After the hawkish narrative, delivered by the FOMC on Wednesday, USA equity investors appeared to take a collective time out on Thursday. Perhaps an atmosphere of puzzlement developed within dealing rooms and across various chat facilities, as the question; “where to next, what happens next?” took hold.
U.S. equities slipped, as trading remained stuck in a narrow range, according to Bloomberg the equities trading range is one of the tightest in history, due to investors appearing to be reluctant to push prices higher than the record busting territory we’ve witnessed over recent months. The SPX fell for the first time in five trading days, safe havens experienced little attraction and the dollar also failed to rise. Investors could be looking past the potential December rate rise to predict what may happen to equities in 2018, given the Fed intends to raise rates to perhaps 3% and begin to divest itself of its $4.5 trillion balance sheet in 2018. How equities can maintain their record heights, with rates rising and the Fed attempting to unwind by maybe $500b a year, will be a fascinating and complex problem to witness being solved, assuming it can be solved, without equities suffering a severe correction.
In relation to specific USA economic calendar data initial jobless claims fell to 259k, beating the forecast of 302k, whilst continuing claims increased to 1980k. The USA house price index fell by -0.2% MoM. Interestingly, one release not discussed much in the media, is the net worth of USA households, which has fallen substantially, to $1698b in Q2, from $2327b in Q1. The DJIA closed down 0.24%, SPX 0.30% and NASDAQ down 0.52%. Gold fell below its critical $1300 handle to end the day resting on S1 at circa $1290, down close on 1.7% on the day. WTI oil was relatively unchanged on the day remaining just above the critical $50 a barrel handle. EURUSD rose by circa 0.4% on the day, to 1.1904. GPB/USD ended the day up circa 0.4% on the day, at 1.3578. USD/JPY rose to its highest value in over two months, to 112.48.
The U.K. mainstream financial media became excited as a result of the U.K. publishing what appeared to be bullish government borrowing data, however, the public sector borrowing requirement rose from a -£1.3b requirement in July, to £5.1b in August, despite beating the forecast, the U.K. is predicted to witness its government debt v GDP to rise above 90% by the end of 2018. Swiss data published on Thursday revealed that both exports and imports increased, MoM for August, quite a reversal from the negative readings published in July. The positive trade balance for the Swiss came in at 2.17b francs. Mario Draghi delivering a speech in Frankfurt during mid afternoon, appeared to have a little or no impact on markets and the value of the euro. STOXX 50 rose by 0.40%, FTSE 100 fell by 0.11%, DAX closed up 0.25% and France’s CAC ended the day up 0.49%.
The major currency movements of the day concerned yen and the Australian dollar. Yen sold off moderately as a consequence of the dovish BOJ monetary policy statement, failing to suggest any reduction in asset purchases, or the base rate being raised. The Aussie sold off sharply versus its major peers in the pre-European session on Thursday, due to the Reserve Bank Governor Philip Lowe stating that the Australian central bank could be far from considering any monetary policy tightening. The sell off continued throughout both the European and New York session. AUD/USD falling to S2 at 0.7931, the fall in the Aussie followed a similar pattern versus several of its peers; GBP/AUD up circa 1% on the day, crashing up through R3 at 1.3577.
Significant economic calendar events for September 22nd, all times quoted are London GMT time
07:30, currency impacted EUR. Markit/BME Germany Composite PMI (SEP P). The usual series of PMIs relating to Germany are published, the forecast is for the composite to fall marginally to 55.7, from 55.8.
08:00, currency impacted EUR. ECB President Mario Draghi speaks in Dublin. Mr. Draghi’s speech will be carefully monitored for signs of forward guidance.
08:00, currency impacted EUR. Markit Eurozone Composite PMI (SEP P). As the usual series of PMIs are printed the composite is predicted to come in at 55.5, from 55.7 recorded in August.
09:30, currency impacted EUR. ECB President Draghi participates in roundtable in Dublin.
12:30, currency impacted CAD. Consumer Price Index (YoY) (AUG). The expectation is for a rise to 1.5%, from the 1.2% reading published in July.
12:30, currency impacted CAD. Retail Sales (MoM) (JUL). The forecast is for a rise to 0.3%, from 0.1% in June.
13:45, currency impacted USD Markit US Composite PMI (SEP P). The composite is one reading of the series published for the USA, the August reading of 55.3 in August is expected to be closely matched.
