The Dollar Softens Ahead Of The FOMC

Overview:  The capital markets are relatively quiet so far today as the FOMC meeting gets underway. Equity markets in the Asia Pacific region, but Japan and Australia advanced, and the regional benchmark rose for the fourth consecutive session. European stocks are a little firmer. The three-day advance has lifted the Dow Jones Stoxx 600 by about 1.0%. US shares are trading higher, and the S&P 500 is poised to gap higher. Benchmark 10-year yields 1-2 bp higher in Europe, and the US 10-year is little changed near 68 bp. The dollar is heavy. The euro traded at $1.19, and the dollar has been unable to resurface above JPY106. The greenback is also slipping against most of the emerging market currencies. Gold (GLD) is extended yesterday's recovery but is just above the middle of the $1900-$2000 range for the better part of the past month. Oil is firm, but the October WTI contract remains within the range established a week ago (~$36. 15-$38. 45).  (BNO)

Asia Pacific

China reported better than expected industrial production and retail sales data. August industrial output rose 5. 6% from a year ago. The median forecast in the Bloomberg survey was for a 5.2% increase following the 4.8% advance in July. Of note, crude steel output rose 8.4% year-over-year, while aluminum production increased by 5.5%. Retail sales were expected to be flat after falling for the past several months. Instead, it rose by 0. 5%, year-over-year. While this is a step in the direction of more balanced growth, Beijing's policies still seem to favor supply over demand. Lastly, China reported fixed asset investment, and at -0. 4%, it was in line with forecasts and shows sequential improvement. The takeaway is that the world's second-largest economy is continuing to recover.   

Japan joined South Korea and China to ban German pork entirely. Germany is trying to persuade them to replace the total ban with a regional one. Japan's ban makes China's move not necessarily as political or impolitic as it may have appeared. China and the EU paid lip service to ideas that the seven-year-old investment pact negotiations can be successfully concluded this year. However, relations are at a low ebb, and China's recent effort to bolster the role of State-Owned-Enterprises goes in the opposite direction that the EU is pushing. That said, the US-China Phase 1 trade agreement, including a few dozen specific market-opening measures, and China appears to be implementing these.  

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Read more by Marc on his site Marc to Market.

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