Article / 17 August 2016 at 7:00 GMT

Morning Markets: Fed ripples rile markets




  • UK: Labour Market Report (0830 GMT) 
  • US: Atlanta Fed Business Inflation Expectations (1400 GMT)

Wednesday finds European markets preparing to open in uncertain mode following unnervingly volatile trading in the US dollar and core government bonds on Tuesday and amid fresh uncertainty about Fed interest rate policy that dragged on US stocks and undermined sentiment.

But while the greenback has pulled off yesterday's sub-100 lows against the Japanese yen, a lack of new directional signals means that nervousness – and consequently volatility – will likely prevail through the European session as traders await fresh signals from the US Federal Reserve.

On Tuesday, a brace of hawkish statements by key Fed officials increased the likelihood of a US rate hike this year and made an upcoming speech by that institution's chair, Janet Yellen, at the Jackson Hole symposium late next week the market's primary near-term focus.

The yen's temporary surge against the dollar triggered suspicion that the Japanese authorities might intervene should the currency's strength persist as officials there noted that they were “watching FX markets closely with a sense of urgency”. Given the relatively thin economic calendar on Wednesday this all means that the upcoming European and likely, US sessions, will remain tinged by an air of uncertainty.

Market signals

Asian session

  • Most Asian stocks gained in early trade as crude oil traded above $46/barrel
  • Chinese stocks rose on new HK-Shenzhen exchange trading link
  • Overnight regional Fed chiefs' hawkish comments disrupted market rally
  • Both Dudley and Lockhart indicated US interest rates could be boosted
  • NY Fed's William Dudley said markets were “too complacent” on the outlook
  • The probability of a US hike by the end of 2016 edged up to 51%
  • The MSCI Asia Pacific Index was up 0.2% in early trade
  • BHP up 2.9% in Sydney trading after reporting a record full-year loss
  • US home construction accelerated in July and US factory production increased
  • Australian domestic wages quarterly growth 0.5%, in line with expectations
  • QBE shares slump as much as 11.5% and CSL falls 6% after reporting profit slide

Forex ahead

  • JPY weakened in early trade to 100.43 per dollar, having risen as high as 99.54
  • AUD edged up 0.1% to 0.77

From the Floor

JPY down, stocks up. "The Nikkei rallied 1% on verbal yen intervention," says Liu. 

Metals retrace. "We are seeing inverted hammers on the gold, silver and platinum charts," says Hansen.

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

In opinion

1... 2... 3 
One of the first bits of hard data on Britain’s post-Brexit economic profile will be in and expectations are not high for good news, says James Picerno

Fed ups ante
When did Fed doves turn into hawks? In William Dudley's case, it seems to have occurred overnight, with a hawkish speech unsettling the markets, says Michael O'Neill

NZD versus RBNZ
The kiwi dollar seems to react in exactly the opposite way the Reserve Bank of New Zealand would like it to act, moving up as it eases monetary policy, as Max McKegg explains

Who saw that coming? Fed hawks spring surprise. Photo: iStock 

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