With billions in economic losses and unknown supply chain shocks to come following devastating and historic flooding in Texas, S&P futures are virtually unchanged (down less than 0.1% at time of writing) while European and Asian shares are modestly lower as oil was little changed. As reported yesterday, gasoline futures surged as the greater impact of the storm that shut more than 10% of U.S. fuel-making capacity was becoming more evident. The Bloomberg Dollar Spot Index fell to its lowest since January 2015 after Janet Yellen and Mario Draghi refrained from discussing monetary policies at Jackson Hole on Friday.
The US dollar continued to slip against the euro after central bankers’ comments at Jackson Hole provided little reason for a change in this year’s trend. U.S. Treasury futures were steady ahead of a combined $60 BN worth of two- and five-year debt auctions and Friday’s payroll numbers. USDJPY hovered above 109.00 handle, with initial main support at 108.60, the low on Aug. 18. EURUSD little changed after rallying initially, but failed to break above 1.20 handle. European bond markets were waiting for impetus as a bank holiday in the U.K. weighed on trading volumes.
Unlike the US, European stocks started the week on the back foot, with every sector retreating following Friday’s euro surge. the European Stoxx 600 index declined following a surge in the euro towards $1.20 after Draghi did not express concern about the currency’s recent rally at Jackson Hole as some analysts had expected. The Euro Stoxx 50 falls 0.7%, while the exporters-heavy DAX drops 0.7% and France’s CAC falls 0.7%; U.K. markets are closed for public holiday. Germany’s DAX Index fell 0.5 percent to the lowest in a week.
“The strong euro is weighing on European stock markets,†said London Capital Group analyst Ipek Ozkardeskaya. “Tapering talks could further demoralise stock traders in the run-up to the ECB verdict (next month). IT stocks are again on the chopping block.â€
Media shares were among the big losers in the Stoxx Europe 600 Index. European outperformers include Bolsas y Mercados Espanoles +0.9%, Novo Nordisk +0.8%, Steinhoff International Holdin +0.8%, Swiss Prime Site AG +0.7%, Michelin +0.7%, Aryzta AG +0.7%. Underperformers include: EMS-Chemie -1.9%, Vivendi -1.5%, Stora Enso -1.5%, SAP -1.4%, UPM-Kymmene OYJ -1.4%, Infineon -1.2%, SCA -1.1%, Dialog Semiconductor PLC -1.1. German 10yr yields are little changed at 0.38%, while the Italian benchmark yield is little changed at 2.1%. The currency trends from Friday continue with the Euro spot up another 0.06% at 1.1931, as the dollar index declines another 0.31% to 92.454.
UK PM May has pencilled in August 30th 2019 as the date she will quit as PM, giving her two years to see the UK through Brexit.
As noted on Friday, the latest tapering by the BOJ, when it cut purchases in the 5-to-10 year bucket has not had an adverse impact on JGB yields, with 10Y yields sliding again to 4 month lows, down to 0.1% and on the verge of turning negative once again.
Among the more notable Asian events, the onshore yuan rose, while 10-year bonds fell as the Shanghai Composite Index continued its recent advance above 3,300, rising 0.9% to a 20 month high of 3,362.65 after a series of strong earnings. On Monday, the PBOC set the strongest yuan fixing in a year. The onshore yuan extended last week’s gain above 6.65 per dollar after the central bank set the reference rate at the strongest level in a year and the greenback tumbled in late trade Friday. At the same time, the CNY advanced 0.31% to 6.6277 per dollar, set for strongest close since August 2016.
QQ.com reported that in its latest crackdown on bitcoin and other virtual currencies, China may regulate offerings of new crypto-currencies. Early data show China manufacturing and smaller businesses strengthened while picture is slightly dimmer for sales managers and steel sector. Over the weekend, Chinese Industrial Profits rose Y/Y 16.5%, down from 19.1% previously; the slowest growth in 3 months.
As Bloomberg recaps the recent action, with the much-anticipated – and disappointing – Jackson Hole meeting now behind them, investors this week will be eager for signs of constructive progress in U.S. politics after comments on Friday from Gary Cohn, director of the National Economic Council, cut through much of the gloom that had been generated by recent White House scuffles. Cohn said in an interview he expects tax reform to pass this year and that he didn’t intend to resign over the president’s reaction to riots in Virginia.
Over the weekend, North Korea conducted another missile test in which it launched short-range projectiles into the sea which travelled around 250km. Separately, there were some reports on social media that suggested that South Korea had said that North Korea has completed preparations for a nuclear test.
Treasury traders face a week headlined by Tuesday’s auction of bills that mature Sept. 29. They will then look forward to inflation and payrolls data that will be key for determining the Fed’s next moves. Federal Reserve Bank of Cleveland President Loretta Mester urged her colleagues to look past recent weak inflation data and to stick to their gradual pace of lifting interest rates.
