based on the fact US economy is firing on all cylinders suggesting the Fed’s need to stay the course on interest rates, however in the absence of inflation there is no need to nudge the yield curve higher.

But for Gold prices, the song remains the same, with no haven demand, Gold ETF inflow stagnant and no real shift in investment allocation portfolios, most Gold dealers and market speculators are left watching the US dollar for direction. Until something breaks on the big dollar look for $1190-$1210 range trade to persist

Currency Markets

My currency colleagues in NY left the office with a migraine after getting whipsawed on FOMC double talk.

Canadian dollar
Not everyone is happy on the trade war front as the Loonie has slipped CAD is slipping to 1.3038 as US President Trump makes it clear he is unhappy with Canada. Holding little back, the president was quoted *TRUMP: IF CANADA DOESN’T makes a deal with the US, WE’RE TAXING CARS.

Trade of fade? I still expect a deal to go through but with the crowded trade mentality kicking in as traders find themselves long CAD at the much lower level, there some position trimming likely on stop losses weighing on the CAD sentiment this morning.

New Zealand dollar

The birds the word, as expected the RBNZ kept everything on hold today, given minimal expectation was going into this meeting the KIWI has traded neutral. Other than the usual RBNZ OCR “gap trap” at 5 AM due to the lack of liquidity over the ” date change,” the Kiwi is trading flat so far.

Japanese Yen
There was a bit of a wobble into the NY close. Long USDJPY is a very subscribed trade, and signs the yield curve was flattening, traders were more apt to book profits towards the end of the overnight trading session. But with important support level holding firm and the FED painting a slightly rosy outlook for the US economy, it appears the markets continue to favour USDJPY higher over the short term.

Euro 
I keep looking for some Italian budget concerns that are frankly not there as the risk of a Euro collapse on the back of the Italian budget is almost entirely priced out. Back to the basics on this trade.

EM Asia
Malaysian Ringgit

The MYR is struggling on the back of equity outflows as the Ringgit continues gravitating towards the top of the near-term range 4.12-4.15 despite Oil prices recovering. Again, volumes are very low as traders are looking for some spark

Indonesian Rupiah

The Bank Indonesia is likely to hike, but in context of consecutive trade deficits in July and August, the IDR remain in currency speculators weakest links in the chain.

Philippine Peso

The BSP will hike by 50bps, in line with consensus expectations. The BSP is likely to keep its hawkish tone even after the September rate hike to ward off inflation.

Look to Fed’s Powell for help

Wednesday September 26: Five things the markets are talking about

Global stocks are trading mixed ahead of today’s FOMC rate decision, with Asian shares closing out higher, while Euro bourses are a tad down as Italy’s budget talks continue to be a source of concern.

The Italian government has until tomorrow to outline its fiscal and economic projections ahead of a budget law discussion due to take place in October. Currently, the markets remains concerned that the government will try to pass a budget that is out of step with E.U rules.

This afternoon, the Fed is expected to raise interest rates by +25 bps to a corridor of +2% to +2.25% as it continues to roll back easy-money policies.

Market attention will focus on the forward guidance, including the new ‘dot plot’ diagram, to gain insight into the plans for 2019 and beyond.

Currently, the U.S dollar trades steady while U.S Treasury yields trade atop of their the seven-year highs reached in May.

Note: Today’s Fed decision (02:00 pm EDT) will be followed by a press conference with Chair Jerome Powell (02:30 pm EDT).

1. Stocks trade mixed ahead of Fed

In Japan, gains overnight lifted the Nikkei to an 8-months high as the index was able to overcome the impact from a number of companies’ stock prices being adjusted lower amid looming dividend payments. The index rallied +0.4%. Again helping was the U.S dollar briefly hitting a two-month high and breaching ¥113.

Down-under, the S&P/ASX 200 was able to squeeze out a slight gain and ended up +0.1% at the close. Energy stocks rose a further +0.9% as oil prices rallied, while materials gained +0.8%. But financials fell -0.6% as the initial report on an alleged industry misconduct looms and health care dropped a fresh -0.7%.

Note: South Korea’s markets were closed for a holiday.

In China, stocks rallied overnight on hopes that global index provider MSCI would consider quadrupling the weighting of Chinese big-caps in its global benchmarks. At the close, the Shanghai Composite index was up +1%, while the blue-chip CSI300 index was up +1.1%.

In Hong Kong, shares followed the region higher on receding trade war fears and high oil prices. The Hang Seng index rose +1.2%, while the China Enterprises Index gained +1.5%.

In Europe, regional bourses remain somewhat muted ahead of the Fed’s rate announcement.

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

Indices: Stoxx50 +0.1% at 3,423, FTSE flat at 7,506, DAX -0.1% at 12,362, CAC-40 +0.2% at 5,489, IBEX-35 flat at 9,492, FTSE MIB -0.1% at 21,644, SMI flat at 9,020, S&P 500 Futures +0.2%

2. Brent trades near four-year high, but U.S crude retreats

While global trade tensions remain a source of investor concern, rising oil prices are taking on a greater importance.

Despite President Trump calling for increased crude output from OPEC, crude prices have been lifted by the pending U.S sanctions on Iran in November.

Producers fear pumping more oil to compensate for lower output from Iran and Venezuela could mark a return of oversupply.

Brent crude is up +10c, or +0.1%, at +$81.87 a barrel, after gaining nearly +1% yesterday. Brent rose on Tuesday to its highest since November 2014 at +$82.55 per barrel.

U.S crude futures (WTI) are down -4c at +$72.24 a barrel. They climbed +0.3% yesterday to close at their highest level since July 11.

U.S data yesterday showed that domestic crude stockpiles unexpectedly climbed last week. API data showed that inventories rose by +2.9M barrels in the week to Sept. 21 to +400M, compared with market expectations for a decrease of -1.3M barrels.

Expect dealers to take their cue from today’s official figures on stockpiles and refinery runs from the U.S Department of Energy’s Information Administration (EIA 10:30 am EDT).

Ahead of the U.S open, gold prices are steady ahead of the Fed’s rate decision. Spot gold is little changed at +$1,200.43 per ounce. It’s been a narrow +$4 range overnight, and even tested key resistance at +$1,200. U.S. gold futures are flat at $1,204.70 an ounce.

3. Italian yields fall on budget talks

Italian bond yields continue to trade under pressure in the run-up to the presentation of Italy’s budget draft, scheduled for tomorrow. A budget deficit below +2% gap (to GDP) is expected to give further support to Italian BTP’s.

This morning, Italian government bond yields have dropped across the curve. Short-dated Italian yields have fallen -10 bps to +0.77%, while Italy’s five- and 10-year BTP yields have dropped -5-7 bps.

Elsewhere, German Bund yields remain just below highs reached yesterday. Germany’s 10-year Bund has opened at around +0.54%, down around -1 bps.

Stateside, the yield on 10-year Treasuries has fallen -1 bps to +3.09%, the largest drop in two-weeks, while in the U.K, the 10-year Gilt yield has also fallen -1 bps to +1.62%.

4. Dollar needs guidance

The ‘big’ dollar is little changed ahead of today’s Fed’s rate decision and has meant little doing for currencies in general (€1.1765, £1.3160 and ¥112.90).

While the Fed’s monetary policy tightening is likely to end next year, investors are trying to figure out if most of the dollar’s strength is behind us.

Later today, the Fed could remove the word “accommodative” from its statement, but consensus thinks this is most unlikely. Even if it does, the U.S dollar may still find it difficult to find support due to its trade and protectionist policies.

Down-under, the Kiwi (NZ$0.6655) bounced higher on an uptick in business confidence.

5. New Zealand business sentiment rallies

Data overnight showed that New Zealand business sentiment lifted this month from a decade low even as firms remained pessimistic overall.

An ANZ Bank survey showed a net +38.3% of respondents expected the Kiwi economy to deteriorate over the year ahead – a previous poll showed +50.3%, which was its lowest reading since 2008.

Last month, the Reserve Bank of New Zealand (RBNZ) said gloomy business confidence was a major risk that could result in firms holding off on investment, dragging on growth and increasing the chances of another cut in official interest rates.

Later today (05:00 pm EDT), the RBNZ is widely expected to hold rates at a record low of +1.75% and signal that it plans to hold them there for an extended period of time.

If in doubt, look to the Fed for direction

Tuesday September 25: Five things the markets are talking about

It’s a return to the drawing board for many investors who are now back online beginning their holiday shortened Asian trading week.

Euro equities are trading mixed following a “get back to basics” Asian session as investors ponder the outlook for global trade and U.S politics.

The U.S dollar continues to hang tough, while stateside, Treasury yields consolidate atop of +3.1% while crude oil trades at a four-year high.

In Europe, Italian bonds rally as the country edges closer to delivering a budget.

Topping investors’ agenda this week is today’s two-day FOMC meeting, along with the Fed’s updated forecasts and the chair’s quarterly press conference (Sep 25-26).

Note: The market is looking for a third +25 bps rate hike and is pricing in another one for December. Investors await Fed chair Powell’s views on trade and tariffs tomorrow.

1. Stocks mixed results

In Japan, the Nikkei rallied for a seventh consecutive session overnight, helped by gains in chip-related stocks that offset weakness in construction equipment manufacturers. The ‘big’ dollar trading through ¥112 also helped to support overall sentiment. The index gained +0.3% to hit its highest print in more than eight-months.

Note: Both Hong Kong and South Korea indexes were closed for holidays on Tuesday.

Down-under, Aussie stocks traded flat overnight as an escalation in Sino-U.S trade tensions hit risk sentiment, while energy stocks rallied on a firmer oil prices. The benchmark dipped -0.1% on Monday.

In China, stock fell on Tuesday in their first trading session after fresh U.S tariffs on +$200B worth of Chinese imports began yesterday. At the close, the Shanghai Composite index was down -0.58%, while the blue-chip CSI300 index was down -1%.

In Europe, in early trade, regional bourses are being supported by stronger commodity prices and optimism over the Italian budget.

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

Indices: Stoxx50 +0.3% at 3,419, FTSE +0.3% at 7,482, DAX +0.2% at 12,373, CAC-40 +0.2% at 5,486, IBEX-35 +0.4% at 9,550, FTSE MIB +0.5% at 21,450, SMI +0.3% at 8,972, S&P 500 Futures +0.1%

2. Oil hits new four-year highs as OPEC resists output rise, gold steady

Crude oil prices remain better bid after Brent hit a fresh four-year high amid looming U.S sanctions against Iran and an apparent reluctance by OPEC and Russia to raise output to offset the expected hit to supply.

With OPEC and Russia having ignored Trump’s twitter pleas to increase production, coupled with U.S sanctions to hit Iran exports in November, should again provide support for oil ‘bulls’ to seek higher price prints.

Brent crude futures are up +30c, or +0.4% from Monday’s close at +$81.69 a barrel, a level not seen since November 2014. U.S West Texas Intermediate (WTI) crude futures are at +$72.28 a barrel, up +20c or +0.3% from yesterday’s close.

The U.S from Nov. 4 will target Iran’s oil exports with sanctions, and Trump continues to put pressure on governments and companies around the world to fall in line and cut purchases from Tehran.

Ahead of the U.S open, gold prices trade steady as the market remains somewhat cautious ahead of today’s two-day U.S Fed meeting, which could offer direction on future interest rate hikes. Spot gold is little changed at +$1,199.06 an ounce. U.S gold futures are also steady at +$1,203.70 an ounce.

Note: Gold has fallen -12% since hitting a peak in April against a backdrop of trade disputes and rising U.S interest rates.

3. Italian yields’ fall on budget hopes, Bund yields rally

Italian borrowing costs rally, narrowing the gap with its German counterparts, on signs that Italy’s coalition is likely to reach a compromise over next years budget. The ruling coalition is willing to keep the budget deficit below +2% of GDP.

In contrast, Germany’s Bund yields continue to back-up, trading atop of their four-month highs, a day after ECB chief Mario Draghi pointed to a “vigorous” pick-up in underlying inflation.

In early trade, Italy’s 10-year BTP yield has fallen -9 bps to +2.86%, narrowing the spread over the benchmark German Bund yield to around +232 bps, from around +245 bps late yesterday.

In Germany, the 10-year bund yields has rallied to a four-month high at +0.54%, a day after posting their biggest one-day jump since June.

Elsewhere, the yield on 10-year Treasuries has advanced +1 bps to +3.09%, its highest yield in almost 19-weeks. In the U.K, the 10-year Gilt yield has climbed +1 bps to +1.624%, , the highest in more than seven months.

4. Bitcoin’s pullback quickens

In early trade, BTC has slid to new intraday lows, falling nearly -4% to +$6,400 in the overnight session, moving the cryptocurrency back toward this month’s lows. The BTC ‘bears’ continue to eye the +$6,000 region.

TRY has rallied +6% in the past 24-hrs to $6.1374 on reports that Turkish authorities are sending signals that an American pastor facing terrorism charges could be released next month.

EUR/USD (€1.1762) softened slightly after comments from ECB’s Praet noting that comments from Draghi yesterday were nothing new. The pair fell -30 pips to a low of €1.7133 following the comments.

Note: The ‘single unit’ found support yesterday after ECB President Draghi said there has been a relatively vigorous pick-up in inflation.

5. Swedish PM Lofven ousted in no-confidence vote

Earlier this morning, Swedish PM Stefan Lofven lost a no-confidence vote in parliament and will step down after four-years in power, but with neither major political bloc holding a majority it remained unclear who will form the next government.

Note: Voters delivered a hung parliament in the Sept. 9 election with Lofven’s center-left bloc garnering 144 seats, one more than the center-right opposition Alliance.

SEK is down -0.18% at €10.3374.

Headline overload

US Markets

Another case of headline overload overnight.

US markets closed lower overnight due to some factors including, trade war phase 2, more political turmoil ahead of US midterm after reports surface ahead Attorney General Rod Rosenstein was resigning from his post and of course equity investors taking bets off the table ahead of any potential FOMC bullish tail risk. But given the short half-life that political turmoil has on the overall market sentiment, profit taking is more to do with trade war escalation fears and a possible hawkish Fed.

FOMC bullish tail risk

Yesterday we looked at the dovish tail risks but now a look at the opposite side of the coin.

With a rate hike baked into this FOMC meeting will be all about the future path of interest rates.

Don’t toss your dollar out the window just yet, by any standard all the US economic surprise index still favour the USD by a long shot. Of course, all data should be gleaned but its the surprises are what move asset currency markets and since most if not all Macroeconomics data are generally priced in over the long term, therefore adding up the sum of the data surprises can shed significant into monetary policy vies , and a  very basic  understanding of anticipated moves in currency markets. And by all current standards, the US surprise index is leading the charge and Fed will be looking at this metric.

Surprise = Realized Change – Expected Change in Economic

To that end, the markets still have a relatively pessimistic view on the US rates curve into 2019 and beyond as there has been too much focus and external issues and if trade wars etc. were really a concern for the Feds, they wouldn’t be raising interest rates this week nor guiding the market to another rate hike in December.

But a hawkish case can be made after several Fed members have been turning the dial up but none more so significant that Lael Brainard.

It’s challenging not to be dollar bullish from a pragmatic US interest rate storyline. But of course, price action needs to be respected especially with the EUR veering towards 1.1800 again. The strong US economy suggests USD yields have further room to run. And when former doves like Fed Governor Lael Brainard, who I dare say, is starting to roost with the Hawks and provides the clearest of signals hat this sitting Fed is more hawkish than the markets 2019 overly pessimistic lean.

Oil Markets

Oil continues to hold on to astonishing gains as the latest move was helped along by headlines from OPEC’s weekend meeting as the organisation agreed to no immediate supply boosts here and last weeks reports that Saudi Arabia was now comfortable with Brent at $80.

But with the 72nd session of the United Nations General Assembly kicking off, and President Trump set to hold court. Indeed, Iran is sure to be a fashionable topic so prepare for some headline risk, and I would expect some of Trumps OPEC barbs to surface. So it will be interesting to see how Oil markets absorb headlines with Brent trading near four years highs.

Headline risk notwithstanding, price action suggests that oil investors hopes are skyrocketing that US sanctions on Iranian crude oil exports will cause a significant shortfall in global supply. With that in mind, it’s possible we could see further advances in the weeks ahead. With OPEC showing little inclination to add amounts anytime before the December 3 summit, it’s very likely, in the absence of any about-face from OPEC, that Brent could trade to $85 + and WTI $75 + ahead of Nov 4 Iran sanction date as bullish expectations should continue to boil. But when taken in combination with the fact US commercial crude oil inventories are at their lowest since early 2015, it makes for a convincing bullish argument.

Gold Markets

It’s interesting to see Gold glued to the $1200 see-saw level this morning as frankly, I was expecting the yellow metal to be trading a tad weaker ahead of the FOMC. But with the markets in the very much oversold territory, some short bets are ceding just in case the Feds do unexpected give some notion of a pause for cause in the current 2019 Fed rate hike cycle. As a dovish inference for the Feds could send Gold prices above the critical $1210 level. There’s a lot of cross action inference on this week’s Fed forward guidance.

Currency Markets 

No idea why dollar bulls are so scared of their shadow these days, but It does tell me a significant number are long at not so comfortable levels.

Euro
Hawkish comments from Draghi has a significant impact on EUR volumes overnight as I continue to view the EURUSD the primary battlefield for USD positioning. Anytime the Uber dove Draghi underline the pick up on inflation, the market listens. Which triggered a rally in Bund yields, with a close above 0.50% but the EUR was rebuffed above 1.1800.
EU zone data remains uneven and at least currently in the USD cycle dollar bulls feel comfortable to sell EURO at 1.1800.

1.1720 remains the key for downside after it was such an obstacle to push through last week

JPY
Starting to see a nascent recovery in USD strength the back of this week’s Fed meeting, my views for a stronger JPY are a way to far in the horizon as the market is testing some significant near-term levels with a break into 113’s will open test of 114.25 on follow through. Interesting from my seta was yesterday absolute zero reaction in JPY to the glint of risk off, suggesting the dollar bulls are targeting USDJPY higher.

EM Asia

The Malaysian Ringgit

Brent above 80 has improved, but one look at global yields ratcheting higher in the wake of Draghi’s hawkish inflation comments and the true inflationary impact of surging oil prices are having on the US yields, will make local EM traders think twice about diving in headfirst.

Support comes in at 4.12 resistance 4.15

Central Banks up the ante to normalize interest rates

Friday September 21: Five things the markets are talking about

Aside from trade, tariff and retaliation, central banks are upping the ante to “normalize” interest rates.

This week, Norway’s Norges Bank has joined the BoE, and the central banks of the Czech Republic and Romania in withdrawing some of its stimulus, while Sweden’s Riksbank has indicated that it may raise its key rate before the end of the year. The ECB plans to end QE this December, while next week the Fed is expected to hike +25 bps (Sep 26) – the market will be looking for any comments on the impact of escalating trade tensions.

Earlier this week the BoJ kept its stimulus policy unchanged, however, the move overnight to cut the purchases of super long-bonds would suggest that the period of easy-money era is ending. In Hong Kong, the HKD has surged the most in 15-years in part due to the prospect for higher interest rates there.

There are a number of EM hotspots that the market is also focusing on, in particular – Turkey & South Africa. The lack of details on how Turkey can achieve a soft landing for an economy that topped the G20 growth charts in 2017/18 continues to contribute to a volatile TRY, but a plan is forthcoming.

While in South Africa this morning, President Ramaphosa announced details of a stimulus package to take immediate effect to battle the country’s technical recession.

With trade war concerns receding in the background, the U.S dollar is on track to close out the week trading atop of its seven-month lows against G10 currency pairs as stronger equity markets and rising bond yields encourage investors to purchase riskier assets.

Note: Expect today’s session to be volatile as its quadruple witching – futures and options on indexes and individual stocks expire.

On tap: Canadian CPI and retail sales at 08:30 am EDT

1. Stocks rally to records

With Wall Street indexes hitting a record high again yesterday has encouraged Asian and Euro bourses to take flight.

In Japan, equities rallied to an eight-month high, with noted gains in insurance, energy, and shipping stocks. The Nikkei did fade late, but still gained +0.8%. Financials were helped by the BoJ’s offer to buy less super-long bonds. The broader Topix gained +0.9% to hit a four-month high.

Down-under, the Aussie stock market again underperformed in the region overnight. The S&P/ASX 200 finished up +0.4%. The index ticked up +0.5% for the week, a second consecutive modest gain. Providing intraday pressure were utilities, which lost -0.5% last night, but consumer staples rallied that much while materials jumped a further +1.5% and IT climbed +2.2%. In S. Korea, the Kospi closed +0.68% higher on Friday as investors risk appetite recovered. For the week, the benchmark index climbed +0.9%.

In China, stocks surged overnight before a long holiday weekend, with investor sentiment boosted by hopes that a government effort to boost domestic demand could help offset effects of an escalating trade war. At the close, the blue-chip CSI300 index rallied +3.0%, its biggest one-day gain in four-months. The Shanghai Composite Index gained +2.5%, closing out its best week in six months.

In Hong Kong, stocks ended higher for a fourth consecutive session overnight, helped by consumer and technology shares, as sentiment improved after the Sino-U.S trade war unfolded in ways less damaging than feared. The Hang Seng index ended +1.73% higher, while the China Enterprises Index closed +2.17% firmer.

In Europe, regional bourses continue to rise despite sluggish PMI results. In the U.K, the FTSE is supported by positive Brexit comments, while in Italy; bourses are supported by budget talks.

Note: Expect stock markets to be influenced by today’s quadruple witching hour.

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

Indices: Stoxx50 +0.7% at 3,428, FTSE +0.8% at 7,429, DAX +0.7% at 12,418, CAC-40 +0.8% at 5,494, IBEX-35 +0.6% at 9,639, FTSE MIB +0.9% at 21,588, SMI

2. Oil higher on supply worries, but Trump’s call for lower prices drags

Oil prices are a tad higher this morning after falling in yesterday’s session as U.S President Donald Trump urged OPEC to lower crude prices at its meeting in Algeria this weekend (Sep 23).

Note: OPEC and its allies are scheduled to meet on Sunday to discuss how to allocate supply increases to offset a shortage of Iran supplies due to U.S sanctions.

Brent crude for November delivery is up +26c, or +0.33%, at +$78.96 a barrel, while
U.S West Texas Intermediate crude for October delivery is up +7c, or +0.10% at +$70.39 a barrel.

Trump took to twitter and called on OPEC to lower prices, saying, “they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices”.

Trump’s veiled threats are unlikely to force OPEC and its allies to agree to an official increase in crude output on Sunday.

The fact that Sino-U.S trade tensions have somewhat dissipated is helping precious metal prices. Ahead of the U.S open, gold prices remain better bid on the back of a weaker U.S dollar and are heading for its first weekly gain in a month. Spot gold is up +0.3% at +$1,210.68, after touching its highest since Sept. 13 at +$1,211.02. It has rallied +1.3% so far this week. U.S gold futures are up +0.3% at +$1,215 per ounce.

3. Italian bond yields fall as investors await budget clarity

Italian bond yields are under some pressure this morning as the market awaits clarity on the 2019 budget and after the 5-Star Movement denied a report that Deputy PM Di Maio had threatened to pull his party out of the government.

An ISTAT report shows that the budget deficit as a proportion of national output was slightly higher last year than previously estimated, but that debt was lower also helped to push down yields.

Italian BTP yields are down -5 bps along the curve, having jumped by up to +12 bps yesterday. Elsewhere, Germany’s 10-year Bund yield has eased to +0.47% as some Euro investors returned to safe-haven assets.

Note: Bunds backed up to a four-month high of +0.506% Wednesday, but have struggled to maintain this level, rallying back down after renewed Brexit concerns and the infighting in the Italian government.

In Japan, the Bank of Japan (BoJ) has cut its purchase of super long JGB’s. This has send Japanese yields to 2018 highs. The 40-year yield has jumped +5 bps to +1.04% while 10’s gained +1.5 bp to +0.13%.

Stateside, the yield on 10-year Treasuries has jumped + 2 bps to +3.08%, the highest in more than four-months.

4. Hong Kong dollar spikes

Expectations of a rise in bank lending rates and tightness in cash supplies caused a sharp spike in HKD overnight, pulling it off the weak end of its narrow trading band it had been stuck in for the six-months.

The HKD rallied to $7.8244, hitting its highest levels since late February. Since March, it had stayed near $7.85, the lower end of the Hong Kong Monetary Authority’s (HKMA) managed trading band.

USD/INR rose to an intraday high of $72.47 before fading after a sharp spike lower in Indian Indices on liquidity concerns of Indian Housing name Dewan Housing.

ZAR (+0.46% to $14.2629) found support after S. African President Ramaphosa announced a number of policy reform plans this morning, including re-prioritising +$3.5B of public spending to boost economic growth and create jobs.

GBP/USD (£1.3185) falls from yesterday’s highs as the E.U warns the U.K of a possible “no-deal” Brexit. Initial support is around £1.3171.

5. Euro zone business growth eased

Data this morning showed that Euro zone business growth eased this month although optimism picked up a tad from last month’s two-year low.

Nevertheless, growth remained robust and firms were able to increase prices, which should keep the ECB happy.

Digging deeper, there remains a divergence between services and manufacturing – the dominant service industry beat forecasts for no change in the pace of growth from last month. IHS Markit’s Euro Zone Services Flash Purchasing Managers’ Index (PMI) rose to 54.7 from 54.4.

Manufacturers however failed to live up to expectations. The factory PMI slumped to a two-year low of 53.3 from 54.6 – the market was looking for 54.4.

Divergence raises the question, how long can you maintain a strong service sector growth without an upbeat manufacturing sector?

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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.

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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.

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