Last week saw the return of optimism in the markets. Inflation is still at elevated levels and the supply chain remains a concern, but the markets seem to believe that these issues will eventually be resolved.
The big question is still what actions will be taken by central banks, and what effect they will have on risk assets. The Pound continues to see good economic data releases and UK inflation is still running at high levels. The market is pricing a full 15bp hike in next month’s meeting and more in February 2022, and this has risks.
Last week was Non-Farm Payrolls week and it was yet another highly anticipated data release. In the end, the headline number was weaker than expected but that apparently didn’t seem to be enough to take the Fed off its tapering course. The RBNZ became the second major central bank to hike rates as expected, and there were no major surprises to shock markets either way.
The US Dollar finally took a breather after a few strong weeks, with the NFP reading putting a brake on its appreciation. The Euro failed to make any progress, hindered mainly by the terrible German economic data releases which included factory orders and industrial production was huge misses. The Pound had a decent week as bets start favouring an earlier rate hike by the Bank of England. With the strength in inflation and wage growth running past expectations, it seems that the BoE has very few options left. Commodity currencies did well on the whole, as oil continued its impressive bull run.
Last week saw market participants digest a wave of central bank commentary as several FED members delivered speeches providing their own views on monetary policy, inflation, and tapering. The US Dollar was lifted higher by the rally in treasury yields which saw USD/JPY briefly test the 112.00 level. EUR/USD slumped below 1.1600 before paring the losses towards the end of the week as financiers and investors looked towards a new month and quarter. Equities ended the month of September in the red with the SPX and Dow Jones snapping a 7-month win streak.
Last week saw market participants digest the outcomes of the wave of Central Bank meetings which included the FOMC. The Central Bank gave notice that if progress on its economic goals continued as expected then a reduction in the pace of asset purchases may be warranted. The news sent the greenback higher as it surged to its best levels since the 20th of August. In addition to this, the FED now sees a total of seven rate hikes over its current forecast horizon whilst the views on the labour market were broadly maintained. Market participants were surprised by Fed Chair Powells’ comments as he noted that the tapering of asset purchases could be concluded by the middle of next year if the economy remains on track. Moving forward, financiers and investors will now await the next meeting in November for a possible taper announcement.
Markets in Asia began the week mixed as the region rallied somewhat on reopening headlines but struggled to climb further with market participants weary of month and quarter end. The ASX 200 closed higher by 0.7% with outperformance seen within mining related sectors. The Nikkei 225 was unchanged with investors treading cautiously ahead of the upcoming LDP leadership race.
Last week saw market participants digest a wave of US data which included a strong retail sales print. The greenback surged above the 93.00 as market participants look towards this week’s FOMC Meeting for further guidance and direction regarding the impending taper announcement. Commodity currencies were on the pressured as the week progressed with Australia reporting a loss of over 140,000 jobs in the past month. The week ahead will see several major Central Bank meetings as financiers and investors remain cautious over the path of the economic recovery.
Markets in Asia began the week negatively amid the Evergrande concerns and a continued slump in commodities. Risk appetite was on the backfoot with a few holiday closures in the region and a busy Central Bank focused week ahead. The Hang Seng dropped nearly 5% whilst Evergrande plunged by another 17% on growing default fears. It has been reported that the company who currently owe over $120mln in bond coupon payments have been repaying investors with discounted real estate. The ASX 200 was lower by around 2% as underperformance in mining names and ongoing woes in commodities spooked market participants.
Last week saw market participants digest a wave of central bank meetings which included the ECB lowering the pace of purchases into Q4 with ECB President Lagarde noting that it was a time for recalibration rather than tapering. The Euro traded lower following the announcement and currently sits below 1.1800 against the greenback. The RBA maintained their current monetary policy stance whilst increasing the duration for their new bond-buying programme citing effects of the delta variant outbreak.
Markets in Asia started the week off cautiously following last week’s five-day losing streak on Wall Street. The ASX 200 was up marginally amid gains within commodity related sectors following the recent press higher in Oil. The asset has climbed above the $70 level in an extension of Friday’s gains despite the renewed strength for the dollar. Recent comments from Goldman Sachs also provided a lift for the asset as the company believes that a significant rally is on the horizon due to increasing levels of scarcity. Back to Asia, the Nikkei 225 was lower and lacked direction whilst the Hang Seng dipped by over 2% amid losses in real estate and tech.
Last week saw market participants digest a poor NFP print as only 235,000 jobs were reported to have been added in the past month suggesting that the FED could delay the timing of tapering until later in the year. The report sent the weakened with the greenback as it moved to its lowest level in a month.
Commodity currencies were amongst the top performers during the week as AUD/USD climbed to its best levels since July. The asset benefited from the broad risk on rally despite a worsening Covid-19 situation in the nation. Heading into the week ahead, the RBA will hold their final policy meeting for Q3 where all eyes will be on QE. At the prior meeting, the board stood by its taper decision which would see the weekly purchases drop down to 4bln AUD from early this month.
Last week saw financiers and investors flee to safety on rising delta variant concerns and mounting pessimism about the rate of economic growth. The Dollar, Yen and Swiss Franc were the weeks top performers in FX on the haven bid whilst commodity currencies slumped lower across the board. AUD/USD closed at its worst levels since November of last year whilst NZD/USD broke down following the imposition of a nation-wide lockdown following the discovery of its first confirmed Covid case since February. The action taken by PM Ardern resulted in the RBNZ pulling back from the expectation of a 25bps hike and instead maintained the OCR at 0.25%.
The week ahead will see PMIs released across Europe and the States whilst participants will now turn their attention to Core PCE data and the Jackson Hole Symposium.
Last week, market participants digested the aftermath of the weeks key risk events which included the latest US jobs report. Financiers watched the greenback surge higher following the strong report which saw over 900K jobs being added to the US economy. The figure was matched by an unemployment rate of 5.4% which beat expectations. The week ahead will see several FOMC members speaking who will be reminded of the need to begin considering tapering following on from the recent data releases.
In the UK, the BOE left rates unchanged as expected and maintained their stance on inflation being transitory as markets observed another MPC meeting. The asset purchase facility which is currently at £895bln was left unchanged and had little pushback following the exit of MPC member Haldane who had called for a £50bln reduction in the previous meeting. Sterling remained stronger over the remainder of the week with EUR/GBP slumping to its worst levels since April.
Last week, market participants digested the aftermath of the weeks key risk events which included the latest FOMC Meeting. The FOMC left rates unchanged as expected and few changes were made to the statement. Fed Chair Powell continued to frame inflation as transitory and expects it to continue to remain elevated in the coming months before moderating. The Fed Chair also reinforced the fact that the labour market is still yet to recover, and substantial progress is yet to be made. The greenback was able to recover marginally as financiers rebalanced for month ending. The DXY initially slumped over 1.2% over the course of the week before closing the month above the 92.00 handle.