Market Brief
Dennis Lockhart, Federal Reserve Bank of Atlanta President concurs with his colleagues (San Francisco’s Williams, St. Louis’ Bullard and Richmond’s Lacker): the Fed is determined to raise rates in 2015. Lockhart argued that the risks of a lift-off on the domestic economy prevented the Fed from backing up its words with action as market volatility and uncertainties were reaching record levels. Despite Fed members’ optimism, the market is pricing in a 20% probability of a rate hike in October and 44% in December. It would seem that the hawks have lost their faith in a Fed, which is trapped in global turmoil.
Nevertheless, Fed members’ upbeat comments helped US stocks to recover as the S&P 500 added 0.46% in New York yesterday, while the Dow Jones Industrial Average and the Nasdaq rose 0.77% and 0.04%, respectively. US futures are mixed in Tokyo despite strong gains from most of Asian regional markets. Japanese markets are still closed and will remain so until tomorrow. In China, stocks continue to recover as the Shanghai Composite rose 1.46% and the SZSE Composite 1.44%. In Hong Kong, the Hang Seng followed mainland’s lead and soared 1.47%.
In the FX market, EUR/USD is reversing gains from the last two weeks as investors regain confidence in the US economy. Meanwhile, in Germany, consumer confidence is expected to have weakened to 8 from 9.2 in August while August’s retail sales are anticipated to have grown 0.3%m/m, after gaining 0.5% in the previous month.
Australian shares rose 0.74%, helped by a strong consumer confidence in September. ANZ Roy Morgan weekly consumer confidence index jumped to 114.5 points from 105.3 a week ago as Malcom Turnbull took over leadership of the Liberal Party from Tony Abbott. Australian people are pretty optimistic regarding Abbott’s government’s ability to reinforce an economy, which suffers from weaker demand from China. AUD/USD escaped its short-term downtrend channel as it successfully validated a break of the 0.70 resistance a few days ago. However, the Aussie is still trading within its long-term declining channel. The currency pair already failed once to move above its 50dma (around 0.7240 at the moment) as global investors are still reluctant to reload long AUD/USD position.
In Europe, equity futures are mixed this morning with the FTSE 100 edging lower by -0.12%, the CAC 40 rising 0.32%, the DAX +0.44% and the SMI sliding -0.32%. EUR/CHF continues to grind lower after failing to break the strong 1.10 threshold. In Switzerland, trade surplus came on the soft side as it contracted to CHF 2.87bn in August from a revised surplus of 3.58bn in July. Exports continued to deteriorate in July and contracted 2.4%m/m, after falling 2.3% in the previous month. The strength of the Swiss franc is also affecting imports, which fell 4%m/m in August (-1.8% in July), as a weaker demand for Swiss goods reduced raw materials and manufactured products.
Today traders will be watching interest rate decision from Turkey; mid-month inflation, current account balance, foreign direct investment and formal job creation from Brazil; Richmond Fed manufacturing index and FHFA house price index from the US.
Currency Tech
EUR/USD
R 2: 1.1714
R 1: 1.1561
CURRENT: 1.1184
S 1: 1.1017
S 2: 1.0809
GBP/USD
R 2: 1.5819
R 1: 1.5628
CURRENT: 1.5501
S 1: 1.5165
S 2: 1.5089
USD/JPY
R 2: 125.86
R 1: 121.75
CURRENT: 120.15
S 1: 118.61
S 2: 116.18
USD/CHF
R 2: 1.0240
R 1: 0.9903
CURRENT: 0.9724
S 1: 0.9513
S 2: 0.9259