Dollar Suffers Biggest Weekly Drop Since February, Pushing Global Markets Higher

Market Snapshot

  • S&P 500 futures up 0.2% to 2,909.75
  • STOXX Europe 600 up 0.2% to 377.10
  • German 10Y yield rose 0.7 bps to 0.43%
  • Euro up 0.2% to $1.1709
  • Brent Futures up 0.3% to $78.39/bbl
  • Italian 10Y yield unchanged at 2.589%
  • Spanish 10Y yield rose 0.7 bps to 1.476%
  • MXAP up 1.2% to 162.17
  • MXAPJ up 1.2% to 520.16
  • Nikkei up 1.2% to 23,094.67
  • Topix up 1.1% to 1,728.61
  • Hang Seng Index up 1% to 27,286.41
  • Shanghai Composite down 0.2% to 2,681.64
  • Sensex up 0.8% to 38,015.35
  • Australia S&P/ASX 200 up 0.6% to 6,165.33
  • Kospi up 1.4% to 2,318.25
  • Gold spot up 0.4% to $1,206.63
  • U.S. Dollar Index down 0.1% to 94.46

Top Overnight News

  • Hurricane Florence is swirling closer to the U.S. East Coast, battering the Carolinas with water and wind and threatening to unleash widespread destruction. The North Carolina coast was subject to life-threatening storm surge and heavy rain at around 4 a.m. local time
  • BOE Governor Mark Carney gave a stark warning of the dangers of a no-deal Brexit that could see mortgage rates raised even as economic output and house prices tumble. At a meeting with the U.K. Cabinet, he said crashing out without an agreement could lead to a fall in the pound and higher tariffs, pushing inflation higher, people familiar with the matter said
  • Italian Finance Minister Giovanni Tria’s political future is shaky; he’s being squeezed between investor demands to uphold EU rules and the extravagant spending plans of his fractious coalition, as budget time approaches.
  • Turkish President Recep Tayyip Erdogan resumed his criticism of the nation’s central bank a day after it announced the biggest rate hike of his rule. “It’s currently my phase of patience, but there is a limit to this patience,” Erdogan said on Friday
  • China’se economic momentum weakened in August, with a slowdown in investment overshadowing solid retail sales and industrial production data
  • Turkish companies and households bought up to $2b of foreign currency following Thursday’s central bank decision, according to Istanbul-based currency traders who declined to be named
  • From a Swiss perspective it would certainly be ideal if other jurisdictions would normalize monetary policy, Swiss National Bank President Thomas Jordan said
  • U.S. President Donald Trump swaggered ahead of a possible new round of tariffs talks with China, boasting he has the upper hand in the burgeoning trade war and feels “no pressure” to resolve the feud
  • A date has not yet been set for the next round of U.S.-Japan trade talks, but Japan is aiming for late September, Economic Revitalization Minister Toshimitsu Motegi said
  • Bank of Japan’s newly introduced forward guidance was drafted with overseas investors in mind, reflecting an effort to avoid any sharp reaction in the yen and stocks, according to people familiar with discussions at the central bank

Asian equity markets traded mostly higher as the region took impetus from the US where the S&P 500 notched a 4th consecutive gain and the Nasdaq outperformed as tech rebounded with a vengeance. ASX 200 (+0.6%) and Nikkei 225 (+0.9%) were higher in which miners led the broad gains in Australia, while Japanese exporters benefitted from a weaker currency which lifted the benchmark index to above the 23,000 level. Elsewhere, Hang Seng (+0.8%) and Shanghai Comp. (-0.1%) were both initially positive after continued liquidity efforts by the PBoC, although sentiment in the mainland eventually waned as amid weakness in Shenzhen and as participants digested mixed data in which Industrial Production printed in-line with expectations and Retail Sales beat, while Fixed Assets Investments growth declined to a fresh multi-year low. In addition, recent Trump comments also spurred some apprehension after he commented the US are under no pressure to make a deal with China and that it is China which is pressured to reach an agreement. Finally, 10yr JGBs are uneventful with demand for safe-havens dampened by the positive risk appetite in Japan, but with downside also capped amid the BoJ’s presence in the market for JPY 700bln of maturities in the short-end to belly.

Top Asian News

  • Philippine Finance Chief Spurns Calls for Early Rate Hike
  • China’s Choices Narrowed by Debt as Trump Threatens Economy
  • Hong Kong Highly Likely to Issue Typhoon Signal 8 Sunday
  • He Was at Trump Tower. He Says He’s No Spy. Now He’s Suing
  • Glencore Returns to Japan Coal Talks Scuppered by High Prices

European equities have started the day on the front foot. The DAX is leading the way in the equities space, driven by  Infineon, who are benefitting from broad-based IT sector strength after yesterday’s outperformance in the US. The SMI is currently the laggard and weighed on by Roche’s announcement of a “moderate” sales growth in 2019. UK homebuilders are struggling after comments from BoE’s Carney stating that UK home prices could fall by over 35% if there is a “no-deal” Brexit. Investec announced the demerger of their asset management business, and are currently leading the gains in the Stoxx 600.

Top European News

  • Hong Kong Tycoon Li Is Said to Weigh U.K. Infrastructure IPO
  • Investec Spins Off Asset-Management Unit as Founders Depart
  • Buy Amer as Market Overly Pessimistic on M&A: Everbright SHK
  • Miners Rebound From Bear Market Levels on Trade-Talks Optimism

In currencies, it was another downturn in the index and for the Greenback overall, partly on a further reflection post-benign US CPI, but also or perhaps mainly due to relative strength in rival currencies. The DXY remains below 94.500 and not far from recent lows, with more data on the horizon via retail sales, ip and business inventories before preliminary Michigan sentiment for September. G10 - All majors are ahead vs the Usd, bar the Loonie that continues to trade around the 1.3000 handle awaiting more NAFTA news. The Kiwi has overtaken its Aussie peer with some independent impetus overnight from firmer NZ manufacturing PMI growth to extend gains towards 0.6600, while Aud/Usd continues to look heavy above 0.7200. Elsewhere, Cable and Eur/Usd appear more comfortable on 1.3100 and 1.1700 handles respectively, amidst largely positive Brexit vibes at the UK-EU level if not on the domestic front, with the former eyeing 1.3150 and latter filling a chunk of bids/stops at 1.1715 before fading ahead of the 1.1734 August peak and strong chart resistance at 1.1750. Usd/Jpy continues to trade against the broad trend, but has retreated from 112.00+ highs to sub-111.88 Fib levels again, as 112.15 technical resistance held firm. EM - Try back in focus with another attempt to probe post-CBRT peaks around 6.0000 vs the Usd thwarted by more rhetoric from Turkish President Erdogan aimed at the US again, but also reiterating his stern opposition to higher rates. The Lira duly weakened in response, as has become an all too familiar pattern, but is off worst levels with some tangible support from data showing a narrower than forecast current account deficit. Elsewhere, the Rub is hedging bets around 68.4700 vs the Usd ahead of the CBR policy decision that is widely expected to be a ‘hawkish hold’.

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