Indices starting positive
Rumours of bold announcement regarding easing policy and adding stimulus are keeping most asset classes buoyant as the European session gets under way. With the Jackson Hole Symposium from Thursday onward being the major focus of the week, date releases and other inputs are looking as if they will take a back seat for the rest of the week.
US index futures are all higher on the day, with gains of between 0.05% and 0.11% so far, while UK shares are looking to notch up gains of 0.26%. The Germany 30 index is currently up 0.15% today. On the currency front, activity again is a bit more subdued. The US Dollar Index is trading slightly softer from 2019 highs and the broader risk-on sentiment has boosted the Aussie but the pound cannot seem to benefit from the other inputs as Brexit uncertainty remains a dominant cloud. Conservative Party Chairman Cleverly declared that the EU needs to show more flexibility in Brexit negotiations.
China says room for more RRR cuts
China’s recent announcements on rate reform are receiving a bit more clarity today, with PBOC Deputy Governor Liu Guoqiang stating that the new benchmark, the Loan Prime Rate (LPR), is not intended to replace monetary and other policies, but has the aim of lowering funding costs for small and private firms. In addition, the PBOC’s Department Head of Monetary Policy said there is room for cuts in both the Reserve Requirement Ratio and the lending rate. Generally, the move is seen as accelerating the scope to provide stimulus to the Chinese economy, and hence a boost to risk appetite.
RBA says low rates to stay
The minutes of the last RBA meeting indicated that committee members judged it reasonable to expect an extended period of low interest rates was necessary in order to make sustained progress towards full employment and achieve more assured progress towards the inflation target. Despite this sentiment, AUD/USD was better bid on the day, rising 0.24% to 0.6781.
AUD/USD Daily Chart
Does the data calendar matter?
As mentioned above, the market’s focus is on Fed Chairman Powell’s Jackson Hole speech on Friday, so data releases are expected to take a back seat. For the record, today’s data slate could pass unnoticed. German producer prices in July were in line with expectations at +1.1% y/y and Euro-zone construction output for June (old data) is up next. From the US side, we can expect the weekly Redbook Index followed by a speech from the Fed’s Quarles.