After a bumpy end to last week, global equities are gaining traction this morning, with high-yielding assets garnering attention as investor sentiment starts the new trading week on positive footing.  The headlines from Friday’s alleged attack on the Russian military convoy that tried to cross the Ukrainian border have faded, with the prospect of de-escalation in the Eastern Ukrainian conflict becoming more likely as European foreign ministers held talks over the weekend about potential ceasefire negotiations.  While nothing concrete has been ironed out yet, the symbolism of the foreign ministers coming to the bargaining table in order to try and find a solution has financial markets hopefully some stabilization on the geopolitical spectrum will take hold, and as a result, we’re seeing traditional safe-haven’s sell off as the yield on the US 10-year moves back to 2.37%.
Equity markets in China were given a boost overnight after a further cooling of the housing industry calmed nerves that that Peoples’ Bank of China would have more flexibility around monetary policy moving forward, and could continue to use targeted stimulus to help prop up growth in struggling areas of the economy.  Home prices dropped in 64 of the 70 major cities, with a decline of 0.9% for July following the 0.5% registered in June, and only a 2.5% y/o/y increase which is the slowest pace of growth in 17 months.  The Shanghai Comp finished its day higher by 0.57%, while the soft data held the AUD back from taking part in the “risk-on†feel to financial markets as the AUDUSD pair remains contained in the low-0.93s.
With a lack of meaningful economic data from Europe today, equities bourses across the Atlantic are taking their cues from improving investor sentiment, with the majors well established in the green midway through their session.  The Pound has been the big mover of the major currencies so far this morning, with GBPUSD breaking back into the 1.67s after Bank of England Governor Mark Carney said in a newspaper interview that BoE would not have to wait until real wages turned positive before raising rates, essentially an about-face from last week’s dovish commentary on the presentation of the BoE’s inflation report.  While Carney and the rest of the MPC are keenly focused on the progress of wage growth as an indicator of slack in the labour market, Carney illustrated the Bank is confident real wages will increase “substantially†in the near future, so they don’t necessarily have to wait until the facts emerge before starting to tighten monetary policy.  Pound traders will be busy in the coming days, with inflation figures due out tomorrow, followed by the minutes from the most recent MPC meeting on Wednesday, then Retail Sales on Thursday.  The correction in GBPUSD from the July high looks overextended south of 1.67, so we find this week’s risk for GBPUSD is to the upside, with a solid data set pushing some of the more recent shorts to cover.
Heading into the North American open, there is little in the way of economic data to steer price action, so it is likely equities and other financial assets will be at the mercy of geopolitical developments as the day progresses.  Traders will also likely be cognizant of establishing large positions ahead of the American inflation report tomorrow, and how Ms. Yellen may sound in her speech at Jackson Hole near the end of the week.  Though it is widely expected Yellen’s speech will likely take a dovish slant near the end of the week, the DXY is firm this morning on a slide in commodities, with front-month WTI dipping back below $97/barrel.  The Loonie is modestly stronger against the big dollar as we head into the open bell, though the earlier steam has dissipated somewhat after securities data showed foreign investors reduced their holding of Canadian denominated securities by $1.1bn in June, a little give-back after the $21.42bn investment registered in May.  The data is quite stale so it’s unlikely the disappointing outflows from the Canadian investment landscape will put too much pressure on the Loonie this morning, with the USDCAD likely contained to a narrow range in the high-1.08s ahead of the tomorrow’s CPI data from the US.
Further reading:
Euro bloc recovery still fragile
EUR/USD Aug. 18 – Clings to 1.34 as Fed focused week begins
