Focus On These 3 T's: 5 Things The Global Markets Are Talking About Today

Three T's have been driving capital markets this month: trade, tariffs and Trump.

Tuesday, thus far, has been a good feel-day as market sentiment seems to be improving, supported by renewed optimism that the U.K. can cut a Brexit deal in a timely fashion.

However, emerging markets and recent commodity price weakness still provides enough reasons for caution. This market is still waiting for the "other shoe to drop" in the Sino-U.S. trade dispute after President Trump signalled last week that he is ready to impose tariffs on even more goods.

On Thursday, the European Central Bank is expected to deliver caution regarding concerns about protectionism and turmoil in emerging markets at its monetary policy meeting. ECB President Mario Draghi is likely to continue stressing that the Eurozone's economic recovery remains robust and that policy makers are confident of a recovery in inflation, which will keep its monetary normalization intact.

Dollar bulls will be looking to strong data due later in the week for support — U.S core-CPI release on Thursday and retail sales on Friday are likely to come in strong and boost the buck.

In commodities, West Texas Intermediate crude speculators are looking to Hurricane Florence approaching the U.S east cost — will there be disruption in supplies? Crude bulls have been pushing WTI prices towards $68 per barrel.

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

1. Global Equities Mixed

European stocks and U.S. equity futures were a tad lower after a mixed session in Asia.

In Japan, equities had their best session in a month overnight, with exporters lifted by the yen weaker outright and tech stocks boosted by gains stateside on Monday. The Nikkei ended the day 1.3 percent higher, while the broader Topix closed 0.67 percent stronger.

Shares rallied overnight in Australia — ending eight consecutive days of losses — supported by financials and energy stocks. The S&P/ASX 200 index rose 0.6 percent at the close. In South Korea, the Kospi weakened, tracking losses from China as Sino-U.S. trade woes continue to linger. At the close, the index lost 0.24 percent.

In Hong Kong, shares fell into bear market territory on Tuesday as the Hang Seng index ended atop of its 14-month low on fears of further escalation in the trade war. The Hang Seng index ended down 0.72 percent, while the China Enterprises Index shed 0.96 percent. In China, shares hit a 31-month low. At the close, the Shanghai Composite index was down 0.2 percent, while the blue-chip CSI300 index was down 0.18 percent.

2. Oil Prices Climb Ahead Of U.S. Sanctions On Iran

Oil prices rallied overnight as U.S. sanctions begin to squeeze Iranian crude exports. Global supply is tightening despite the U.S. encouraging other producers to increase output.  Economists have expressed some concern that higher oil prices could depress economic activity and trigger a global slowdown in growth.

U.S. Energy Secretary Rick Perry met with Saudi officials on Monday, and will meet Russian envoys on Thursday to encourages the other two biggest oil-producers to keep output high.

Note: Before the year-end, OPEC and allies are expected to discuss cooperation post-2018 in Algeria.

3. German Bund Yields At Recent Highs, Italian Yields At Lows

German 10-year Bund yields have backed up to their highest level in five-weeks overnight, as growing hopes of fiscal restraint in Italy and a Brexit deal being completed in the coming weeks.

Italy's BTP yields fell for a seventh consecutive session, with long-dated yields hitting their lowest level since late-July. Comments from Italian politicians this month that E.U. fiscal rules would be respected in next year's budget have supported the markets demand for Italian debt.

Italy's 10-year BTP yield fell to its lowest in more than six weeks at 2.7 perent, while Germany's Bund yield rose more than 2 bps to a 5-week high of 0.423 percent — the spread is 225 bps, its tightest since the start of August.

4. Dollar Falls, But Looks To Regain Momentum

The dollar traded lower ahead of the open, with EUR/USD up 0.3 percent at €1.1626, GBP at £1.3040 and JPY at ¥111.35, but strong U.S. data, due later in the week, could give the greenback some needed TLC — core-CPI figures on Thursday and retail sales on Friday are expected to come in strong.

The EUR has found support as easing concerns about Italian debt boosted the single currency for a second day, while broader moves in forex markets remain contained until there is further clarity in the U.S.-China trade dispute.

The pound received another Brexit boost. Market headlines have been more positive the past few days as Europe have signaled more willingness to compromise on an agreement with the U.K. Domestic wage data also beat expectations and justified the recent Bank of England rate hike.

The Turkish Lira is little changed as investors wait for the Central Bank of the Republic of Turkey rate decision on Thursday. Current consensus is looking for the CB to hike 1-week repo auction rate by 325 bps to 21.00 percent.

5. U.K Jobs And Wage Data

U.K data this morning provided the pound with some support. Stronger-than-expected U.K jobs data, pushed EUR/GBP briefly to a 5-week low of €0.8887.

U.K. earnings for the three-months to July rose by 2.9 percent, up from a 2.7 percent increase in the previous period and above the market consensus of 2.8 percent.

Other data showed that the U.K unemployment rate stayed flat at 4 percent in July versus expectations of a 4.1 percent rise.

The Bank of England meets Thursday and further proof of rising U.K. wage growth may concern Governor Carney and company, however, ongoing Brexit uncertainty is expected to weaken any chances of another rate rise any time soon.

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