The Jackson Hole symposium lived up to its billing as one with few ground breaking central banking revelations, although there have been some interesting conclusions drawn from the rhetoric nonetheless.
Janet Yellen used her platform to talk up the good work undertaken by the Federal Reserve in tightening regulation and lowering future economic risks, although ultimately failed to give the USD bears any reason to cover a rather extended short position. Some even saw the speech aimed squarely at National Economic director, Gary Cohn, who is now the clear favourite to take the role as Fed chair in the new year and is expected to go to work unwinding the work of Yellen and co and push for de-regulation.
It was a speech that some saw as an admittance that she is unlikely to retain her role and of course the market drew a conclusion that Gary Cohn would need to be even more dovish than Yellen to appeal to Donald Trump and get the gig. The wash-up being the USD index closing 0.6% lower on the session, although we saw buying off 92.42 - the lowest level since May 2016.
The move in the USD was driven, as one suspects, by a reasonable bid in US treasuries, with the 10-Year treasury falling three basis points to 2.16%, with long-term bonds outperforming and the US yield curve (2’s vs 10’s) falling four basis points (bp) to 82bp. On a positive note, we saw emerging markets working well (the EEM ETF closed higher for the sixth day), with high-yield corporate credit spreads coming in a few basis points.
Interestingly, we can see the implied probability of a December hike actually pushing to 38% and with US payrolls out this Friday (consensus calling 180,000 jobs, 2.6% average hourly earnings) these variables will get close attention from traders.
ECB governor Mario Draghi spoke five hours after Janet Yellen and caused a pop in the EUR, with a few headlines that sounded somewhat optimistic. In a similar vein to his mid-week speech in Germany, the EUR bulls will feed off anything they can get that suggests a less accommodative stance going forward.
EUR/USD hit a high of $1.1942 and is seeing very modest follow-through buying in the open of trade today in Asia. EUR/GBP also saw strong buying interest, hitting £0.9270 (the highest since May 2016), although is giving back some those gains on open this morning with traders focusing on various news sources that the UK Labour party have taken a turn to become the party offering voters a softer stance on Brexit. It seems they are to push for the transitional deal, as opposed to the hard line currently taken by Theresa May.
US equities closed Friday on a slightly firmer footing, with the S&P 500 closing +0.2%, although there was a slight move lower into the close with the market finishing not far off its session low. Transports worked well, with the Dow Transport index closing up 1.3%, while within the S&P 500 good buying was seen in industrials, energy and telco’s.
SPI futures followed this move, closing up a mere six points to 5716, so unless S&P 500 futures re-open at 08:00 aest markedly changed, which seems unlikely, then the ASX 200 should open around 5758.
Earnings take a back seat this week, although today we hear from ADH, ALU, IFM, JHC, LLC and PRU.
By way of leads for energy and materials, we have seen oil closing up 0.9% on Friday at $47.87, although the US crude futures open at 08:00 aest will be interesting as traders digest the impact of Hurricane Harvey and the devastation seen in the Gulf and when hear of refineries (such as Exxon (NYSE:XOM)) and other production facilities closing one can expect oil prices to pop on open this morning. One can also add in a further tailwind from the weekly Baker-Hughes rig count, where we saw the count drop by four rigs to 759 and marking the first back-to-back falls since May 2016.
Spot ore fines closed up 1.6% at $78.38, although Dalian futures have been smacked with iron ore, steel and coking coal futures closing -5.1%, -0.7% and -3.6% respectively. Copper closed unchanged and gold once again tested key resistance at $1295/96, but closed just below this key level.
AUD/USD has opened for trade in the new week, largely unchanged at $0.7926 having hit a high on Friday of $0.7954. A break of $0.7963 in the early part of this week and the pair will make another assault on 80c, despite speculative funds increasing their net long position (as monitored by the weekly CFTC report) to 89,000 contracts and the highest since 2013.
It’s a data heavy week for the AUD, with building approvals (consensus -5% in July) and Q2 private sector CAPEX (+0.2%) in focus. Q2 GDP is released to the market on 6 September, but we start getting the key inputs this week with Q2 inventories and operating profit in play.