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I. Market focus:
The beginning of the final session of the week was marked by the increased demand for safe-haven assets, which lifted the yen and gold prices. The risk aversion was sparked by concerns that North Korea could detonate a hydrogen bomb over the Pacific Ocean in response to the U.S. President Donald Trump’s speech before the United Nations General Assembly on September 19 (then, Mr. Trump promised to “totally destroy” North Korea if Pyongyang did not come to senses). The threat was made in remarks by the DPRK's Foreign Minister, Ri Yong Ho, shortly after Kim Jong Un said that Trump would "pay dearly" for threatening the DPRK. These events significantly increased the risks of aggravation of the situation around North Korea.
In addition to the North Korean issue, the focus of market participants is on the parliamentary elections in New Zealand and Germany, which will be held on September 23 and 24, respectively.
During today's session, the markets will pay attention to the preliminary data on PMIs. The main events will be the speeches of the ECB President Mario Draghi (08:00 GMT) and the UK Prime Minister Theresa May, as well as the Canadian inflation data (13:30 GMT).
II. The market highlights are:
Statistics Canada reported Thursday that the Canadian wholesale sales showed an expansion in July. Wholesale sales rose 1.5 percent m-o-m to CAD62.4 billion in July, after dropping 0.6 percent m-o-m in June (revised up from an initially estimated 0.5 percent m-o-m decrease). Economists' had forecast a fall of 0.9 percent. According to the report, declines were recorded in five of seven subsectors, representing 86 percent of total wholesale sales. The building material and supplies (+4.8 percent m-o-m) and the food, beverage and tobacco (+2.4 percent m-o-m) subsectors contributed the most to the July gain. In y-o-y terms, wholesale sales rose 10 percent in July.
The data from the Labor Department revealed Thursday the number of applications for unemployment benefits unexpectedly fell last week but remain elevated due to the impact of Hurricanes Harvey and Irma. According to the report, the initial claims for unemployment benefits decreased by 23,000 to a seasonally adjusted 259,000 for the week ended September 16. Economists had expected 300,000 new claims last week. Claims for the prior week were revised downwardly to 282,000 from the initial estimate of 284,000. Meanwhile, the four-week moving average of claims rose by 6,000 to 268,750 last week, the highest level since June of 2016. It was the 133th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.
The Federal Reserve Bank of Philadelphia announced Thursday its index of current manufacturing activity in the region increased to 23.8 this month from a reading of 18.9 in August. The September reading was above economists’ forecast for a reading of 17.2 and pointed to the expansion in manufacturing activity for 14 consecutive months. The details of the report mostly remained at positive readings, suggesting continued expansion. The survey’s current new orders index (+9.1 points m-o-m to 29.5 in September) and the current shipments index (+8.4 points m-o-m to 37.8) increased this month, suggesting a broadening of growth. Price pressures also picked up, with both the prices paid index (+13.3 points m-o-m to 34.4) and the prices received index (+9.3 points m-o-m to 22.8) increasing. Meanwhile, the current employment index fell slightly (-3.5 points m-o-m to +6.6) but remained positive for 10 consecutive months.
The European Commission released on Thursday its preliminary consumer confidence data for the Eurozone. According to the release, a measure of consumer confidence across the 19 eurozone countries rose by 0.3 points m-o-m to -1.2 in September, the highest level since April 2001. Economists had expected the reading to remain at -1.5 this month. Across the 28 member EU as a whole, confidence increased 0.8 points to -1.5 in September.
III. Market Situation
The currency pair EUR/USD rose slightly on the back of the broad weakening of the U.S. dollar, refreshing its yesterday's high, and recovering some of the positions lost after the announcement of the outcomes of the U.S. Federal Reserve’s September meeting. Recall, the U.S. regulator decided at its latest meeting to maintain the target range for the federal funds rate at 1 percent to 1.25 percent but hinted it might raise interest rates for a third time this year and three times in 2018 even as inflation has remained below its 2 percent goal. This surprised markets, as investors believed that weak inflation could make the Fed to change its plans to tighten monetary policy further. The feds funds futures market now places the chances of a December rate hike at 73.4 percent, up from 72.8 percent recorded a day ago and 52.6 percent a week ago. Today, the focus will be on the flash PMI data from the euro area and the U.S., as well as the speech of ECB President Mario Draghi. Resistance level - $1.2033 (high of September 20). Support level - $1.1823 (low of August 31).
The currency pair GBP/USD consolidated near the opening level, as investors took a wait-and-see position ahead of the U.K. Prime Minister Theresa May’s report about her new Brexit strategy. Investors believe that Theresa May will signal that she supports the "soft Brexit” scenario. According to the BBC report, May will say that the UK is ready to pay EUR 20 billion to the European Union (EU) during a post-Brexit transition period, but only if it has access to the bloc’s single market. In addition, investors will continue to monitor the situation around the British Foreign Secretary Boris Johnson. The Daily Telegraph reported on Monday that Mr. Johnson might resign if Prime Minister Theresa May adopts a "Swiss-style" Brexit approach. Resistance level - $1.3700 (psychological level). Support level - $1.3157 (low of September 14).
The currency pair AUD/USD declined moderately at the beginning of the session, updating the September low, but then completely recovered. Pressure on the pair continued to provide yesterday's statements of the RBA governor Philip Lowe, which diminished expectations for interest rate increase in Australia. The pair’s recovery reflected the broad weakening of the U.S. currency. Recall, Lowe’s comments were overall upbeat but did not indicate the Australian regulator is to tighten its monetary policy. He noted that higher levels of debt meant that household spending could be quite sensitive to increases in interest rates. Thus, an increase in the RBA’ rates may have a negative impact on the entire banking system of Australia and the welfare of ordinary Australians. Lowe also said that a gradual decline in the unemployment rate is expected, which should lead to some pick-up in wage growth. Resistance level - AUD0.8101 (high of September 20). Support level - AUD0.7866 (low of August 24).
The currency pair USD/JPY fell sharply, refreshing yesterday's low, and dropping below the psychological mark of Y112. The pair’s performance reflected the increased demand for relatively safe assets due to concerns that North Korea could detonate a hydrogen bomb over the Pacific Ocean in response to the U.S. President Donald Trump’s speech before the United Nations General Assembly on September 19 (then, Mr. Trump promised to “totally destroy” North Korea if Pyongyang did not come to senses). The threat was made in remarks by the DPRK's Foreign Minister, Ri Yong Ho, shortly after Kim Jong Un said that Trump would "pay dearly" for threatening the DPRK. These events significantly increased the risks of aggravation of the situation around North Korea. Resistance level - Y112.85 (high of July 17). Support level - Y109.53 (low of September 15).
U.S. stock indexes closed lower on Thursday, as investors found few reasons to chase equities a day after the U.S. Federal Reserve signaled it still expects another interest rate hike by year-end and detailed the unwinding of $4.5 trillion balance sheet. The focus also was on the initial claims weekly report and the September Philadelphia Fed Index. The data from the Labor Department revealed the number of applications for unemployment benefits unexpectedly fell last week but remain elevated due to the impact of Hurricanes Harvey and Irma. According to the report, the initial claims for unemployment benefits decreased by 23,000 to a seasonally adjusted 259,000 for the week ended September 16. Economists had expected 300,000 new claims last week. It was the 133rd straight week that claims remained below the 300,000 threshold, the longest streak since 1970. The Federal Reserve Bank of Philadelphia announced its index of current manufacturing activity in the region increased to 23.8 this month from a reading of 18.9 in August. The September reading was above economists’ forecast for a reading of 17.2 and pointed to the expansion in manufacturing activity for 14 consecutive months. The details of the report mostly remained at positive readings, suggesting continued expansion.
Asian stock indexes closed mainly lower on Friday, as investors reacted to North Korea’s threat to conduct a hydrogen bomb test over the Pacific Ocean and a China credit rating downgrade. S&P Global Ratings downgraded China's long-term sovereign credit rating by one notch on Thursday to A+ from AA-, citing increasing risks from the country's rapid build-up of credit. China’s Finance Ministry on Friday criticized the cut in the Standard & Poor’s rating agency’s credit rating on Chinese government borrowing as a “wrong decision” and said it “neglects China’s good fundamentals and development potential.” Japanese stock benchmark fell as the yen's strengthened against the dollar, putting pressure on the Japanese export-oriented companies.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 2.26% (-2 basis points)
Yields of German 10-year bonds hold at 0.45% (0 basis points)
Yields of UK 10-year gilts hold at 1.37% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in November settled at $50.67 (+0.24%). The crude oil prices rose, as investors awaited the meeting of the joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC), responsible for monitoring the implementation of the agreement to reduce oil output, as well as weekly data on the U.S. oil rig count from Baker Hughes.
Gold traded at $1296.80 (+0.43%). Gold prices rose as demand for safe havens increased amid concerns that North Korea could test a hydrogen bomb over the Pacific Ocean in response to the U.S. President Donald Trump's threats of military action. Additional support to the gold prices was provided by the dynamics of the U.S. dollar. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.35 percent to 91.94. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important news that are expected (time GMT0)
ECB President Draghi Speaks
CBI industrial order books balance
Retail Sales ex Autos
Consumer price index
Bank of Canada Consumer Price Index Core
Baker Hughes Oil Rig Count
|remaining time till the new event being published|
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