Article / 26 August 2015 at 7:00 GMT

Morning Markets: An unconvincing recovery




  • UK: CBI Distributive Trades Survey (1000 GMT) 
  • Eurozone:  ECB's Mannheim speech in Germany (1040 GMT)
  • US: Mortgage Applications (1100 GMT) 
  • US: New Orders For Durable Goods (1230 GMT)

 A relief rally and bargain-hunting bonanza that sent US equities sharply higher on the opening yesterday evaporated soon afterwards as fear about China's ability to manage its economy seeped back into the market. The upshot? Jitters and unease spilled over into Asia and stocks across the region gyrated from positive to negative territory through the session.

And for once it was equity markets rather than forex that decided direction as various currency pairs including EURUSD and USDJPY shadowed the choppy ups and downs on major indices. Ranges have been tight and a decisive directional shift either way is unlikely to happen until equities calm down.

 But when will that happen? We're a long way clear of the woods because whatever way you look at it, worries about Chinese economic sustainability will continue to nag markets until we get the next update on the Asian giant’s GDP, and even at that, there’s always suspicion about the reliability of its official indicators.  

Besides China, markets should today begin to focus on the outlook to a monetary policy gear change in the United States. The tsunami that washed over financial markets in the last few days has certainly dented hopes of a hike and expectations of a US interest rate increase in September have wilted to a mere 20% probability from 50% a week ago.

Ahead of the Fed’s crunch policy-setting meeting in September, the immediate agenda holds the annual Jackson Hole jamboree where politicians and central bankers will meet and mingle and share their thoughts on how best to handle the fortunes of the world’s largest economy. Keep an eye on that. (August 27-29).

Market signals

Asian session

  • The battered Shanghai Composite opened 0.46% higher on the back of the PBoC easing
  • The Shanghai Composite was up 2.75% to 3,046.48 (at 0536 GMT)
  • Optimism in China spread to Hong Kong and other markets
  • The Hang Seng was up 0.39% to 21,487.56 (at 0543 GMT)
  • Shares edged higher in Tokyo before an early afternoon surge
  • The benchmark Nikkei 225 was up 3.46% to 18,422.90 (at 0519 GMT)
  • The ASX opened lower after yesterday's bounce, before rallying later in the session
  • The S&P/ASX200 was up 0.69% to 5,172.70 points (at 0533 GMT)
  • BHP Billiton's dividend yield has hit a record level, despite the miner's profit tumble

Forex ahead

  • USDJPY chops about, tracking Nikkei gyrations
  • EURUSD should ease back if equity unrest quells
  • Eurodollar would gain on extended equity woes 
  • USDJPY jammed in tight 118.45–119.51 range
  • USDCHF logs mild gain in Asian trade

From the Floor

Poker face. ”The PBoC is trying to convince the market it is on top of matters but the market is losing confidence,” says Moltke-Leth

Broken links. “Equities are falling but it’s scary that bonds are not rising accordingly,” says Garnry

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1.. 2..3
The CBI distributive trades survey will stress test the case for a firmer outlook for UK retail growth, writes James Picerno.

Market bites back

Beijing discovered that the markets rule, and hasty bargain hunters took a hit after US stocks gave up gains and headed into negative territory on Tuesday, writes Stephen Pope.

Pair under pressure
Shanghai Composite index weakness and falling ore prices will continue to put downward pressure on the AUDUSD, says the team at Saxo Captial Markets Australia.   

A touch too much
Volatility is a good thing, says the Saxo APAC sales trading team, until it gets to a completely dislocated market, like we have now in forex and equities markets. 

Fischer FX fallout
Forex markets are certain to react if Fed heavyweight Stanley Fischer comes down on either side of the rate rise question in his speech this weekend, says Max McKegg.

Bounce back, Wall Street
Kay Van-Petersen was disappointed by Tuesday's fall in US stocks, but he's still mildly bullish, and believes a strong close on Wall Street could clear away the gloom from global markets. 

Get smart on cars
Investors would be wise to monitor the smart car business in China, as tech giants are investing heavily in the industry, and Aston Martin-LeTV is in pole position, says Neil Flynn.


As ordinary Chinese worry about lost savings, premier Li Keqiang is fighting to save his job. Photo: iStock

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