The risk-on sentiment remained at full steam so far this Thursday, in the face of the goodwill gestures exchanged by both the US and China on trade ahead of their early-October trade talks. Asian equities, Wall Street futures, oil and Treasury yields rallied amid signs of easing trade tensions while gold traded on the back foot below $ 1500 level despite a broadly subdued US dollar.
Higher-yielding Antipodeans enjoyed the risk-on trades, with AUD/USD having reached fresh six-week highs near 0.6890 while the Kiwi emerged the strongest, up 0.40% near 0.6450 region. The anti-risk Yen suffered the most, as USD/JPY surged past the 108 handle to fresh 1.5 month tops. The resource-linked Loonie held firmer amid the bounce in oil prices, as hopes of easing US-Iran geopolitical tensions were overshadowed by a huge drop in the US crude stockpiles.
Heading into the big ECB event, the EUR/USD pair holds steady above the 1.10 handle while the Cable keeps its range above 1.2300, awaiting fresh Brexit clarity.
Main Topics in Asia
US-China trade headlines
Chinese Premier Li: The two countries should seek common ground and find ways of resolving differences
President Trump: Agreed to move increased Chinese tariffs on 250 billion dollars’ worth of goods to october 15th
Taiwan steps into trade war breach for US, saying it will buy US$3.6 billion agricultural products – SCMP
US 10-year Treasury yield hits one-month high on trade optimism
A goodwill gesture from US side creating good vibes for Oct trade talks – Global Times
White House Adviser Navarro: Want to see what happens when China’s negotiators come to US
China considering US farm imports ahead of talks as sign of goodwill
Other Headlines
Mexico’s Obrador sees diminished threat of US tariffs after effort to curb migration – Reuters
Sources: US Pres. Trump considering $15 billion bailout for Iran – US Press
Brexit casts shadow over UK housing market outlook – RICS
BOJ’s Kuroda: Today’s meeting was a routine meeting to discuss economy, markets
Key Focus Ahead
The main event risk for today remains the ECB monetary policy decision that is likely to spur huge volatility across the forex space. The ECB is widely expected to cut its deposit rate by 10 bps and restart the QE program at the pace of EUR 20 billion per month. Also, a downgrade to the growth and inflation forecasts is expected, as the bloc battles economic slowdown amid trade woes and Brexit uncertainties. The decision will be announced at 1145 GMT, followed by President Draghi’s press conference
Ahead of the ECB event, markets will take cues from the German final Consumer Price Index (CPI) data due at 0600 GMT, Swiss Producer and Import Prices (at 0630 GMT) and Eurozone Industrial Production data that will drop in at 0800 GMT.
The US docket is also an eventful one, with the US August CPI figures due on the cards at 1230 GMT alongside the weekly jobless claims and ECB Presser. The Canadian New Housing Price Index data will be also reported at the same time. Also, in focus remains the US Monthly Budget Statement due later in the American afternoon at 1800 GMT. Meanwhile, oil and CAD traders will keep an eye on the OPEC JMMC meetings’ outcome for fresh direction.
Fresh US-China trade developments along with US-Iran geopolitical updates will also continue to provide fodder to the markets.
EUR/USD sidelined above 1.10, the bar set too high for ECB?
EUR/USD is trading sideways above 1.10 ahead of the all-important European Central Bank rate decision due later today at 1145 GMT. A 10-bps rate cut and QE worth €20 billion per month are already priced-in. The EUR may rise sharply if the ECB falls short of expectations.
GBP/USD pays little heed to UK politics ahead of US CPI
GBP/USD cares less for the UK political headlines as investors await the US CPI data. The Yellowhammer report confirms previously leaked truths while PM Johnson keep struggling to hold the power. Focus on ECB, US CPI ahead.
ECB Preview: Will Draghi disappoint EUR/USD bears? Five scenarios for the crucial decision
The ECB is set to cut interest rates in its all-important September meeting. A new bond-buying scheme is also on the cards.
ECB quarterly forecasts are for growth barely above 1.0% – Reuters
The European Central Bank (ECB) on Thursday will likely stress the need for aggressive stimulus by forecasting weaker growth and a slower return to price stability, two sources familiar with the matter told Reuters.
US CPI Preview: Stable and secondary
Headline CPI inflation expected to be unchanged, core higher. Inflation secondary for Fed policy. Fed funds rate cut forecast regardless of price changes.
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