Global Commentary
Asian markets continued higher on Tuesday, but the rally slowed somewhat. Still, there was an air of confidence from investors, and the stronger USD helped lift markets impressively in Japan, where the Nikkei ended the day at a one-month high. The Australian market gained significantly as well, with the miners leading the way, and the big four banks returning to strength.
European markets were broadly higher for the fifth session in a row, marking the longest winning streak in five months. With risk events continuing to fade, investor sentiment continues to improve, and this is translating into strong gains for equities. Shares of European banks fared especially well, as German Bund yields continue climbing higher with the return of risk appetite in markets. Insurance companies also did well after hurricane Irma proved far less destructive than anticipated. In the U.K., equity markets weren’t as buoyant, as better-than-expected U.K. inflation helped the Pound move higher.
U.S. markets ended broadly higher for a second consecutive day, with the financial sector leading the way. All main indices ended the day 0.3% higher as risk appetite has remained steady from investors. There have been some rumblings in the insurance sector however, as U.S. insurers are expected to be on the hook for somewhere between $150-200 billion in payouts from damages caused by hurricanes Harvey and Irma. The S&P500 closed at a new record high, and the Nasdaq is flirting with a new closing high as well. Investors also received positive news early Tuesday, when Treasury Secretary Steven Mnuchin said that a tax reform bill is still a possibility by the end of this year.
FOREX
EUR/USD
The pair traded in a tight range and finished the day basically unchanged as traders were still awaiting the EU Exit Bill to be passed by the U.K. The bill was finally passed late in the day on its second reading, but there remain a long list of amendments that will need to be considered and voted on before the bill is complete.
GBP/USD
The pair surged higher after U.K. inflation rose more than expected in August, raising the possibility of a U.K. interest rate hike later this year. The Bank of England will meet Thursday to vote on monetary policy, but isn’t likely to raise rates at this meeting, although discussions could turn more hawkish. Also, Wednesday will see the release of U.K. employment and wage data, which could send GBP/USD even higher, testing the 1.3300 level that wasn’t breached on Tuesday.
Cryptocurrencies
After rising throughout most of the day and looking as if they would make a recovery off recent lows, cryptocurrencies were hammered lower in the North American session after JPMorgan (NYSE:JPM) CEO Jamie Dimon called Bitcoin “a fraud” and called for a coming blow up in the cryptocurrency market. Of course it isn’t the first time that Dimon called Bitcoin a fraud, and by late in the day cryptocurrencies were recovering from the comment and trading back near unchanged levels.
Commodities
Metals
Precious metals declined for a second continuous session Tuesday as rising equity markets drew investors away from haven investments like the precious metals. Gold traded down to a one-week low, though losses were modest as some caution remains among investors, who are well aware how quickly geopolitical risks can develop.
Oil
Crude gained modestly on Tuesday, with the upside capped by expectations for a hefty rise in U.S. crude inventory levels. The caution by traders was borne out after crude markets closed, when the U.S. Energy Information Administration reported that U.S. crude inventories rose 6.2 million barrels for the week. It was the second consecutive week of rising inventory levels, and the gains are expected to continue due to refinery outages following hurricane Harvey.
Indices
Dow Industrials
The Dow gained on Tuesday, with its move muted somewhat by the largest daily drop in a year from shares of McDonald’s. The fast food giant’s shares fell after a research firm released a report that questioned the strength of third quarter earnings due to losses suffered in Texas and Florida after hurricanes Harvey and Irma. The loss from McDonald’s was offset to some degree by gains from Goldman Sachs (NYSE:GS)
FTSE 100
London’s benchmark equity index turned lower on Tuesday in response to a rallying Pound. The British currency got a push higher after U.K. inflation reportedly rose by 2.9% in August versus expectations for a 2.8% rise. The stronger inflation makes a better case for higher interest rates, which is a negative for most equities. Investor caution also ticked up as the Bank of England will meet Thursday to vote on monetary policy, and while no rate increase is expected at this meeting, there could be more hawkish talk, and an increase sooner than previously expected.
Stocks
Apple
Apple unveiled the new premium iPhone X, as well as the iPhone 8 and iPhone 8 Plus on Tuesday to general approval from consumers, but lukewarm sentiment from investors. With a price tag of $999 for the iPhone X it is the most expensive iPhone offering so far. The new model will feature Facial recognition, edge-to-edge display, and beginning next year wireless charging capabilities. While Apple shares (NASDAQ:AAPL) were up as much as 1% during the unveiling of the iPhone X, by the close Apple shares were down by 0.4%.