Article / 13 September 2016 at 7:00 GMT

Morning Markets: Brainard underlines Fed divisions

Managing editor, / Saxo Bank



  • Germany: ZEW Economic Sentiment (0900 GMT) 
  • Eurozone: ZEW Economic Sentiment (0900 GMT) 
  • US: NFIB Small Business Optimism Index (1000 GMT) 

Known Federal-Reserve dove Lael Brainard not only undermined the narrative on a possible Fed rate hike this month after labelling the case for a move "less compelling" overnight, but underlined the degree of division that seems to exist within the august body as the hawk and dove camps dig into their respective trenches.

The prospects for a rate hike subsequently slid by eight percentage points to 22% as Brainard perhaps reflected doveish concerns over the equities plunge from last Friday. With a blackout on all communications until the Federal Open Market Committee meeting on September 21, the debate will now shift to the few key data points that remain over the next eight days.

Asian stocks strengthened overnight after some swings in the early part of the Asian session taking the Nikkei up 0.34% at 0623 GMT and boosting the Hang Seng 0.80% in part helped by some strong Chinese factory data for August that offered fresh hope that the world's second largest economy is stabilising.

The Shanghai Composite Index was largely flat on the day as it kept above the 3,000 mark.

Equities should not assume that they are out of the woods, however, after last Friday's carnage as the breakdown in the usual correlations continues to offer a serious threat to stability.

Elsewhere, oil was up slightly but any fresh rally was stymied by Opec's concerns that the global supply glut will continue until the end of 2017 while offering little fresh in the way of any potential deal at the pivotal producers meeting in Algiers on September 26-28.

USDJPY slid approximately 1% in the wake of Brainard's comments before largely retracing and EURUSD could potentially see some movement as key German and Eurozone data is on tap. But, with the blackout now in place, we could enter something of a phoney war over the next week or so.

It's all eyes on the FOMC and the Bank of Japan as markets look for further evidence that central banks have reached the limits of what they can do.

Market signals

Asian session

  • Asian markets open higher after a dovish speech by Fed's Lael Brainard
  • The Fed is now in a blackout period until the FOMC two-day meeting on September 20-21
  • The Australian government has unveiled plans to issue its first ever 30-year bond 
  • ASX 200 opened 1% higher; Nikkei 225 was up 0.66% and South Korea's Kospi up 0.84%
  • China industrial output rose 6.3% in August from a year earlier, beating expectations
  • Retail sales gained 10.6% in August on-year in China, also beating expectations.
  • China's fixed-asset investment growth unchanged at 8.1% in January-August period
  • Japan's BSI Manufacturing Index rose 2.9 points in the September quarter
  • Australia's business conditions index dipped 2 points but confidence rose 2 points
  • ANZ's gauge of Australian consumer confidence rose 3.3%
  • The rise pushed the four-week moving average to its highest level since late 2013

Forex ahead

  • AUD edged higher as the greenback lost some ground on comments from Fed's Brainard
  • USDJPY was at 101.53, falling below levels of around 102 from last week
  • Dollar clawing back most of its losses against yen overnight

From the Floor

Breakdown. "Correlations are breaking down as rate fears crush risk sentiment", says Boye

Tread carefully. "We have a very dangerous cocktail in equity markets," says Garnry

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

In opinion

German economic sentiment is expected to bounce back from a post-Brexit vote shock, writes James Picerno.

Rally after rout
The ASX200 opened higher and the AUD edged up against a weaker US dollar after comments from US Fed's Lael Brainard, writes the team from Saxo Capital Markets (Australia).

China boom
Asian equities and forex were already stoked by Fed comments, but strong Chinese numbers did no harm to investor confidence, says Saxo's Singapore team.

Ready to hike
It may not make much sense in economic terms, but the Federal Reserve is ready to move on rates in what would be a forlorn effort to claw back some credibility, writes Steen Jakobsen.

Russian pivot
It's been quite a bumper year for Russian equities, but the storm clouds are gathering and Nadia Kazakova reckons this could be a good time to go short.

Fiscally speaking
The great QE experiment is an abject failure and we're now at a crossroads, writes Stephen Pope. A choice betwen monetarism or fiscalism is fraught with danger..

Winter is coming
The rouble has held remarkably steady against dollar at around the 65 mark but a spiralling budget deficit could see a return to as high as 80 around year-end, warns Kirill Samyshkin.


Stronger Chinese numbers overnight indicated the
economy might be working in better harmony. Photo: iStock

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