Article / 15 August 2016 at 7:00 GMT

Morning Markets: Equities snap higher as Fed rate fear recedes

Former managing editor, / Saxo Bank



  • US: NY Fed Manufacturing Index (1230 GMT) 
  • US: Housing Market Index (1400 GMT)

The US Federal Reserve will have taken a dim view of that poor US retail sales performance that capped last week, but equities responded with a whoop and a holler to send most Asian markets close to 12-month highs.

The Shanghai Composite Index in particular was close to a 3% rise on day, spurred not just by the feel-good factor that swept through markets, but also by a report that the proposed exchange link between Hong Kong and Shenzhen would be announced this week and ready to go by December.

Elsewhere, the Hang Seng Index was up by close to 1% for a nine-month high and only Japan's Nikkei stumbled into negative ground after GDP data underperformed and USDJPY continued to coil just north of the 101.0 handle.

The chances of a Fed rate hike before the end of 2016 have come down to 42% from 49% helping to fuel the general positive sentiment and the belief that more central-bank led financial stimulus could be on the way.

Oil too has taken flight as the Saudi minister intervention last week has provided the kind of ballast that Opec's less-vaunted membership — and non-Opec member Russia too — were unable to effect earlier in the week. That also helped boost energy stocks across the globe.

That leaves poor dollar rather bereft and forlorn as every time a catalyst emerges like the storming nonfarm payrolls number for July, the carpet is swept from under its feet. Even beleaguered sterling is managing to hold steady above the 129.0 handle.

We could be in for another few months of this until the presidential election runs its vitriolic course to November 8 and the Fed finally makes its next move on rates, once that dust settles.

Market signals

Asian session

  • Japan's preliminary quarterly GDP came in flat, missing expectations of a 0.2% rise
  • The Nikkei fell in early trade on the poor results
  • Other Asian markets reversed early losses to rise during the day
  • It is a bank holiday in Italy and France today
  • The UK's Rightmove monthly Housing Price Index showed house prices fell 1.2%
  • BHP Billiton is expected to post its biggest loss in history tomorrow

Forex ahead

  • The yen was stronger early today, trading at 101.28 against the dollar
  • Dollar weakness pervades as retail sales disappointment filters

From the Floor

Brexit ripples. "It's becoming increasingly dangerous to be short in terms of risk reward on sterling", says Hardy.

Key number. "WTI needs to take out the $46.20/barrel area", says Hansen.

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In opinion

The New York Fed’s regional manufacturing index is projected to stay positive in August as it heads for its third feel-good reading, writes James Picerno.

Electric dreams
Germany entices consumers and companies to buy electric and hybrid cars by offering subsidies of up to €4,000, but are they driving the desired effect, asks Clemens Bomsdorf.

Spotlight on central banks
Central banks are the theme this week with the Reserve Bank of Australia, Federal Open Market Committee, and the European Central Bank all presenting minutes, writes Kay Van-Petersen.

Rate expectations
US retail sales were worse than expected and the poor data affected market pricing of the Fed funds rate, which has also fallen, explains Saxo's Singapore trading team.


Snail's pace ... Japan's economy failed to grow during the April-June period, with GDP growth coming in at zero, missing forecasts. Photo: iStock

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drop in Yen crosses - AUDJPY, EURJPY, GBPJPY - post dismal US retail sales release on Friday is bad news for risk assets


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