Thursday, Aug. 23: Five Things Markets Are Talking About

The U.S. dollar has rallied for the first time in six sessions as the markets waits for rhetoric from Jackson Hole, where a meeting of global central bankers begins this evening.

Yesterday, the Federal Reserve signalled a ‘no change’ to its pace of monetary policy tightening, allowing the greenback to climb against most of its peers.

U.S. Treasuries are steady after the Fed indicated they are prepared to increase rates again if the economy stays on track. Yesterday, the Fed minutes point to another interest-rate increase next month.

“Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation,” according to the minutes. Most officials signalled they are keen to raise rates to a level that “neither spurs nor slows growth” – the so-called “neutral rate.”

Alongside U.S. President Donald Trump’s legal woes, the market is also trying to gage the imposition of new tariffs between the U.S. and China in the midst of talks aimed at averting the worsening trade conflict.

On tap: Jackson Hole symposium begins.

1. Political woes pressure stocks

Global equities traded mixed overnight amid speculation Trump’s political position could be threatened by his current legal woes and as fresh Sino-U.S. tariffs took effect.

In Japan, the edged a tad higher after a weak yen (¥110.89) supported sentiment, however, German profit warnings dragged down auto stocks and tire makers. The Nikkei share average ended 0.2% higher, while the broader was unchanged.

Down-under, Aussie shares fell overnight, as uncertainty over whom the country’s next PM would be distressed investor confidence, with losses in financials capping gains in resources stocks. The S&P index lost 0.3%. In South Korea, the stock index advanced 0.4% overnight, even though fresh U.S.-China tariffs weighed on the market.

In China, stock markets ended higher, as investors mostly looked past new U.S. and Chinese tariffs that mark the latest escalation of the trade war between the world’s two largest economies. The index ended 0.4% higher, while the country’s blue-chip index gained 0.3%.

In Europe, regional bourses trade slightly higher in quiet trade with trade tensions and mixed European PMI’s figures (see below) capping gains.

Indices: 0.2% at 385.1, 0.3% at 7591, +0.1% at 12391, +0.3% at 5435, +0.4% at 9617, +0.1% at 20714, SMI (CS:) +0.2% at 9066 +0.1%

Brent crude for Aug. 22-24, 2018.

Brent crude for Aug. 22-24, 2018.

2. Oil slips on tariffs

Oil prices have slipped as the U.S.-China trade dispute outweighs the bullish impact of a decline in U.S. crude inventories.

is down 30c a barrel at $74.48, while U.S. light is 10c lower at $67.76.

Note: The trade dispute between the world’s two largest economies has deepened today with the imposition of another 25% tariffs on $16 billion worth of each other’s goods.

Bullish for crude was yesterdays data from the EIA which showed that U.S. commercial inventories fell by 5.8 million barrels in the week to Aug. 17 to 408.36 million barrels.

Ahead of the U.S. open, gold prices were under pressure, falling from their one-week high from yesterday, as intensifying Sino-U.S. trade war with another round of tariffs and expectations of higher interest rates support the dollar. is down 0.6% at $1,188.16 an ounce. U.S. are down 0.7% at $1,194.80.

Gold for Aug. 22-24, 2018.

Gold for Aug. 22-24, 2018.

3. Sovereign yields ease

The Tsy-Bund spread is at up 247 bps – the tightest in two months as the eurozone economy and inflation shows signs of improvement and the market questions how long the U.S. economic strength will last. There is no supply in the eurozone today and the 10-year Bund yield is trading at +0.35%, down 1 bps. Other eurozone bond yields are mostly unchanged, except Italian bonds – the 10-year BTP yield has declined 4 bps to 3.026%.

Elsewhere, the yield on U.S. 10-year Treasuries has decreased 1 bps to 2.81%, the lowest in more than three months. In the U.K., the 10-year Gilt yield has dipped 1 bps to 1.272%.

USD/ZAR for Aug. 22-24, 2018.

USD/ZAR for Aug. 22-24, 2018.

4. Dollar finds support

The USD is a tad firmer overnight, breaking a six-day losing streak aided by yesterday’s Fed minutes that signalled another rate rise is coming. Market concerns over the Sino-US trade negotiation is again a pressing issue now that the U.S. has implemented another round of tariffs.

(€1.1565) is lower by 0.2%, pressured by mixed Euro manufacturing PMI data.

(£1.2868) is a tad softer as Brexit negotiations continue and the was back below the psychological A$0.73 at A$0.7294 after Australia adjourned its parliament until Sept. 10 amid a political leadership crisis. PM Turnbull is seen as unlikely to contest another leadership vote.

Among the biggest currency losers overnight is South Africa’s rand ($14.2920), which slumped after a tweet from Trump fuelled speculation of possible sanctions against the country.

EUR/USD for Aug. 22-24, 2018.

EUR/USD for Aug. 22-24, 2018.

5. Euro PMI’s signal steady expansion

Flash PMI survey data this morning indicated that the eurozone economy continued to grow this month, albeit with the rate of expansion remaining one of the weakest seen over the past 18 months, while companies’ expectations of future growth slipped to the lowest for nearly two years.

The IHS Markit Eurozone Composite (manufacturing and services) PMI edged a tad higher from 54.3 in July to 54.4 in August.

Digging deeper, the rise signalled a marginal acceleration of output growth during the month. However, the increase in output was the third weakest since January 2017. New order growth picked up marginally, but, was the third weakest since December 2016. A particularly sluggish performance was seen in manufacturing, where new export orders registered the smallest monthly rise for two years.

Although growth rates improved slightly in manufacturing and services, both remained among the weakest seen for at least 18 months.

US Dollar Index for Aug. 22-23, 2018.

US Dollar Index for Aug. 22-23, 2018.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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