IG Morning Call

[KoketsoIG]

In Asia, the markets have seen a slow start to the week, with no significant news to drive any major movements. Recent comments made by board members at the Bank of Japan indicate that they view raising the cap on bond yields as a means to prolong the period of accommodative monetary policy, rather than a step towards its imminent end. Investors will be closely watching the inflation figures from both the United States and China this week, as they pose significant tests for the market. Last month's downside surprise in U.S. CPI had a substantial positive impact on markets, so there is a risk that meeting expectations might disappoint investors.

[KoketsoIG]

Markets continue to prepare for the Chinese and US CPI readings, the main events of the week. Overnight, trade data from China came in very poor, with both imports and exports dropping by more than expected. Earnings season continues to diminish in the pace of figures to be released, leaving the inflation figures the main data to watch for traders. The growing impression of a 'soft landing' for the US economy has helped fuel optimism around the outlook for next year, though much of that will depend on a continued fall in the pace of inflation. 

[AshishIG]

Yesterday's poor China trade figures and reports of a windfall tax on Italian banks drove investors firmly into risk-off mode. Overnight Asian markets fell further, while inflation data from China failed to provide any lift to sentiment. The focus turns to US CPI, published tomorrow, but with recent Fed comments highlighting that policy will remain unchanged for an extended period (barring a rapid deterioration), it will take a big surprise to shift markets. A mostly empty calendar for this afternoon is alleviated somewhat by Disney earnings this evening. 

[AshishIG]

A mixed session in Asia overnight follows on from a divergent performance for US and European markets, where the latter rallied but the former continued to see selling. Attention turns firmly to today's US CPI. A weaker figure might be enough to see US stocks rebound, while a renewed strong pace of price growth could set off fresh worries about more Fed rate hikes that might see US indices push lower. Inflation fears have risen once more following the recovery in oil prices and recent strength in natural gas, in an echo of the moves seen in the wake of Russia's invasion of Ukraine. 

[AshishIG]

Stocks in Asia pushed to a one-month low overnight following the US CPI figures, while poor demand in a Treasury auction and a higher US budget deficit gave additional support to bonds. This boosted yields and lifted the dollar as well, which has returned to a one-month high against the yen. GDP data from the UK provided some much-needed good news for the British economy and helped the pound to recover after yesterday's reversal against the dollar. Growth for the UK was above expectations for the Q2 figure, as well as the 3 months to June. A weaker open is expected for Europe, but US futures have ticked higher despite a mixed performance following yesterday's inflation data. 

[AshishIG]

China's property sector is once again causing jitters in global markets. Asian indices dropped back as Country Garden suspended trading in 11 of its onshore bonds. This has echoes of the Evergrande crisis of 2021, and has caused the week to begin in risk-off fashion. The dollar is in the ascendant once again, after last week's inflation data, particularly Friday's PPI figures, have raised fears that the Fed may need to begin to tighten policy once more. An empty calendar for today leaves the focus on China and US inflation, and futures are pointing to a weaker open for Europe and Wall Street.

[AshishIG]

More poor economic data from China cast a shadow over markets overnight, but a cut in some lending rates by the PBoC meant that hopes of a further easing of policy measures was likely. In addition, Japan's economy grew at a faster pace than expected in Q2, helping to support risk appetite. The UK unemployment rate rose to 4.2% for June, while average earnings rose by 7.8% for the three months to June, ahead of forecasts. The German ZEW index, Canadian inflation and US retail sales mean today will be a busy one for data-watchers. 

[KoketsoIG]

After yesterday's poor session in the US and Europe, there were more losses for Asian markets, where the Hang Seng and the Nikkei took the brunt of the selling. UK inflation slowed for yet another month, rising 6.8% in July compared to June's 7.9% and falling 0.4% month-on-month. This offers some relief for the Bank of England, although the figures are still too high compared to the target figure of 2%. Today's other major event will be the minutes of the latest Fed meeting. Futures point to a weaker open in Europe, but selling in the US appears to have stalled for now. 

[AshishIG]

The selling continued in Asia, although at a slower pace. The property crisis and slowing economic data have meant that investors have remained firmly risk-averse. European markets reached a one-month low on Wednesday, and US markets also suffered further losses. Minutes from the Fed's latest meeting were viewed as being, in some respects, slightly more hawkish than expected, catching markets off guard and driving fresh flows to the dollar. Today sees the release of weekly jobless claims, in an otherwise quiet calendar. 

[AshishIG]

News that China's Evergrande had filed for bankruptcy in New York did little to help sentiment, after yet another US session that saw stocks lose ground on rising yields. Asian markets slipped lower, with no end to the selling in sight. Poor earnings from Chinese tech firms have not helped performance. UK retail sales dropped sharply last month, falling by 1.2% against the expected 0.6%, as wet weather hit clothing sales. European markets are set to open on the back foot, but US futures are currently cautiously higher.

[AshishIG]

The People’s Bank of China (PBOC) eased its monetary policy by a less-than-expected 10 basis points on its 1-year loan prime rate (versus an expected 15 basis point cut) and kept the 5-year rate unchanged at 4.20%. The Asian stock markets' reaction was mixed while the recent US Dollar appreciation paused and oil gained on demand optimism. German produce prices (PPI) fell more than expected and with an empty economic calendar for Monday, traders eye the Jackson Hole symposium which begins on Thursday.

[KoketsoIG]

Nvidia and Tesla shares rallied on Monday and U.S. technology stocks also benefit from solid Zoom earnings, revenue and an improved outlook with the stock climbing in after hours and as SoftBank's Arm unveils plans for the biggest U.S. IPO in nearly two years. The flotation of the UK-based chip designer on the Nasdaq may help to revive the market for primary listings after an 18-month drought. Credit rating cuts on multiple U.S. banks by S&P Global following a similar move by Moody's and rising long dated U.S. yields to 15-year highs continue to keep markets in check, though.

[MongiIG]

Despite Asian markets being mixed, European stock indices are expected to open slightly higher after another positive session for Wall Street as U.S. long dated yields retreat from yesterday's highs and the greenback appreciates. The 10-year Treasury yield came off its 16-year high at 4.366% and slid back to 4.30%, a welcome respite from the steep bond sell-off. Nvidia's (after the bell) earnings now take centre stage and will probably provide some volatility ahead of Thursday's Jackson Hole symposium. Option trades imply an over 10% swing for Nvidia shares in either direction by the end of the week. Beforehand a plethora of European and US flash PMIs might also be of interest to traders.

 

[MongiIG]

Nvidia's stellar AI driven results and $25 billion buy back helped technology stocks and Asian indices rise across the board. All eyes are now on today's Federal Reserve's central bank symposium at Jackson Hole with stocks rising, yields and the volatility index (VIX) easing ahead of the event. U.S. initial jobless claims and durable goods orders will likely be a minor side show.

 

[AshishIG]

Traders took money off the table ahead of Fed Chair Jerome Powell's Jackson Hole speech today. European indices are expected to track Asian and US sessions lower on recessionary fears and that the Fed may reiterate its hawkish stance. The US dollar continues to appreciate and saw one of its strongest days since March on Thursday while the rise in the gold price stalls. EUR/USD and GBP/USD continue to slide despite stronger-than-expected UK consumer confidence data. German IFO business confidence could lead to a rise in volatility at 9am.

[KoketsoIG]

Asian stocks track Wall Street higher as investors look ahead to this week's economic data to get an idea of where rates could be heading. Japan's unemployment rate for August surprised to the upside when it came in at 2.7% versus and expected and previous 2.5%. The country's government said that it may be at an inflection point in its 25-year battle with deflation, though hardly had any impact on the yen. Planned LNG strikes in Australia keep European gas prices elevated while weaker-than-expected German consumer confidence will be followed by U.S. confidence and job openings at 3pm ahead of Friday's all-important Non-Farm Payrolls.

[MongiIG]

Stocks in Asia pushed higher for a third day as China stimulus hopes continued to underpin bullish sentiment, while weaker US jobs data gave new strength to the idea of a pause in the Fed's hiking efforts. Stocks will be glad to see the back of August, which marked a check to the strong performance of the year so far. Nonetheless, previous years with such solid gains for January - August tend to see further upside into the end of the year. An easing of US Treasury yields following job openings data helped to support risk appetite generally, especially ahead of the ADP and NFP job reports this week. Aside from today's ADP figures, German CPI and the second reading on US Q2 GDP, plus weekly oil inventory data, will be the main events to watch today. 

 

[MongiIG]

A strong session for the Nikkei 225 overnight helped to brighten up an otherwise mixed Asia session, which saw stocks struggle after another contractionary reading for the Chinese manufacturing PMI. Risk appetite has recovered over the last days of August, after a month that saw equities lose ground. Inflation news dominates the day, with eurozone inflation and then the US PCE price index to be released later this afternoon. After weaker US employment figures this week, attention now turns to tomorrow's payroll report, as hopes rise that the Fed will leaves rates unchanged for the time being in order to allow the economy some breathing room. Signs of further strength in eurozone inflation have bolstered the euro, which has recouped some losses against the dollar as traders look towards the next ECB meeting and the possibility of another rate hike. 

 

[MongiIG]

A surprise rebound into expansion territory for China's manufacturing sector helped to buoy sentiment in Asia overnight, as investors prepared for today's US payroll figures. After softer data from both the US and China this week, hopes of a pause on rates from the former and increased stimulus in the latter have helped risk assets to make gains in recent sessions. All eyes now turn to the payrolls, wage figures and unemployment rate to see if the softness indicated by job openings and the ADP report this week is borne out in the official US government statistics for employment. 

 

[MongiIG]

Hopes of more China stimulus lifted the Hang Seng and other markets in Asia, with a relaxation on restrictions around property buying expected to be the next move. In Japan, corporate profits hit a record in the second quarter, putting new strength into Japanese indices. Friday's payroll report, which showed a rise in the unemployment rate, seems to point the way to a more positive scenario for the US economy, where wage growth is held back, alleviating the pressure on inflation. But with oil prices at their highest level for almost a year, the spectre of a return of strong inflation readings is haunting markets. US markets are closed for Labor Day, leaving European investors facing a quiet session at the start of the week. 

 

[MongiIG]

After a solid start to the week, Asian markets fell back, with the Hang Seng leading the decline with a loss of 1.5%. Weak demand meant that activity in China's services sector expanded at its weakest pace in eight months. Meanwhile, the RBA left Australian rates unchanged at 4.1%, for the fourth consecutive month. While inflation was judged to have passed its peak, it was still deemed too high by the bank. US markets return after their break yesterday, though with little on the calendar it is not expected to be a particularly volatile session. 

 

[MongiIG]

The Nikkei continues to make headway, but other Asian indices struggled overnight following a weaker end to the US session. The dollar and US yields are on the rise once more, putting pressure on risk assets across the board. Investors continue to put funds to work in the US, as fears of economic weakness in other parts of the economy grow. Today sees the Bank of Canada make its latest interest rate decision, while the latest US ISM services PMI will ensure that the focus remains squarely on the US economy. 

 

[MongiIG]

Investors have moved into risk-off mode as concerns loom regarding the next Fed move, as well as rising oil prices that could spark a revival of inflation. Yesterday it was ECB speakers that were talking up the chance of another hike, but today and tomorrow should see a rash of Fed members make appearances ahead of the blackout before their next policy decision. Central bankers have been keen to stress the potential for more hikes, even as markets have begun to discount the possibility of further hawkish policy. The steady rise in oil prices is a major risk to the cooling inflation narrative, after the commodity rose to a one-year high this week. On the calendar for today are weekly jobless claims, plus crude oil inventories, delayed by a day due to Monday's holiday. 

 

[MongiIG]

Investors will be looking forward to the end of the week, after the tough conditions of the past few days. A rising dollar and higher US Treasury yields, along with China's ban on iPhone usage for government officials has hit sentiment, with no end to the selling yet in sight. European markets have fallen sharply, with the Stoxx 600 down for seven days in a row, its worst performance since 2018. A quiet end to the week offers little in the way of macro drivers, but futures currently point to a small recovery in indices in opening trading.

 

[MongiIG]

A mixed session in Asia overnight saw the Hang Seng weaken as Country Garden returned to the news, and the Nikkei fall as Bank of Japan governor Ueda signalled that the negative rates policy could be ended by the start of 2024, while CSI 300 rose on hopes that deflationary pressures were beginning to ease. Ueda's comments, which referenced signs of wage increases, helped to bolster the yen while weakening the Nikkei to a near two-week low. Traders confront an empty calendar today, though US inflation and a rate decision in the eurozone mean that there will likely be an increase in volatility over the rest of the week. So far futures point to a positive start for the day. 

 

[AshishIG]

News of a partial reprieve for Country Garden, where creditors supported a plan to delay bond repayments, allowed Chinese stocks to recoup early losses, while in Japan the Nikkei made fresh headway. An upgrade to Tesla by Morgan Stanley provided the basis for gains in US equities on Monday, in an otherwise quiet session. The UK unemployment rate edged up to 4.3% for July, while wages including bonuses rose 8.5% for the three months to July, ahead of forecasts. Rising wages but signs of growth in unemployment point towards a dire scenario for the Bank of England, which may be forced to hold rates soon even with inflation ahead of target. European markets are expected to see some small gains on the open, while US futures point towards some initial weakness. 

[AshishIG]

Asian indices declined overnight, taking their cue from a weaker finish on Wall Street, where tech stocks fell back following disappointment around the Apple product event and pre-CPI nervousness. ECB sources suggested last night that inflation forecasts would remain above 3% in 2024, strengthening the view that an interest rate increase will follow at the meeting on Thursday. The latest US CPI will be the main event of the day. Expectations are for a sharp increase in the pace of monthly price growth, arising partly from the surge in oil prices, putting greater pressure on the Federal Reserve to raise rates at its next meeting. Futures point to a weaker open in Europe and the US as traders await the latest CPI figures. 

[AshishIG]

Stocks in Asia enjoyed a better session overnight, shrugging off the disappointing US session. Data on Australian employment provided some strength for the Aussie dollar, though much of the improvement was driven by a rise in part-time workers. US CPI showed some worrying signs of strength in price increases, but markets took heart from a slowdown in year-on-year core inflation. Today sees the other main event of the week, the ECB decision. The chance of a rate hike has increased this week following Tuesday night's comments from ECB sources regarding inflation remaining above 3% next year, but with the eurozone economy weakening noticeably the bank has a tough balancing act ahead of it. US and European futures point to a positive open, with tech stocks likely to be bolstered by the ARM IPO, which begins trading today after the group secured a valuation of $54.5 billion, with the IPO being priced at $51 per share. 

[MongiIG]

Asian stocks took their cue from a strong session in the US, and were further bolstered by better Chinese economic data. China's National Bureau of Statistics reported an increase in economic demand, but domestic demand still remains weak. In the US session, a cautious interest rate hike by the European Central Bank, a reduction in the Reserve Ratio Requirement by the People's Bank of China, and a successful Arm IPO all helped to support sentiment. Although the US dollar weakened slightly, it maintained most of its gains from the previous day above the 105.00 level, while EUR/USD remained around a 6-month low in the wake of the ECB's rate hike. Meanwhile, the PBoC kept its Medium-term Lending Facility rate steady. Some of the more aggressive policy makers at the European Central Bank believe that interest rates could increase again in December if there is high wage growth and inflation, despite the cautious one of yesterday's statement. Aside from the Michigan confidence index, no other major data is scheduled, but it is a "quadruple witching" day for options expiration, which could lead to some stock market fluctuations throughout the day.

 

[MongiIG]

Stocks in Asia started the week on a poor note, taking their direction from the weak finish on Wall Street on Friday and Friday's report that TSMC is asking vendors to delay deliveries, which has put pressure on global chip maker stocks. A holiday in Japan reduced liquidity, while the upcoming US, UK and Japanese central bank decisions could see risk appetite firmly circumscribed throughout the week. European markets kick off the day with a profit warning from Swiss Steel, which noted that demand did not improve over the summer, while higher raw materials prices are affecting margins. A softer open is expected in Europe, but in the US futures have ticked higher.