While North America enjoyed a long weekend in observance of the Labour Day holiday, global risk appetite managed to recover from Friday’s losses, with European equities surging on the back of stronger than expected manufacturing PMI readings in Spain and Italy. With an upcoming week where the macroeconomic headlines will be dominated by various central bank policy announcements, investors are optimistic and looking to increase high-yielding exposure to their portfolios this morning, as North American equity futures trade with a firm bid tone.
The Reserve Bank of Australia was the first central bank of the week to convene and decide on the future path of monetary policy for their economy, judging that the current route remained appropriate for the time being, leaving the cash rate at 2.5%. While expectations had been for the RBA to keep rates on hold this meeting, the big surprise was the omission of a reference to leaving the door open for further monetary easing in the future, stating the downward movement in interest rates since 2011 has supported “interest-sensitive spending and asset values, and further effects can be expected over time.” The Aussie had been flirting with the 0.9000 handle against the USD heading into the rate decision, but after the dovish commentary was axed from the statement, the AUDUSD sprang upwards and is now pivoting in the low-0.90s.
The overnight Asian saw risk-correlated assets well bid, with equity investors welcoming the delay of military action in the Middle East as President Obama advised over the weekend that he would be seeking Congressional approval for launching an attack on Syria. The Nikkei posted a strong gain of 2.99%, while the Shanghai Composite continued its good start to the week adding another 1.18% to its valuation. The yen traded choppy throughout the overnight session, but managed to retain is weakening bias from the weekend, helping USDJPY maintain its ground in the mid-95s.
A data check over in Europe suggests the major equity bourses are seeing some divergence from the investor optimism witnessed elsewhere around the globe, with the FTSE, Dax, and Stoxx dipping their toes into the red on a bit of profit-taking after yesterday’s rally. The UK saw another strong improvement in its construction sector, as the August Construction PMI reading came in with its sharpest expansion for output in almost six years. The overall reading registered a print of 59.1, beating estimates of 56.8, and higher than the 57.0 that was seen in July. The upbeat data reinforces the overall brighter picture for the UK economy moving forward, and underpins the argument that recover in Britain is underway. The pound initially spiked on the news as Cable made a move to hone in on 1.5600, but the strength in the Sterling was faded, and GBPUSD has now sunk back into the mid-1.55s.
Heading into the North American open, equity futures are telegraphing the bulls are in control this morning after President Obama hit the “pause” button on Syria over the weekend. US stocks are set to open higher as risk aversion fades slightly, with front-month WTI shedding 0.18% to trade at $107.5/barrel as tensions in Syria diminish somewhat. Gold has stabilized from its slippage after the Obama announcement yesterday, and has managed to find some support just south of $1,400/ounce. The Loonie has succeeded in clawing back some of its losses that were experienced over the holiday Monday, and is opening Tuesday essentially where things closed last week. USDCAD is seeing some wind removed from it sales this morning on positive equity performance and surging copper prices, but is finding some support in the low 1.05s around the 10-day moving average. While momentum studies are still favouring the long side of USDCAD, another failed test to assert itself north of the mid-1.05s could see the pair test the waters in the mid-1.04s, however the looming BoC rate decision and tone of the statement remains a risk for Loonie traders.
The main piece of North American economic data for today is set to hit the wires at 10:00am EST, with analysts forecasting the US ISM Manufacturing PMI print would slip slightly in August to 54.0. While a print north of 50 continues to signal expansion from the previous month, the pace of expansion is estimated to be at a slightly slower stride than was seen back in July, but still consistent with the overall tepid growth we’ve witnessed from the American economy. Although the Federal Reserve is the only major central bank that is not meeting this week, the data dependency of the Fed makes sure that the Non-Farm Payrolls to be released on Friday is watched closely. With the Fed’s September policy meeting just around the corner, the employment report on Friday will be the last major data piece flowing into the Committee’s decision over what the current pace of asset purchases should look like.
Looking ahead to tomorrow, the Bank of Canada is on deck in terms of monetary policy decisions, although there is little to suggest the BoC will alter their current stance on monetary policy. With the release of the GDP numbers last week which showed the Canadian economy contracted over the month of June, coupled with the both core and headline inflation remaining south of 1.5%, there is not a great likelihood the BoC and Governor Poloz will become more hawkish on the Canadian economy and vary from the press release in July.
Further reading:Get the 5 most predictable currency pairs