Asian markets took their cue from the steep selloff overnight on Wall Street, heading broadly lower as investors remain rattled by the saber rattling of North Korea. The financial sector was the hardest hit, with banking shares all across the Asian region falling in response to an overnight drop in government bond yields, and a weakness in the U.S. dollar. There has also been recent signs and speculation that global interest rates will remain lower for longer than previously believed, which is bad for the banking industry. European markets headed broadly higher Wednesday, although there was still some caution among trades over North Korea, but with no new developments on that front investors were willing to step up and begin buying again. The insurance sector remained under water as claims from hurricane Harvey are expected to be in the tens of billions, and with hurricane Irma, the strongest Atlantic hurricane ever, now threatening to bear down on Florida. Investors are now looking ahead to the European Central Bank monetary policy statement due Thursday, with expectations that ECB president Mario Draghi will remain dovish, citing the Euro’s strength as a reason for maintaining the ECB bond buying program. U.S. markets recovered from early losses and posted gains after U.S. lawmakers and President Trump agreed on increasing the debt ceiling, keeping the Federal government solvent for another three months. Investor sentiment remained cautious however as markets continue to grapple with the potential impact of hurricane Irma, lingering North Korean aggression, the question of interest rates in the U.S. and abroad, and the surprise resignation of Federal Reserve vice-chairman Stanley Fischer. In economic news the U.S. trade deficit rose modestly in July, while the ISM Services PMI number came in stronger than expected, reinforcing the view that the U.S. economy continues to strengthen.
FOREX
EUR/USD – The pair remained tightly range-bound on Wednesday, trading between the 1.1900 and 1.1950 level and finishing the session basically unchanged. Traders are cautious ahead of Thursday’s ECB monetary policy meeting with hopes to hear news about ECB unwinding their bond buying program. On the other hand, ECB president Mario Draghi is expected to strike a dovish tone, citing the strength of the Euro as a reason not to begin tapering the bond buying, despite Deutsche Bank’s CEO stating Wednesday that the ECB should begin tapering now, regardless of the Euro’s strength.
AUD/USD – The pair remained contained by the resistant 0.8000 level on Wednesday, closing the session right there as traders awaited Australia’s trade balance and U.S. unemployment data. The pair was unable to get past the 0.8000 level in late July, and if it fails this attempt we’ll be looking for the pair to drop back to test the 0.7825 level.
Cryptocurrencies – The cryptocurrencies continued recovering from their weekend selloff, with Bitcoin trading briefly up to the $4,600 level before retreating. Litecoin led the way with 10.5% increase, tested the $80 level briefly before dropping back.
Commodities
Metals – Precious metals were unable to continue their rally on Wednesday, snapping a three session winning streak after U.S. lawmakers came to an agreement to lift the debt ceiling. This will allow funding for the U.S. Federal government, keeping it functioning through the end of 2017. A weakening USD also did nothing to help gold and other precious metals.
Oil – Crude gained for a third consecutive session, with the U.S. benchmark WTI crude once again flirting with the $50 level as U.S. refineries are coming back into operation. The clean-up of the damages caused by hurricane Harvey is going well, and trader fears of a build-up in crude inventories has been calmed by the rapid return to production for most refineries. Indices S&P500 – The S&P 500 ended the session modestly higher, with gains broad based, but mostly powered by the energy sector. Overall, nine S&P sectors ended the day black. The S&P remains just roughly 1% below an all-time high.
DAX – The DAX was the best performing European market on Wednesday, gaining 0.8% on strength from the automotive sector after new car registrations rose 3.5% in August. There was also good news from equity analysts on the automaker front, with shares of Daimler gaining 4.5% after Goldman Sachs (NYSE:GS) upgraded the stock to “buy” from “neutral”.
Stocks
Wal-Mart (NYSE:WMT) – While the insurance sector has been beaten down recently, there is one company that could benefit from the destruction of hurricane Harvey, and any further destruction by Irma and other potential hurricanes. That company is Wal-Mart. The company is heavily present in both Texas and Florida and the stocking up before major events like this could certainly have a positive effect. There could also be increased sales in the aftermath as consumers either restock, or replace damaged items and perishables.