As the USA wakes up to the full impact of hurricane Irma, investors await the market reaction

Sep 11 • Morning Roll Call • 51 Views • No Comments

Measured versus a basket of its peers, the U.S. dollar closed out the week by plunging to its lowest level in approximately two years on Friday, whilst WTI oil collapsed by circa 3%. With hurricane Irma approaching and a huge earthquake hitting Mexico, which fortunately took place a sufficient distance from Mexico City, avoiding the approximate 10,000 deaths that occurred as a result of the 1985 earthquake, the mood on Wall Street was sober. Once markets open in the USA on Monday traders (our FX, commodities and indices traders), should be highly vigilant with regards to the impact Irma has on overall market sentiment and values in certain sectors. Such as: insurance, banking, manufacturing and real estate, which could have the effect of dragging down the value of the dollar and the leading SPX and DJIA indices. As FX markets opened on Sunday evening the only significant movement was a fall in yen, versus its main peers.

However, as the storm reduced to category 2-3 on Sunday evening, with 100 mph winds, versus the sustained 150 winds of the category 5 storm experienced on Friday, the eye of the storm also missed the major towns and cities of Florida. The collective consciousness of the markets may breathe a sigh of relief, that Florida as a state dodged a bullet, therefore markets may experience a modest relief rally/recovery during Monday’s session.

Our weekly snapshot of the CFTC commitment of traders’ report published each Friday, reveals that large traders have increased the bias of their overall net long positions in the: euro, Canadian dollar, gold, silver and WTI oil. The net long bias in the Australian and New Zealand dollar and in the SPX index S&P 500) has reduced. Net short positions in: sterling, U.S. dollar, yen and the Swiss franc have increased.

Sunday evening we’ll receive, amongst a raft of Chinese domestic financial detail, the latest data regarding new yuan loans made in China, the forecast is for an increase in August to 950b from 825b, another indication that the Chinese economy is robust, although there is evidence emerging that the Chinese authorities are concerned that the renminbi/yuan is currently undervalued and may take measures to reduce overall credit availability. In other Asian news we’ll receive the latest information regarding Japan’s machine orders, which are forecast to have fallen by -7.8% in July, which could have a significant impact on the overall investor sentiment attached to Japan’s economy. Retail and credit card spending detail will be revealed for New Zealand early Sunday morning.

Just as European markets open on Monday morning, at approx. 8:00am, we’ll receive the latest domestic and the total sight deposit data from the Swiss govt/central bank. Despite this calendar event only registering as low impact, it does have the power to move the value of the Swissie versus its peers. The ECB’s Coeure speaks in Frankfurt, where no doubt he’ll diplomatically avoid the subject of the upcoming German election, in which Angela Merkel and her party have apparently gained in the polls, since her first televised debate with Martin Schulz. Instead investors will once again be intently listening for signals, regarding the potential reduction in the ECB’s asset purchase programme, which Mario Draghi alluded to in his conference, after the interest rate hold (at zero) announcement made last week.

As attention shifts to North America Canada chips in with its first significant data release of the week; housing starts are expected to come in at an annual rate of 220k for August, a slight fall from the previous annualised figure of 223k. From the USA, the New York Fed consumer expectation survey is published and there’s an auction of 3 month, 6 month and 3 year bills.

 

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