IG Morning Call

[MongiIG]

August got off to a shaky start for markets thanks to a disappointing round of factory data, and markets in Asia have remained under pressure as geopolitical concerns beset investors. After the risk rally of July, which saw one of the best months for stocks since 2020, some caution has begun to set in as we await the visit to Taiwan by US Speaker Nancy Pelosi. China has made known its displeasure at the visit, and has boosted its military presence along its coastline. Earnings season in the US has been better than feared, helping markets to rally, and this may continue today with a further barrage of updates today from both sides of the Atlantic.

The Reserve Bank of Australia raised interest rates by 50bps to 1.85%, its highest level in six years. In a classic case of 'buy the rumour, sell the fact', the Australian dollar shed ground against its US counterpart in the wake of the decision. Today's quiet macro calendar is more than offset by the host of earnings, including Starbucks, Uber, AMD and Caterpillar in the US. 

 

[MongiIG]

After the losses in Tuesday's session, Asian markets managed to make some small gains overnight, but sentiment remains fragile. Investors appear to be waiting for the Chinese response to Speaker Pelosi's visit to Taiwan, which has angered Beijing. While some hacking took place before the visit, there is a view that this latest Straits crisis has some way to go. US markets lost ground yesterday, with the Dow hit hard by poor earnings from Caterpillar. In addition, comments from San Francisco Fed chair to the effect that the Fed was not done fighting inflation took some of the wind out of the bullish argument for stocks. 

Aside from today's US ISM services PMI and weekly crude oil inventories, further earnings are expected, including eBay and Moderna. 

 

[MongiIG]

Strong earnings from US stocks and continued relief over the end of Speaker Pelosi's visit to Taiwan helped markets to rally yesterday, a move duplicated in Asia overnight. Earnings season continues to rumble on, and almost three-quarters of the firms that have reported so far have beaten estimates, providing further positive momentum for stocks in the weeks to come. Today sees attention shift to the Bank of England, which is expected to raise rates by 50bps as it looks to combat inflation in the UK. This would be the biggest rate increase in 27 years, and marks an increase in the tempo of hikes at Threadneedle Street. Aside from this, US weekly jobless claims and earnings from ConocoPhillips and AIG are the main events to monitor. 

 

[MongiIG]

It was another session of losses for most Asian markets overnight, continuing the theme from the end of last week. Now that August is entering its second half, thoughts turn to the Jackson Hole meeting at the end of the week and whether central bankers will provide more hawkish commentary regarding their fight against inflation. China's central bank cut rates again overnight, as it looked to support the economy and a struggling housing sector, but this has failed to provide anything more than a modest lift in sentiment. US and European futures are on the back foot once again, pointing towards a weak open. The week begins relatively quietly, since just the Chicago Fed index is on the calendar for the day. 

 

[MongiIG]

Risk-off sentiment is back, and indices have suffered fresh losses in Asia overnight. The twin spectres of inflation and recession have returned to haunt markets just as it seemed that the 'bear market rally' from the July lows had begun to turn into something more sustainable. The selling over the past three sessions has been more intense than that seen at points in the recent bounce, and with indices failing at trendlines and/or their 200-day moving average it seems like the next leg lower in the 2022 bear market has begun. It is global PMI day, and with recession fears on the up in the eurozone thanks to sky-high energy prices the numbers from France, Germany and the bloc as a whole will be closely-watched to see if they slip further below 50 and deeper into contraction territory. 

 

[MongiIG]

Stocks continue to suffer losses, with Asian markets clocking up another session of declines. Yesterday's PMI data provided little in the way of good news, and the weakness in the US was particularly notable, with the services PMI falling to 44.1, a 27-month low. Today sees the release of US durable goods orders, which will also be worth watching for signs of economic weakness. However the main event remains the Jackson Hole symposium at the end of the week, with investors still on edge about what Jerome Powell may say about the path of US monetary policy. 

 

[MongiIG]

Markets in Asia made gains overnight, while futures point towards a positive start for European markets, but nervousness persists ahead of the Jackson Hole meeting. Thinner August volumes mean that volatility could creep back in if Powell's speech is more hawkish than anticipated, which will likely boost the dollar once again. German GDP came in slightly better than expected, rising 0.1% over the quarter compared to expectations of flat growth, and the focus on the eurozone's largest economy continues with the monthly IFO reading. 

 

[MongiIG]

Another day of waiting for Powell's Jackson Hole appearance dawns, although at least the chairman of the Fed will speak today, at 2pm UK time. Asian stocks made headway overnight, following on from a better session in the US, but also on news that the US and China might be making progress towards an audit deal that would allow US auditors to travel to Hong Kong to inspect records of US-listed Chinese firms. Powell is expected to lay out a need for further rate hikes in the US, echoing comments yesterday from other FOMC members about the need to fight inflation. However if he is perceived as favouring 50bps hikes over 75bps stocks may yet make further progress. 

 

[MongiIG]

A mixed affair overnight has seen a more positive tone in much of Asia, with a raft of economic data helping to shift the rhetoric. In Japan, retail sales, industrial production, and consumer confidence all managed to beat expectations. Meanwhile, Chinese PMI data saw manufacturing improve as it attempts to move back up towards the expansionary 50 threshold. Unfortunately, the European focus looks sets to remained firmly transfixed on inflationary fears and the potential implications from a monetary standpoint. Recent comments out of the ECB highlight a willingness to focus on inflation above all else, with markets now expecting a 75-basis point move at the next meeting. That focus on inflation comes into focus once again today, with eurozone CPI released this morning. Meanwhile, US markets will be keeping a close eye out for the new and improved ADP release, which will provide a raft of backdated figures after a period of recalibration. 

 

[MongiIG]

Stocks in Asia fell for another day, with a number of indices clocking up a fourth consecutive negative session. The post-Powell fallout continues across markets, with the dollar still on the up and indices facing fresh waves of selling. A drop into contraction territory for China's Caixin manufacturing PMI added to the gloomy mood for investors, following as it did on the heels of yesterday's official numbers. In FX markets the yen hit a new two-decade low as it neared Y140 against the dollar, and talk of intervention is building once again. It looks to be another weaker start for European markets, and US futures are on the back foot as well as markets gear up for tomorrow's monthly US jobs report. Weekly US jobless claims and the ISM manufacturing PMI for the US are the main economic events today. 

 

[MongiIG]

US stocks rebounded from a one-month low yesterday, but this positive mood did not really extend into Asia, where indices faced a fifth day of declines. Fresh lockdowns in China and an order by the US to Nvidia to stop selling AI chips to Chinese firms hit sentiment hard, adding to general worries about a global recession. Attention now turns to today's jobs report in the US, which is expected to show a slowdown from last month's strong numbers at the headline level, while monthly wage growth is expected to slow slightly. It could be argued that the dollar will gain in either a strong or weak NFP number situation, given that little seems able to stop the greenback's ascent at present. Either a strong reading bolsters the case for tightening and boosts the dollar in hope of higher rates, or a weak reading prompts further risk-off sentiment, which usually benefits the US currency. 

 

[MongiIG]

Asian markets edged lower in a somewhat directionless session, after US markets reversed the gains seen on Friday to end the day firmly lower on news that Russia's Nord Stream 1 pipeline would be out of action once again. This raises the spectre of a deepening energy crisis in Europe, and European indices are forecast to begin the day sharply lower as investors once again worry about a recession in the eurozone. US markets are out of action for Labor Day, but in the UK the focus is on the new PM, to be announced at 12.30pm, and oil markets will look towards the OPEC+ meeting, which is expected to discuss either the maintenance of existing production levels or a small cut. 

 

[MongiIG]

After yesterday's reserve ratio cut by the People's Bank of China, Asian markets received further support following a promise by the government to speed up the introduction of new policies to support growth. Shanghai rose 1.1%, while the Hang Seng was down 0.3% and the Nikkei was flat. European markets suffered heavily yesterday as investors digested the news of the ongoing closure of Nord Stream 1 from last week, which seems to promise the intensification of the energy crisis and increase the likelihood of a recession. The tightening of global monetary policy continued with Australia's Reserve Bank raising rates by a fresh 50bps, taking it to its highest level since 2015. US futures have edged higher as Wall Street returns from its long weekend, but the rise in oil prices following OPEC+'s decision to cut output yesterday means that inflation concerns remain at the forefront. 

 

[MongiIG]

Fresh falls in Asia came as the dollar made further progress, bolstered by the US ISM services PMI yesterday. Weaker trade figures from China added to the gloomy mood, and with yet another central bank expected to raise rates today, this time in Canada, it looks like the caution around the global economic outlook will remain the driving force in markets today. While a fall in oil prices might provide some relief on the inflation front, the overall negative tone still seems firmly ensconced within global markets.

 

[MongiIG]

The relentless move to the downside appears to have run its course for now, as Asian markets followed their US counterparts higher. This comes despite further comments from Fed policymakers about the need to continue the strong hawkish policy of interest rate increases. Attention now turns to the ECB, which is expected to heft its main interest rate by 75bps to 1.25%, the highest level in a decade. Further sharp hikes are expected, which may provide some further stabilisation for the euro as it moves back above parity against the US dollar. In the UK investors will be watching for details of the new prime minister's response to high energy prices, which is expected around 11.30am and will involve spending over £120 billion to freeze prices over the next two years. 

 

[MongiIG]

A tentative recovery in stocks continued into the Asia session, while the US dollar also eased back despite comments from Fed chairman Powell about the need for more rate hikes to fight inflation. Indices have clawed back some losses from earlier in the week, with buyers stepping back in despite the ECB's groundbreaking 75bps rate hike yesterday and the cutting off of Russian gas supplies to Europe earlier in the week. Overall it looks to be a quieter end to the week, with just Canada's employment report on the economic calendar, although the Eurogroup will also meet to discuss further responses to high energy prices. 

 

[MongiIG]

Asian stocks began the week with additional gains, continuing the move higher from last week. Holidays in China and South Korea meant that volumes were more muted than on most Mondays, but the Nikkei was still able to gain 1%. Futures in Europe and the US are flat for now, but the price action of last week seems to have restored a bullish view, at least in the short-term. CPI readings from the UK and US will dominate the week. In Ukraine it looks like the Russian forces are firmly in retreat in a number of areas, as a Ukrainian counter-attack gathers pace, which has given hope that the war may end sooner than previously feared. It is a quiet start to the week, although UK GDP data this morning showed that the economy grew 0.2% in July, and was flat for the three months to July, below expectations but an improvement on the -0.1% figure for the three months to June. 

 

[MongiIG]

Asian markets made further gains overnight, following on from another strong session on Wall Street, where stocks moved higher for a fourth day. Meanwhile the dollar continued to weaken from its recent highs, as some of the impact of recent Fed commentary faded still further. But the approach of today's US CPI reading meant that some of the dip-buying enthusiasm has ebbed away, as investors away the latest inflation data from the US. It might be too much to think that one data point will do much to sway the Fed, but a weaker inflation print today might bolster hopes of a move away from 75bps hikes, giving equities space to move higher again and taking the US dollar down a little further. 

 

[MongiIG]

In a complete reversal of the past week of trading, stocks have fallen once more and the dollar is moving higher. Stocks in Asia followed the lead set by the US, where the Dow suffered another 1000+ point loss in the wake of the latest US inflation reading. The Nikkei, Hang Seng and ASX 200 all lost more than 2%, while the yen dropped to Y145 against the dollar again before recouping some of those losses. The surge in core inflation, which takes out food and energy prices, was the main reason for the stock market's panicked reaction, showing as it does that price rises are no longer being driven by those more volatile components.

As a result, the market is back to expecting a 75bps hike at the Fed meeting next week, with the market also worrying that the FOMC may even go for a full percentage point this time around. Futures have stabilised but that may be just a pause for breath before the selling resumes. UK inflation data showed that the headline figures were softer for August, but core prices continued to climb, putting more pressure on the BoE to act. 

 

[MongiIG]

A mixed session overnight reflected the lack of major volatility seen throughout the Western world, with inflation-fuelled weakness seen in the wake of Monday’s US CPI release pausing somewhat. A decline in UK inflation did help lower the temperature somewhat, although rising core readings have arguably taken over as the dominant concern as drivers of future tightening from central banks. Data out of Japan and Australia overnight have provided grounds for optimism, with Japanese trade seeing both exports (22.1%) and imports (49.9%) continue to rise on a year-on-year basis. However, with the yen deteriorating against many currencies worldwide, that sharp increase in imports does raise the chance of imported inflation. In Australia, employment change swung back into positive territory (33.5k), while the rise in unemployment can be partially explained by a 0.2% rise in participation rate. Inflation expectations also shifted lower, falling from 5.9% to 5.4%. Looking ahead, a relatively quiet data docket sees US retail sales, unemployment claims, and manufacturing surveys from Philadelphia and New York dominate. 

 

[MongiIG]

Asian markets slipped further overnight, matching the gloomy mood in the US, as investors hunker down ahead of another big rate hike in the US next week. The mood was not helped by global bodies issuing gloomier outlooks. The IMF said that it was too early to assume a global recession would occur in 2023, but it did downgrade its growth forecasts. Meanwhile, the World Bank warned of a global recession next year, prompted by the wave of tightening by central banks. US and European futures remain under pressure, with the warning from FedEx last night about further weakness in the economy providing another reason for caution. 

 

[MongiIG]

The focus is now squarely on central banks again, as markets prepare for today's Fed rate hike. While the 75bps move is still the base case, there is still a 20% chance that the FOMC could go for the 100bps bumper hike, as it looks to strengthen its efforts to control inflation. ECB president Lagarde said that rates would need to keep rising to combat inflation, and in the UK it is now just over 24 hours until the next hike from the Bank of England. The announcement of referendums in parts of Russian-occupied Ukraine and a partial mobilisation hit risk appetite, as it signals a Russian determination to hang on to territory even as the Ukrainians continue to retake land. Futures point to small losses on the open, a sign investors remain nervous about today's US rate increase and worsening tensions in Ukraine.

 

[MongiIG]

Global stock markets are falling once again following the Fed move last night. The 75bps rise took interest rates to a fresh post-financial crisis high, and the Fed warned that policy would have to remain restrictive for the time being. No cuts in rates are expected until 2024, and growth forecasts for next year have been downgraded. The news prompted a bounce in the dollar and a reversal in stocks, which has continued overnight. While the Bank of Japan left policy unchanged, further warnings of FX intervention abound as the Yen weakens below 145 against the dollar. Today sees the latest Bank of England decision, and while a 50bps move is the most likely, a more dramatic 75bps move cannot be ruled out either. 

 

[MongiIG]

Asian stocks finished the week with fresh losses, led by the Kospi (down 1.4%), while the Hang Seng touched its lowest level since 2011. Volatility in stocks, bonds and FX remains elevated, with the latter seeing the euro hit a fresh 20-year low against the dollar and the yen rebounding to Y142 against the dollar after Japan's first currency intervention since 1998. The Fed's move to raise rates, with the promise of more to come, backed up by other central banks, reminds investors that they can expect further tightening of monetary policy as the year goes on. Preliminary PMI figures from around the globe are the drumbeat to today's session, while in the UK attention focuses on the chancellor's 'mini-Budget', which is expected to unveil some major tax changes in a bid to kick-start economic growth.

 

[MongiIG]

Heavy selling across Asian markets meant that the week has begun on a negative note for stocks, but the dramatic falls in the pound have commanded most of the attention. Sterling has fallen by around 7% since the beginning of Friday's session, as markets move into panic mode following the tax-cutting Budget unveiled by the UK government. The pound found itself briefly at a new low against the dollar, falling almost to $1.03 before rebounding. Talk of an emergency Bank of England hike is now widespread, although this could prove difficult given the message it would send to global markets about a clash between fiscal and monetary policies. Futures are down in Europe and the US, as strains on global markets intensify at the beginning of a new week. 

 

[MongiIG]

Asian markets stabilised overnight, or at least tried to, as the selling in risk assets eased for the time being. Even sterling managed to edge up against the dollar after its roller-coaster ride yesterday, not that the Bank of England did very much to improve the pound's chances against the greenback. The Dow Jones joined the S&P 500 in bear market territory yesterday, and while things have calmed down for now investors remain very nervous about the prospects for the global economy. Curiously, there are further signs inflation might ease off in due course, most notably the drop in oil prices to their lowest level since January. But for the moment central banks have inflation in their sights and are determined to press on with rate increases and running down their holdings of assets purchases under QE programmes. 

 

[MongiIG]

Selling resumed across Asian markets overnight, with the Nikkei losing 2% and the Kospi 3%, and other indices also dropping sharply again. The US 10-year Treasury yield has moved above 4% for the first time since 2010, as markets continued to price in additional US rate rises. The UK situation continues to provide concern, as the IMF waded in last night with a fairly blunt warning about the country's financial situation, and calling on the British government to consider reversing some of its tax cuts. Even US Treasury Secretary Janet Yellen said she was monitoring the situation in the UK very closely. US and European futures are down again, after a quieter day yesterday, and the focus is sure to remain on the outlook for more tightening of monetary policy by major central banks. 

 

[MongiIG]

The rally on Wall Street yesterday provided Asian markets with a reason to bounce, as oversold stocks and excessively bearish sentiment finally gave way to some bargain hunting among investors. The Bank of England's decision to intervene in bond markets yesterday provided the foundation for at least a short-term bounce, but whether it turns into anything more sustained remains to be seen. Longer-term of course, rates continue to rise, and the economic outlook remains grim, suggesting that earnings will keep coming under pressure. Thus while another 'bear market bounce' may be in the offing, the overall outlook still suggests that risk assets will struggle. Today sees German CPI and weekly US jobless figures, along with speeches from Fed members Bullard and Mester. 

 

[MongiIG]

Asian markets headed lower after yet another miserable session on Wall Street. Tech stocks were hard hit following the downgrade of Apple stock by Bank of America, and in Japan the Nikkei lost over 2%. Losses in China were much more limited, as the official PMI figures from Beijing helped to provide a steadying influence. Nonetheless, stocks globally remain under pressure, and this seems unlikely to change for the time being. In FX markets, news that the UK prime minister will meet the head of the Office for Budget Responsibility prompted a further recovery in sterling against the dollar, with the pound recouping almost all its losses against the dollar seen over the past week. After German inflation yesterday today sees the release of eurozone inflation figures, along with US monthly personal consumption price data, the Fed's preferred inflation measure, which is expected to see a 6.1% year-on-year. 

 

[MongiIG]

The Nikkei was one of the few risers in Asia overnight, as the first day of the final quarter of the year got off to a decidedly mixed start. Chinese markets are off for Golden Week, removing these markets for the time being, and South Korea also had a national holiday today. Oil prices surged on reports that OPEC was considering a cut to output this week that might be as big as one million barrels per day, once again raising the spectre of a sustained rise in energy costs and an associated impact on inflation, just as oil had fallen to its lowest level since the beginning of the year. The pound staged an impressive rally to start the week following news that the UK government would cancel plans to scrap the 45p tax rate, a week after sterling fell to its lowest-ever level against the dollar. Futures point towards a muted start to the week, after a miserable end to Q4 for equities.