The US Dollar traded marginally lower against other major currencies on Tuesday. The Pound Sterling (GBP) continued to recover from last week’s losses, when the unsuccessful summit in Salzburg put significant pressure over the probability of a ‘no-deal Brexit’. Analyst indicate that the markets show confidence that the crucial deal on Brexit with the EU will be reached eventually.
Equity indices started the trading mixed on Wednesday, with especially some European indices seen falling. Chinese and by extension Hong Kong indices were however overall showing a strong performance gaining in the range of 1-2 percent. The Hong Kong Hang Seng Index (Hong Kong 50) managed to rise above the 28,000 level for the first time since the end of last month.
Most major cryptocurrencies traded with relatively little movement. On Tuesday it was announced that the trustee of the defunct cryptocurrency exchange Mt. Gox sold almost 25 thousand Bitcoin since the third quarter of 2017. However there are well over 100 thousand of Bitcoin and Bitcoin Cash tokens remaining in the trust and cryptocurrency investors are seen critical of a large sell-off as it could lead to falling prices. In other news it was reported that Google (NASDAQ:GOOGL) has ended its ban on Bitcoin ads.
The key event on Wednesday will be the interest rate decision by the US Federal Reserve and the press conference where the central bank will explain its monetary policy. Also on Wednesday in the United Kingdom Gross Mortgage Approval and CBI Distributive Trades data will be released. The Czech Central Bank will announce its interest rate decision, where most analysts expect a rate hike by 0.25%. In Mexico the Unemployment Rate for August will be published. Then in the Asian-Pacific trading session the Reserve Bank of New Zealand is also scheduled to make its interest rate decision. Here the overall consensus is that rates will remain steady at 1.75%.
The upside for the Euro was limited as it bounced back below the 1.18 level. The focus on Wednesday will be on the interest rate decision by the Federal Reserve. Market survey indicate that investors overall are already pricing in the rate hike, while few analysts remain skeptical whether interest rates will actually be increased today. As the Fed previously hinted that it would raise rates four times in this year, market expectations currently indicate that another rate hike would take place in December.
Compared to the data from the Fed but also regarding New Home Sales, the mortgage market and others from the US, only very limited data releases from Europe are expected. One key indicated would be the Jobseekers statistic from France, which last time was at 3.46 million.
Gold
Gold prices saw a modest upside as the dollar strength was limited ahead on Tuesday, ahead of the interest rate decision by the Federal Reserve Bank. While the weaker dollar makes gold more affordable to holders of currencies other than the dollar, and thus in theory could boost demand, the rising interest rates are generally seen as not favorable for gold prices. The yield on 10 Year US Treasury Notes climbed above 3.11% on Tuesday and is almost at the high level seen in May. In theory higher yields on safe haven assets, such as US government bonds, make gold less appealing due to its nature of an asset that does not bear any interest.
Further major dollar related news releases this week are the publication of the US Gross Domestic Product (GDP) on Thursday and Personal Income, Consumer Income and Core PCE Price Index data on Friday.
Brent Oil
The implementation of US sanctions against the Iranian oil sector, which are due to come into force in early November are seen as shaking up the oil market. Brent oil reached a new high since 2014 and analysts see possible chances of a further upside in the market, given that the sanctions have the potential to remove 1.5-2 million barrels per day of crude oil from the global markets according to various investor surveys.
While the Brent contract closed higher on Tuesday on this sentiment, the more US focused WTI crude oil contract closed lower, especially after the American Petroleum Institute (API) reported a build of 2.9 million barrels over the previous week.
On Wednesday the Energy Information Administration (EIA) will release its crude oil, gasoline and distillate stockpile statistics.
US Tech 100
US equity indices closed mixed, with the NASDAQ (US Tech 100) and also the Russell 2000 (US 2000) closing higher, while other indices, such as the S&P 500 (US 500) closed lower.
Despite the strong tech index overall performance, chip stocks (US Semiconductors ETF -1.61%) were besides the utilities sector (US Utilities ETF -1.37%) some of the weakest performing stocks. On the other hand energy company stocks (US Energy ETF (NYSE:XLE) +0.47%) traded higher, as oil prices climbed in anticipation of the upcoming sanction on the Iranian oil sector.
The fintech payment procession company Square (NYSE:SQ) (+11.02%) closed at a new all-time high, after an announcement for a new app for payroll services was made and analysts raised the price target.
Nike (NYSE:NKE) traded lower in after-hours trading, following the announcement of its quarterly earnings. While the company improved its earnings, investors seemed to be disappointed by the almost flat gross margins.
On Wednesday the Mortgage Bankers’ Association will release multiple mortgage market statistics, followed by the State Street Investor Confidence Index and New Home Sales data.
