Yesterday we saw a continued reversal of the risk averse trades from earlier in the week with commodity currencies gaining alongside commodities themselves, whilst the euro slid back to bounce off the 1.12 level. Equities were a sea of green with Shanghai Composite up nearly 5% and the Nikkei 225 up by 3% this morning, after US equities closed more than 2% up yesterday. China announced further plans to allow pensions investments and interestingly slightly easing restrictions on real estate and currency purchases, allowing onshore conversion for direct investment.
Data continues to look positive
Sterling also continued to slide after failing to hold above 1.55. There is a raft of data out today, which started with the Japanese inflation numbers, which came out at expectation of 0.2%, but continues to look weak, falling from the previous quarter. This will lend weight to the further stimulus comments from Governor Kuroda. We will see whether UK GDP bounces as expected this morning, toward 0.7% from 0.4% at the last reading.
The data out in the US yesterday was positive, with GDP coming in ahead of expectation at 3.7% against 3.2%. The jobless claims were a touch better at 271,000. Comments from Fed’s Esther George however that the Fed still needs to wait and see if the economy is strong enough for lift off. As a more hawkish member of the fed, these comments aren’t and there was further interest overnight from other commentators.
The world is wading in on the Fed decision
Over the weekend, the Jackson Hole Symposium continues with Mark Carney and Fischer speaking tomorrow. The expectations have been that there may be further reference to the market gyrations and their effect on growth expectations and therefore rate hikes. A number of commentators including Japanese bank governor Kuroda and Indonesia’s finance minister Bambang Brodjonegoro commented that the Fed should get on with the rate hikes, suggesting that the delays and changes in message are only adding to market volatility.
So could we still see lift off in September? The lone dissenting voice came from a Reuters interview with a People’s Bank of China official suggesting the Fed should hold off as it could push some emerging markets into crisis – on the basis that EM countries have been borrowing record amounts in US dollars which have already appreciated, with any rate hikes adding further pressure.