Market Overview

Trade Talks And Jackson Hole Top The Agenda: 5 Things The Global Markets Are Talking About Today


With "Risk On Risk Off" trading strategies dominating proceedings this summer, expect this to be another action-packed week despite the lack of economic data releases.

A stronger U.S. dollar and higher interest rates are pushing emerging economies into bear territory and their respective currency pairs have seen extreme volatility even in presence of the own central banks.

Officials from China will be Washington on Tuesday and Thursday to work towards a solution for the escalating trade war.

In Europe, investors are beginning to set their sights on Italy as politics and budget concerns have euro bulls worried.

Due to the emerging markets meltdown and weaker domestic fundamentals, the Chinese yuan is threatening to trade through the psychological key ¥7 handle for the first time in a decade. Expect the People's Bank of China (PBoC) to defend any further yuan weakness, especially through the trade talks.

Fed Chair Jerome Powell is scheduled to speak on Friday, at the annual global central bank conference in Jackson Hole. He will speak on "monetary policy in a changing economy."

On tap: There are no central bank meetings this week, but there will be a lot of central bank speeches and copy. AUD monetary policy minutes (Monday), New Zealand retail sales (Tuesday), Canada retail sales and FOMC meeting minutes (Wednesday), European Central Bank monetary policy meeting minutes (Thursday) and U.S. core-durable goods orders (Friday).

With all this in mind, here are five things the global markets were talking about on Monday.

1. Global Stocks Find Support

Contagion worries continue to have an impact on investor risk sentiment, especially in emerging markets.

Overnight, there were advances across most Asian equities, although Japanese stocks bucked the upward trend. The Nikkei fell as tech stocks weakened, while trading was thin as investors' awaited developments from trade talks expected between the U.S and China this week. The Nikkei share average dropped 0.3 percent, matched by the broader Topix, which declined 0.3 percent in the lowest traded volume in four-months.

Down-under, Aussie stocks edged a tad higher, as cautious outlook from retailers offset gains from materials stocks, which were supported by upcoming Sino-U.S. trade talks. The S&P/ASX 200 index added 0.1 percent after recording a 0.2 percent gain on Friday. In South Korea, the Kospi stock index and the won edged higher overnight on improved investor sentiment.

In Hong Kong, stocks rebounded overnight, led by IT and resources shares, as a stabilizing yuan (¥6.8446) improved risk appetite. The Hang Seng index rose 1.4 percent, while the China Enterprises Index gained 1.1 percent.

In China, stocks recovered from a 30-month low to close higher on Monday after a report that China's securities regulators (CSRC) summoned brokerage analysts for views on the market improved investor sentiment. The Shanghai Composite index ended up 1.1 percent, while the blue-chip CSI300 index ended 1.17 percent higher.

2. Brent Crude Prices Stabilize

Brent crude oil prices stabilize atop of $72 per barrel overnight after several weeks of decline, weighed down by concerns over slowing global economic growth but supported by an expected fall in supply from Iran due to U.S sanctions.

Brent crude futures are at $72.11 per barrel, up 28c, while U.S. West Texas Intermediate (WTI) crude futures are up 3c at $65.94 per barrel.

Note: Last week, Brent declined for a third consecutive week, while WTI fell for a seventh week due to concerns about a slowdown in economic growth.

Ahead of the U.S. open, gold prices have edged a tad higher as investors found the yellow metal attractive after prices fell to a 19-month low last week, while a stronger dollar is capping market gains ahead of planned U.S trade talks. Spot gold is up 0.2 percent at $1,186.33 an ounce, after touching its lowest since January 2017 at $1,159.96 on Thursday.

3. Turkish Bonds Face Pressure

Turkish government bonds have come under renewed pressure after Friday's downgrades by Moody's Investors Service and S&P Global Ratings.

Moody's cut its rating on Turkey to Ba2 from Ba3 and changed the outlook to negative, citing the continuing weakening of Turkey's public institutions and the related lower predictability of Turkish policy making.

S&P cut Turkey to B+ from BB- with stable outlook, pointing to the substantial weakening of the lira with its negative fiscal implications and strain of corporate balance sheets.

Note: Due to a religious holiday, markets are closed in Turkey this week, which will reduce liquidity and could amplify TRY volatility.

Elsewhere, the yield on 10-year Treasuries has decreased less than 1 bps to 2.86 percent, the lowest in more than a month. In Germany, the 10-year Bund yield has gained 1 bps point to 0.31 percent, while in the U.K., the 10-year Gilt yield increased less than 1 bps to 1.236 percent.

4. Dollar Remains In Vogue

The currency crisis in Turkey and trade talks between the U.S/China this week will dictate currency price moves.

Overnight, EUR/USD (€1.1406) is a tad softer by 0.3 percent and holding above the psychological €1.14 handle. The Italian budget remains in focus with reports that Italy would launch a €50B infrastructure plan next month. If so, this would blow out E.U budget-deficit rules. The €1.15 area remains the key resistance.

USD/TRY ($6.1168) is higher by over 1 percent after last week's sovereign downgrades by Moody's and S&P Global Ratings on Turkey. Analysts consensus sees TRY weakening towards $8.0 area before reaching the pain threshold that would likely compel President Erdogan to compromise on some of his strategic objectives.

The pending resumption of Sino-U.S. trade talks has prompted the market to speculate whether the U.S could pressure China to take measures to keep the yuan from falling further. The Chinese yuan remains under pressure and is threatening to trade through the psychological key ¥7 handle for the first time in a decade. The Yuan has lost around 10 percent in the last five months, with trade tensions adding to worries about a slowing economy –—Chinese fixed asset investment, industrial output and retail sales data last week were all on the soft side.

Note: China PBoC did set its yuan reference rate a tad stronger in the Asian session today (¥6.8718 vs. ¥6.8894 prior).

5. U.K. Home Prices Dropped In August

U.K. data Sunday showed that domestic house prices dropped 2.3 percent in August from July, as new sellers launched a "late summer sale" to try and find a buyer more quickly, according to figures released by Rightmove.

The decline was steeper than the 2.1 percent drop seen in August last year, with the more subdued London market and the South East weighing on the national average.

On an annual basis, meanwhile, prices were up 1.1 percent, but this was down from a 1.4 percent increase in July.

Digging deeper, in London, the price of property coming to market was down 3.1 percent on the month in August, resulting in an annual rate of decrease of 1.2 percent. In the southeast, prices were down 2.3 percent on the month and up 0.6 percent on the year. Excluding those two regions, the rest of the country saw a monthly decline of 1.5 percent.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Government News Emerging Markets Eurozone Commodities Forex Treasuries Global


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