Save haven assets rise as Trump’s threat to shut down USA govt, sparks fear over debt ceiling

Aug 24 • Morning Roll Call • 1764 Views • Comments Off on Save haven assets rise as Trump’s threat to shut down USA govt, sparks fear over debt ceiling

USA equities fell for the first time in three days as a consequence of Trump’s threat to shut down the USA govt if he doesn’t get funding to build his infamous “Mexico wall”. A domino effect then took shape, as analysts and investors quickly moved on to doubt his capacity to deal with the looming debt ceiling issue, which has the potential to become a small crisis. Added to these doubts, analysts and investors are (once again) doubting the ability of the president to push through his tax reform (massive cuts for corporations) agenda, the key reason U.S. equities have rallied since his election. The ratings agency Fitch came out with a statement that surprised markets, as they issued notice that, should the debt ceiling not be raised next month, then it may need to reconsider USA sovereignty ratings.

Trump then went further on Wednesday, by discussing ending the American free trade agreement, which would impact on commerce with both of the USA’s geographically closest trading neighbours; Mexico and Canada. The DJIA closed down 0.40%, SPX down 0.35% and the NASDAQ down 0.47%. Gold rose by circa 0.3% on the day, closing out at approx. $1292 per ounce, whilst WTI oil rose by circa 1% to $48.40 a barrel, just falling short of R2, on the basis that stockpiles are reducing. The dollar index fell by approx 0.3%, whilst EUR/USD advanced by circa 0.5% reaching R1, to close out the day at 1.1812. USD/JPY fell by circa 0.6% to 108.96, yen (similar to gold) appealing as a safe haven, whilst GBP/USD fell to its lowest level in close on seven weeks, falling to 1.2801.

In terms of USA economic calendar news, new home sales slumped dramatically month on month, falling by -9.4%, missing the forecast for a flat (0.00) reading. Mortgage applications fell by -0.5% in the latest weekly update, whilst the Markit manufacturing PMI came in below analysts’ predictions, at 52.5 for August.

Europe’s economic calendar news was dominated by several PMIs being published, both France and Germany’s composite PMIs marginally beat forecasts, as did both the Eurozone manufacturing and composite readings. Other European news concerned the U.K.’s Brexit debacle coming into sharp focus, as various ministers (who are supposedly leading the exit negotiations), once again proved themselves unable to agree on key critical issues. As a consequence EUR/GBP rallied strongly; rising by over 1% on the day to 0.9225, the highest level witnessed in circa 8 months.

Europe’s equities also sold off on Wednesday; euro STOXX 50 closing down 0.49%, DAX down 0.45%, CAC down 0.32% and the UK’s FTSE 100 was flat on the day.

Significant economic calendar events for August 24th, all times quoted are London GMT time

07:15, currency impacted CHF. Industrial Production (YoY) (2Q). The Q1 reading came in at -1.3%, analysts are predicting a modest improvement on this figure.

08:30, currency impacted GBP. Gross Domestic Product (YoY) (2Q P). The forecast is for the UK’s growth to remain consistent, with the Q1 figure of 1.7%

12:30, currency impacted USD. Initial Jobless Claims (AUG 19). The prediction is for weekly jobless claims to increase marginally to 236k, from the 232k figure recorded in the previous week’s data.

12:30, currency impacted USD. Continuing Claims (AUG 12). The expectation is for continuing claims to fall from 1950k, from the 1953k figure released last week.

14:00, currency impacted USD. Existing Home Sales (MoM) (JUL). Existing home sales are predicted to bounce back to a positive reading of 0.9%, from the -1.8% revealed previously in June.

23:30, currency impacted JPY. National Consumer Price Index (YoY) (JUL). CPI is forecast to remain low, at 0.4% per year.

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