Global overview
Another strong reading from the US economy overnight – with services PMI above expectations – has kept the pressure on the US Federal Reserve with markets now seeing a November rate hike as a 50-50 chance. US bond yields climbed as sharemarkets fell. The USD was mostly higher. Chinese data remains critical today with trade numbers due.
US data remains stronger
The US dollar remained well supported overnight after a higher-then-expected US services sector reading signalled the US economy continues to grow strongly.
The US services PMI number was reported at 54.5 in August, a big jump from the 52.7 seen last month, and well above expectations for a decline to 52.5.
The services sector data echoes the better-than-expected August jobs report last week and suggests that hopes for a cut from the Federal Reserve – at least in the short term – are misplaced.
In fact, while no rate hike is expected at the Fed’s September meeting, the November meeting is now seen as a 50-50 chance for a rate increase.
Growing rate hike expectations saw US bond yields higher and sharemarkets lower. The S&P 500 fell 0.7%.
Aussie supported by better GDP numbers
The US dollar gained across markets with the EUR/USD flat but the GBP/USD down sharply, falling 0.5%, after a speech from Bank of England committee member, Swati Dhingra, said policy in the UK was “sufficiently restrictive”.
The USD was mostly higher across Asia but the USD/JPY remained steady at ten-month highs.
The USD/CNH gained 0.2% while the USD/SGD climbed 0.1%.
The AUD/USD saw a small gain, up 0.1%, helped by a better-than-expected June-quarter GDP number. The quarterly result was up 0.4% versus 0.3% expected while the annual rate climbed 2.1% versus 1.8% expected. Strong government spending, migration and exports drove the better result.
China trade data seen as risk
China might drive more wobbles across markets today with the all-important trade balance numbers due around 1.00pm AEST.
Last month, sharp drops in in exports (down 15% over the last year) and imports (down 12% over the last year) sent markets sharply lower, worried about the slowdown in Chinese activity.
Markets are looking for a 9.0% annual fall in both exports and imports this month. A larger drop could impact markets.
Tomorrow, Chinese inflation numbers are due. Last month’s negative inflation reading also hit sentiment.
USD remains at highs in Asia
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 4 – 8 September
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
