Currency markets are fairly volatile this morning as traders react to a slew of headlines a day after global equities faced their worst day of the year yesterday.
Major U.S. Index fell about 3% as the yield curve inverted and the yield on 30-year treasuries fell below 2.0%. Bond markets are still showing major warning signs but the mood is generally better than yesterday, which is admittedly not a high bar.
Safe-haven currencies have come off their recent highs after a report that China hopes it can meet the U.S. “halfway.” This report comes after a Chinese statement saying that Trump’s planned increased tariffs violate the agreement reached with Chinese President XI when they met in Japan. China also promised more retaliatory measures.
Perhaps a strong economic docket can give some relief to markets and allow futures to rise slightly. U.S. retail sales rose by the most since April in July, a positive sign for consumer spending. Overall sales climbed 0.7%, better than the downwardly revised 0.3% of the month prior. A separate report showed that manufacturing in the Empire state rose to 4.8, beating expectations of a 2.0 reading. Later this morning, industrial production will cross the wire.
What to Watch Today…
- Industrial production at 9:15 a.m.
Complete Economic Calendar can be found here.
The Australian dollar found a little juice overnight and rose nearly half a percent following strong data. Australian employment rose 41,100 in July, smashing expectations of a 14K rise. The impressive numbers caused traders to slightly discount the chances that the Reserve Bank of Australia will cut interest rates next month. Chances of a rate cut now sit at 23%, down from 41% yesterday. Aussie will continue to be at the mercy of China’s growth prospects and thus, trade headlines will continue to move AUD/USD.
The British pound rose nearly a percent overnight as positive data finally was able to lift the beleaguered currency. U.K. retail sales unexpectedly rose 0.2% from June. A breakdown of the report shows that the increase was driven by online promotions causing analysts to point out that consumers remain cautious over Brexit.
The Brexit deadline is only two and a half months away so of course, we need to keep a keen eye on political developments. Labour Party leader Jeremey Corbyn is trying to organize rival parties in an attempt to block Boris Johnson’s new government from pursuing a no-deal Brexit. It is yet to be seen if he will be effective.