Asian markets are mixed, with Japan closed for a holiday

August 11, 2016

European Outlook: Asian markets are mixed, with Japan closed for a holiday. Chinese markets and Hang Seng are posting modest gains, led by banks and insurers, as investors hope upcoming data will show that China’s economy is recovering. Markets were struggling for direction though, as the focus remains on central bank action. U.S. stock futures are higher, U.K. futures are little changed, while the front end WTI future is slightly down on the day at USD 41.52, after falling yesterday after a big EIA gas draw and crude build. Also overnight Reuters have reported that Kuwait has cut prices to key Asian customers. Most European markets closed in the red yesterday with the FTSE 100 outperforming after the BoE’s latest reverse auction was fully covered. Released overnight, the U.K. RICS house price balance fell to 5% in July, while June was revised down to 15% from 16%. Still to come are final inflation numbers for July from France and Italy as well as Swedish inflation data.

RBNZ Governor Wheeler: The Bank acted as expected and the statement and press conference were rather dovish. The NZD is “ defying the Banks expectations” The market is pricing in further easing in policy (more rate cuts) before the end of the year (November most likely).  The NZDUSD rallied on the announcement to break 0.7330 before returning to 0.7250 levels, again defying expectations. The RBNZ is still the most attractive for yield at 2.00%, the USD is weakening and the worries over China continue to ease.

The BoE still in focus: Yesterdays reverse auction may have been fully covered, but that doesn’t mean that there aren’t any supply constraints as today’s maturities were shorter than at yesterday’s auction. The BoE bought Gilts dated 2023 to 2030, Tuesday the focus was on durations of 15 years and more and that is where the BoE will likely continue to struggle, as demand at the very long end is high and not just fuelled by investors struggling to find some opportunities for returns, but mainly by insurers and pension funds, who have to hold on to the longer dated papers due to regulatory constraints. So a real test will come at next week’s auction for the Gilts of 15 years and more. Still, Monday’s good auction result, as well as yesterday’s result shows that while the BoE may struggle at the very long end, it still has sufficient supply in shorter dated Gilts to cover its QE program – at least for now and European yields are up from recent0 intraday lows, although the 10-year Gilt is still set to close at another record low. GBPUSD struggles with 1.3000.

US Data Reports: US JOLTS report showed job openings rose 110k to 5,624k in June, rebounding from a revised 331k drop to 5,514k (was 5,500k). That saw the JOLT rate rise to 3.8% from 3.7%. Hirings increased 84k to 5,131k after falling 38k to 5,047k (revised up from 5,036k). The hire rate also increased to 3.6% from 3.5%. Quitters declined, however, falling 33k to 2,909k from after a 33k increase to 2,942k (revised from 2,895k). The quit rate was unchanged at 2.0%. The quit numbers are a favorite of Fed Chair Yellen, so the drop is disappointing, but it’s only one month’s report. The overall data are generally consistent with the improving trends in the labor market, but are old news, however, and shouldn’t have much impact on the markets.

Main Macro Events Today        

US Import and Export Prices –  July trade price data is out today and is expected to show import prices down 0.6% on the month while export prices remain unchanged. This follows respective June figures of 0.2% for imports and 0.8% for exports. The plunge in oil prices over the winter helped keep these measures in negative territory before the spring rebound allowed increases. However, oil prices eased in July which could pose downside risk to the release.

 US Initial Job Claims – There were 269,000 new job claims last week; expectations vary between a rise to 272,000 and a fall to 265,000 this week. One to watch for at 12:30 GMT.    

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