The US has made its case for the attack on Syria plain but rather than act unilaterally President Obama has decided to take the strike to congress to get its backing before acting. In this way he continues to circumvent the UN but is looking to lock in US Lawmakers at least. Worth noting Obama is in Russia later this week so don’t expect the attack too soon.
On Stock markets it was a wobbly and slightly volatile day as US Secretary of State Kerry made the case and laid out the evidence for the strike. The S&P 500 opened at 1640 and dropped to 1628 before bouncing between 1628 and 1633 where it closed with a loss of 0.32%. The Dow lost 0.21% and Nasdaq fell 0.84%.
Europe had a much darker day with losses of more than 1% across the big 5 exchanges. The FTSE fell 1.08%, the DAX 1.12%, CAC 1.31%, Milan dropped 1.32% and Madrid was 1.67% lower.
On Rates markets US 10’s rose to 2.79%, Bunds closed at 1.85% and Gilts finished at 2.59%.
On FX markets the Aussie was under pressure falling back below 88 cents but Reuters is saying it is up at 0.8936 this morning which is interesting and likely a result of the stronger Chinese data released over the weekend with NBS Manufacturing PMI rising to 51 against 50.6 expected. Euro is at 1.3220, GBP 1.5534 and USDJPY is at 98.38 this morning. A huge week of Central bank announcements in Australia, Japan, UK and Europe and then non-farm payrolls to round out the week so it could be a big one for FX.
On Commodity markets gold slipped back through $1400 to $1393 for a fall of 1.19%. Silver fell 2.60% and Nymex Crude dropped 1.06%. Dr Copper fell heavily across the week and is now back at $3.23 lb. For the first time in ages all three Ag commodities, Corn, Wheat and Soybeans moved less than half a percent each.
On the data front we kick off a busy week with Terms of trade in New Zealand before Korean CPI, AiG performance of Manufacturing in Australia along with TD monthly inflation data, building permits and Company gross operating profits in Australia. HSBC manufacturing PMI in China and then the round of Markit manufacturing PMI’s across Europe and the Globe.
It’s also Labour Day in the US so it might be a quiet night after the data releases.
The RBA won’t ease this week but they may talk the Aussie down
Tomorrow morning the RBA will meet to deliberate on monetary policy. It is the first of a very big week of Central Bank announcements and the Reserve Bank like the ECB, BOJ and BoE is not expected to move rates. But the statement that accompanies the no move decision will be important to help markets figure out the when and if of the next move.
Given we are in an election campaign it makes sense that the RBA does not want to get caught up in the politics of the economy and so, just like last month when they cut, the expectation would be that they say that the cuts up till now are still to work through the economy. They are also likely to note the pick up in in the global economy, which certainly is the key change over the past few months and they are also likely to say that the Australian Dollar remains elevated.
This is a line of argument the RBA has taken for some time now and while they will be very happy with the Aussie at 89 cents it seems they would also like to see it in the mid to low 80 cent region given they believe monetary policy in an open economy like Australia is a combination of RBA official rates and the level of the Exchange rate.
The RBA has a bias to ease but with rates already at 2.50% and some signs that house prices are rising they won’t want to risk reigniting a boom here. Rather they would like to see the Aussie lower and thus the distributive impacts of a weaker currency across the entire economy and particularly on our export industry.
How low can the Aussie go?
The Aussie has retraced most of the rally from the low of 88.46 cents a few weeks back with the dip under 89 on Friday night. This remains very solid support for the moment but in the intervening weeks since the lows the bottom of the big, very big, trend channel that the Aussie is in has slipped lower so it is conceivable that the Aussie slips under 88 before it finds decent support.
But I am not getting too bearish here and now – I expect a full retracement but that is about it for the moment.
Gold rally fades quickly
Gold fell out of bed on Friday dropping below $1400 as the pressure on Syria was released and as it became clear that much of last week’s strength was pure speculative buying – $1375/80 remains support and the short term target.
Have a great day and good Hunting