ECB Rate Decision, German, French and US CPI
The dollar traded overall stronger on Wednesday, reaching its weekly high. While emerging market currencies were also somewhat affected by that move, by Thursday morning currencies like the South African rand (ZAR) or the Indian rupee (INR) continued on their recovery move with the INR trading at the strongest level in more than three weeks supported by lower oil prices and a lower global risk sentiment at the same time.
Precious metals consolidated after the recent retracement with gold again trading above $1,500 and palladium trading at the highest level since mid-July. Oil prices on the other hand were down despite a sizable draw from oil inventories as reported by the EIA. Besides the report from OPEC expecting lower demand growth in the upcoming year, the possibility of renewed negotiations between the US and Iran, after President Trump fired his national security advisor Bolton, eased the fears of an escalating conflict in the Gulf of Persia.
After China announced exemptions for some US products from its newest round of retaliatory tariffs and the US postponed its tariffs by two weeks to mid-October, most markets reacted bullish. The ‘fear indicator’ Volatility Index VIX continued to decline below its low of the previous month when tensions ran high.
Markets are keenly awaiting the interest rate decision of the European Central Bank (ECB) due to be announced by early afternoon. However other key data events are also scheduled for this day, including monthly consumer price index (CPI) figures from Germany, France and the US as well as jobless claims and Treasury budget data from the US.
Due to the strong dollar, the EUR/USD pair briefly fell below 1.10 but then rather quickly recovered hovering above that psychologically important level. Analysts are still not sure how European Central Bank (ECB) will act as the common currency are faces an economic downturn and uncertainty over Brexit and the continued trade tensions with its key trading partner the United States.
Inflation figures from Germany with the annual CPI at 1.4% were as expected, while the French CPI marginally declined to 1% annual inflation. Later on Thursday CPI data also from the US can be expected.
The US producer price index (PPI) released on Wednesday meanwhile was with 1.8% annual inflation marginally higher than expected. Wholesale trade in the US also picked up its paces with sales increasing by 0.3% in July.
While equity markets noticeably recovered over the past few days, so did the performance of the US dollar against the Japanese yen (JPY) after the USD/JPY hit its low for the year late in August briefly falling below 105. However the overall volatility looking over a longer period is at the lowest level in decades.
According to analysts a stronger demand for so-called ‘safe-haven’ investments could drive the exchange rate again in favour of a stronger yen while it remains to be seen how the Bank of Japan (BoJ) will conclude its policy meeting on Thursday next week. Last week in an interview the Governor of the BoJ Haruhiko Kuroda indicated that the central bank could still lower interest rates below the current rate of -0.1% in case of an economic downturn.
The producer price index meanwhile was further in the negative territory than expected, showing a deflation of -0.9% in August on an annual basis. For Friday data on capacity utilization and industrial production is expected.
Oil prices traded overall mostly unchanged on Wednesday afternoon even at the time the Energy Information Administration (EIA) published its weekly crude oil inventory statistics, which indicated a higher draw on oil inventories than expected by 6.9 million barrels over the past weeks.
Key movements in the oil market were seen after reports indicated that US President Trump discussed easing some sanctions on Iran to open up a path to negotiations after he fired his hardliner national security advisor John Bolton. However it is still not clear whether Iran could agree to start the negotiation process again, as the country’s oil minister previously indicated that the US would need to lift all sanctions completely in the first place. In the past weeks and months Iran publicly acknowledged that it started operated equipment used to enrich nuclear material in contravention of the JCPOA agreement. The United States withdrew from the agreement in May 2018.
While the two-day meeting of OPEC is continuing, the organisation projects that the global demand growth would amount next year to only 1.08 million barrels per day, which is 60 thousand less than previously expected.
Major stock indices closed with a sizable upside with markets reacting bullish to the news that the United States would delay the introduction of some tariffs by two weeks until 15 October after the Chinese side exempted some US products from its newest round of retaliatory tariffs.
Market performance in most economic sectors was clearly positive. Especially small-cap companies as represented by the US 2000 index overall outperformed large-cap indices like the US 30 or US Tech 100.
Oracle released their quarterly results one day early with the CEO Mark Hurd announcing a medical leave. On the financial side the $0.81 earnings-per-share (EPS) matched expectations, while revenue at $9.22 was marginally short of the expected results.
Aurora Cannabis stocks plunged in after-hours trading as the cannabis company reported significantly lower revenue than expected at only CAD 98.9 and failed to report its EPS. The earnings guidance was also weaker than expected.
For Thursday quarterly results from Broadcom are expected.
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