As North American traders’ return to their desks after the Labour Day long-weekend, positive investor sentiment has oozed into US equity futures following an overnight session in Asia that saw risk appetite well supported. Although wage growth in Japan rose by a greater amount than had been expected over the last twelve months, the main driver of Yen price action were rumors that Abe’s cabinet reshuffle is likely going to strengthen the position of those in favour of rebalancing the nation’s pension plan assets to a regime less focused on domestic bonds. The possibility of increasing the GPIF’s exposure to domestic and international equities caused the Nikkei to 1.24%, while USDJPY briefly flirted with overtaking the 105 handle.
Looking towards the always fluid geopolitical developments in the Ukrainian-Russian conflict, there has been little in the way of de-escalation as Ukraine is becoming more concerned about the violence in the easternmost regions of its territory, warning the Russian advances are akin to something not seen by Europe since WWII. While not affecting the appetite of investors for high-yielding assets just yet, the situation could become a bigger factor for equity price action as Obama lands in Estonian to reassure the Baltic nations that NATO stands by its military commitment.
Elsewhere in Europe, the Sterling has been treading water this morning and is the worst performing of the majors against the big dollar thus far. The underperformance of the Pound comes on the back of a new poll that showed support for independence in the upcoming Scottish referendum is growing, with the gap between those preferring to remain within the UK half of what it was in mid-August, with only a narrow six point spread separating the two camps. Investors tend to respond less enthusiastically to uncertainty; therefore, GBPUSD is trading heavy as the potential for a “Yes” vote towards Scottish independence raises a lot of questions in regards to Scotland’s ties to the UK and Eurozone, especially in regards to monetary policy. The Pound is sitting at session lows despite looking like it might see a bounce on a particularly good construction PMI number that was released earlier this morning, though the consensus beat with a reading of 64 was unable to shake the dark cloud of Scottish uncertainty.
Speaking of PMI survey’s, the main economic data point on the North American docket will be the ISM Manufacturing PMI number due out at 10:00EST, and will likely set the tone for the day as traders ease back into the a week that will quickly ramp up in terms of economic fodder for participants to digest. Expectations are to see a slight slippage from the robust 57.1 registered in July, with the median estimate landing at 56.8 for the month of August. A quick data check has US equity futures dipping their toes into the black, while fixed income feels the brunt of positive risk appetite and the yield on the 10-year treasury moves closer to 2.40%. The Loonie is continuing to have a rough start to the week after failing to make any meaningful ground last Friday after the stronger than expected GDP number, with USDCAD popping back above the 1.09 handle on broad-based USD strength.
Further reading:
3 reasons why Japan is not experiencing wage inflation
ISM Manufacturing PMI jumps to 59 points – highest since 2011
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