Swirling headlines out of Eastern Europe are dominating price action in financial markets this morning, with investors adding exposure to high-yielding assets and those correlated to positive risk appetite after Ukraine reported that Poroshenko and Putin had agreed to a permanent cease-fire in Eastern Ukraine.  The exuberance in equity futures ran into some headwinds after Putin quickly refuted the statement Russia had agreed to a cease-fire, reiterating his stance the Kremlin doesn’t control the separatists and that they are not a party to the conflict.  As it currently stands Kiev has now amended its original statement to telegraph the two sides are working towards a ‘cease-fire regime in Donbas’, which investors continue to be positive about even though equity futures have come off earlier highs.
The overnight Asian session was another positive one for the regional equity indices, with the Nikkei and Shanghai Comp posting gains of 0.4% and 1.0% respectively.  As expected, the reshuffling of Prime Minister Abe’s cabinet focused on supporting his ‘third arrow’ initiatives, increasing the number of women in cabinet along with appointing advisory of the Government Pension Investment Fund to an individual who agrees in rebalancing the asset allocation to one with riskier assets.  The Yen has remained within a fairly tight range throughout the overnight session, but has seen a bit of a lift as USDJPY is back to pivoting around the 105 handle.
The Aussie has spread its wings and is the best performing major currency thus far, gaining ground against the big dollar after second quarter GDP growth beat expectations.  Though still decelerating on a sequential y/o/y basis with a print of 3.1%, the better than forecast number along with a strengthening service sector in China as per the official Non-Manufacturing PMI print today has helped AUDUSD break back above the 0.93 level.  With the Reserve Bank of Australia hesitant to cut rates further, while the economy clips along at annualized growth rate north of 3.0%, AUDUSD could be carving out a short-term bottom at these levels, despite the RBA’s view the Aussie remains lofty.
Back to the slew of service sector PMIs that were released overnight, the UK posted another promising number for August, with purchasing manager activity hitting 60.5 from the 59.1 registered in July.  Even though the print was above expectations of 58.5, uncertainty around the Scottish referendum continues to weigh on the Pound, with the currency unable to gather much momentum on the back of the better data release.  Sterling is relatively unchanged against the USD as we head into the first of the two day Bank of England monetary policy meeting, with the pair floating in the high-1.64s as we go to print.
Heading into the North American open, the main focus for Loonie traders this morning is the Bank of Canada rate statement due out at 10:00EST.  It is likely the BoC remains in ‘wait-and-see’ mode this morning, offering little in the way of material change towards its stance on monetary policy.  The possible updates to the statement could reference stronger growth prospects domestically given the sturdy economic progress south of the 49th parallel, but might temper any outright bullishness with a comment towards the hope exports begin to pick up more slack in the labour market and that inflation will likely begin to seep back towards the BoC’s midpoint target.  The Loonie has managed to pare some of yesterday’s losses as it rides on the coattails Aussie and optimism there is constructive de-escalation in Easter Europe.
Further reading:
EUR/USD Sep. 3 – Rises on conflicting reports about Ukraine ceasefire
Ukraine
