The dollar dropped for a fourth consecutive session Monday, along with U.S. Treasuries after President Trump criticized his own appointed Fed Chairman's interest-rate hikes.
Trump said he is not "thrilled" with the Fed raising interest rates, suggesting that U.S policy makers take a break from policy normalization while he carries out his protectionist policies.
The president has taken a swipe at U.S. dollar bulls that have built up "long" rate differentials and risk aversion summer positions. Would his administration even go down the route of outright currency intervention? Or will Trump stick to only verbal comments?
Market focus now shifts to this week's Jackson Hole symposium for clues on U.S. monetary policy, and for any response from Powell to Trump's comments.
With all this in mind, here are five things the global markets were talking about on Tuesday.
1. Global Stocks Find Support
Most stocks in Asia gained after U.S. equities flirted with new highs Monday, though European shares were little changed ahead of the U.S open.
In Japan, the Nikkei edged a tad higher overnight after a weakening of the yen prompted futures purchases, but mobile phone stocks plummeted on reports that a Japanese official said that the industry needs reform. However, the broader Topix lost 0.4 pecent.
Down under, Aussie shares slid overnight, as investors took note of failed attempts to topple Prime Minister Turnbull and top miner BHP Billiton Limited (ADR) BHP missing annual earnings expectations. The benchmark S&P/ASX 200 index lost 1 percent after nudging up slightly on Monday. In South Korea, the Kospi stock index closed 1 percent higher on hopes that Sino-U.S. trade talks will thaw the escalating trade war.
In Hong Kong, stocks found support as the yuan stabilized and investors expect Beijing to further relax its policies to counter the impact of trade frictions. The Hang Seng index rallied 0.6 percent, while the China Enterprises Index gained 1.0 percent.
In China, equities extended their gains — led by technology, consumer and financial stocks — as risk appetite improved on signs the government will relax monetary and fiscal policies. The blue-chip CSI300 index ended 1.8 percent higher, while the Shanghai Composite Index closed up 1.3 percent.
2. Oil Firm On tighter U.S. Outlook
Oil prices trade firm stateside with U.S. fuel markets seen to be tightening, although the release of crude from the American strategic reserves is offsetting an expected supply cut due to upcoming sanctions against Iran.
Brent crude oil futures are down 9c, at $72.12 a barrel, while U.S. West Texas Intermediate (WTI) crude futures are up 30c, or 0.45 percent, at $66.73 per barrel.
Washington yesterday offered 11 million barrels of crude from its Strategic Petroleum Reserve (SPR) for delivery from October 1 to November 30. The market expects the released oil to offset expected supply shortfalls from U.S. sanctions against Iran.
However, the overall market sentiment remains cautious because of concerns over the demand outlook amid the U.S.-China trade dispute.
Gold prices climbed to a weekly high Tuesday morning on the back of a weaker dollar. Spot gold has rallied 0.4% to $1,194.81 an ounce, the highest level since August 14. U.S. gold futures have climbed 0.5 percent to $1,200.60 an ounce.
3. Trump Criticizes The Fed
Given that the Fed is an independent institution, explicit comments about interest rates from a sitting President could just as easily have the opposite effect.
Trump wants lower rates and a weaker dollar, however, Fed Chair Powell maybe more inclined to "normalize" rate policy to defend their credibility — the Fed has raised interest rates twice this year and has penciled in 2-more +25 bps increases in 2018 and three-more in 2019.
Note: The market will be watching for Wednesday's FOMC minutes and as well as the annual Jackson Hole symposium of global central banks for yield guidance.
The yield on 10-year Treasuries have rallied 1 bps to 2.83 percent, the biggest advance in a week, while the yield on 2-year notes has gained 2 bps to 2.60 percent, also the largest advance in a week. In Germany, the 10-year Bund yield has backed up 1 bps to 0.31 percent, while in the U.K. the 10-year Gilt yield has increased 1 bps to 1.223 percent.
4. Dollar Under Pressure
The U.S. dollar remains on soft ground after President Trump again complained about the job Fed Chair Powell was doing and believed that the Fed should be more accommodating to his policies. In an interview Monday, Trump also reiterated his view that both China and Europe were manipulating their respective currencies.
EUR/USD (€1.1519) is holding above the key €1.15 level. The techies are monitoring Tuesday's daily close level to gauge whether a reversal is possible for the bearish EUR trend since the break occurred last week.
GBP/USD (£1.2820) is 0.2 percent higher as Brexit negotiations resumed. U.K. officials continue to remain optimistic that an agreement with the E.U. can be achieved. An opinion poll from the Observer newspaper has found that 40 percent now believe it is most likely that the U.K. will leave in next March without a deal — up sharply from 31 percent last month. About one in five think Britain will leave with a deal, while 16 percent think Britain will not leave the E.U. in March.
USD/JPY (¥110.26) traded below ¥110 for the first time since late June amid broad USD weakness, but has since moved off its worst levels as the European session progressed.
The Chinese yuan rallied 0.25 percent to ¥6.839, pulling further away from ¥6.934, its weakest since January 2017 marked last week.
5. Confidence In Australian Consumers
The Reserve Bank of Australia (RBA) agreed the next move in the cash rate would more likely be an increase from the August 7 policy meeting.
Aussie policy makers stressed that keeping rates at 1.50 percent would "help reduce the jobless rate and lift wage growth over time."
Members assessed it would be appropriate to hold the cash rate steady and for the Bank to be a source of "stability and confidence" while this progress unfolds.
Note: Political instability remains an issue, despite Prime Minister Turnbull winning a leadership vote for the ruling Liberal Party by a vote of 48 to 35.
The RBA generally sounded more upbeat about the economy, citing recent strength in the labor market and strong business confidence.
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