Markets await the full impact North Korea’s H bomb test has on investor confidence, yen surges as safe haven as FX markets open Sunday evening

Sep 4 • Morning Roll Call • 1949 Views • Comments Off on Markets await the full impact North Korea’s H bomb test has on investor confidence, yen surges as safe haven as FX markets open Sunday evening

Friday witnessed a shock NFP (Non Farm Payroll) result published by the BLS department in the USA; forecast at 180k jobs created in August, versus 189k in July, the actual number came in at 156k. Added to the spike in corporate job cuts – as evidenced by the recent Challenger corporate job cut numbers – the outlook for continuous job growth in the USA may not be as robust as many analysts suggest, particularly with the current labour participation rate at 62.9%. In other highly significant fundamental news relevant to the USA, both the Markit and ISM manufacturing PMIs came in ahead of forecast on Friday, as did the ISM new orders data.

Before market analysts and investors begin to dissect and interpret the economic calendar events on Sunday evening/Monday morning, they’ll have to price into the markets the latest North Korean situation, involving an underground H bomb test. The explosion actually caused a 6.3 magnitude earthquake felt as far away as Yanji, China, about six miles (10km) from North Korea’s Punggye-ri nuclear test site, situated in the north east of the country. This test was North Korea’s sixth nuclear test and was estimated at 100 kilotons, several times more powerful than the 15 kiloton ‘Little Boy’ bomb dropped on Hiroshima. As markets opened on Sunday evening, yen surged, as investors sought sanctuary in the safe haven asset.

More traditional (and far less threatening) political theatre, was observed in Germany on Sunday evening, as Martin Schultz and Germany’s current chancellor Angela Merkel faced each other in their first televised debate, before the federal elections, which take place later this month, on September 24th. According to the first poll of the televised clash, performed halfway through the debate, 44% of viewers found Merkel more convincing than Schulz, who only convinced 32% of those who took part in the survey.

Whilst on that subject, our clients will be receiving our analysis of the upcoming German elections by email soon, it’ll contain information regarding how the elections are fought and how votes are allocated. The German election is part proportional representation and part first past the post, with each voter receiving two votes, therefore (as an election process), it’s quite unique and very Germanic; in terms of fairness and being strictly constitutional. Notwithstanding an explanation of the process, we’ve developed some likely conclusions regarding the potential make up of the probable coalition government, whilst highlighting the possible effect on equity markets and in particular the value of the euro versus its peers, based on the various permutations.

Looking briefly at the COT (commitment of traders’) report published on Friday 1st September, which reveals institutional and corporate positions on various securities; it revealed that overall the balance of net short positions in sterling increased during the week, net long euro positions increased, net short positions in yen decreased, the net long Canadian dollar positions increased, as did the long positions in the Aussie dollar. In terms of precious metals; the balance of traders increased their net long positions in both silver and gold. Net long positions in the SPX also increased significantly.

Significant economic calendar events for September 4th, all times quoted are London (GMT) time

08:30, currency impacted EUR. Euro-Zone Sentix Investor Confidence (SEP). The reading is forecast to fall to 27, from the 27.7 registered in August.

08:30, currency impacted GBP. Markit/CIPS UK Construction PMI (AUG). The reading is predicted to rise marginally; from 51.9 recorded in July to 52 for August.

09:00, currency impacted EUR. Euro-Zone Producer Price Index (YoY) (JUL). Prices are expected to reveal 2.1% growth, versus the 2.5% revealed in June.

23:30, currency impacted AUD. AiG Performance of Service Index (AUG). The value published in July of 56.4, is forecast to be closely matched.

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