Article / 07 October 2016 at 7:01 GMT

Morning Markets: GBP counts flash-crash cost ahead of NFP

Managing editor, / Saxo Bank



  • UK: September Halifax House Price Index (0730 GMT)
  • UK: The August Manufacturing Production (0830 GMT)
  • UK: Trade Balance (0830 GMT)

There will be plenty on the sidelines this afternoon awaiting the nonfarm payrolls print for September and front-row seats are likely to be occupied by Federal Reserve board members with hawks sharpening their knives for action if September proves strong.

Consensus is looking at a gain of 176,000 jobs and anything in excess of that will bolster the interest-rate-shift camp. The November 1-2 meeting still looks a bridge too near for a move given the presidential election taking place on November 8, but a strong NFP will put the case for a move in December well above 70%.

Fed intentions certainly played a part in Asia's overnight slide that led Nikkei and Hang Seng down but a fat-finger 6.1% plunge in sterling against dollar to yet another fresh 31-year low was one of those moments that won't fade away soon.

We can't blame Brexit for this one as automation looks to be the culprit but while sterling recovered from a low of 1.1378 (our estimate) to the 1.2450 area, that last figure itself is still far, far below the 'new normal' of 1.30 since we entered the post-Brexit era.

Is the new 'new normal' somewhere around 1.25? One thing is for sure — a Bank of England rate cut is now firmly off the table and governor Mark Carney may need to salve wounds today.

Strong US data has already fuelled dollar muscle this week and more affirmation for the US economy Friday will put sterling under more pressure. Japan's yen meanwhile stopped the rot overnight after a week of steady retreat on the back of the risk-off sentiment.

Elsewhere, both oil benchmarks continue to enjoy that Algiers-led revival after more supportive stocks data helped blast US standard WTI through the $50/barrel area for the first time since June. Gold was still firmly on the defensive going into the European open, however, at just above $1,250/oz while partner-in-crime silver is staring at a 10% fall for the week.

It was a bit of a stinker of an overnight session for Twitter too after its shares plunged some 20% after Walt Disney and Google parent Alphabet reportedly decided against an offer for the social-media platform. 

But we have a turbulent 72 hours ahead. The NFP will undoubtedly flavour markets into next week and a US presidential election debate on Sunday is also likely to be a big needle mover.

And, lest we forget, China markets open again Monday after the Golden-Week holiday with Beijing likely taking a dim view of the USDCNH level once again heading beyond the line-in-the-sand 6.7 mark.

And then there is poor, beleaguered sterling of course. That could add up to a potent mix for Monday morning. 

Market signals

Asian session

  • Asian markets were lower after the pound's brief but sharp tumble
  • Some blamed reports of the French president urging a tough line on Brexit 
  • Markets are looking forward to an upbeat US non-farm payrolls figure today
  • Japan's Nikkei 225 was down 0.30%
  • Markets in China remained closed for Golden Week public holidays
  • The S&P/ASX200 slipped 0.3% to 5467.4
  • Gold was down for a ninth straight session in Asian trade on expectations of a Fed rate hike
  • Opec members and Russia meet next week, and could agree on an oil output cap
  • China's foreign-exchange reserves declined more than expected in September

Forex ahead

  • GBP hit a new 31-year low in a 'flash crash' before regaining lost ground
  • The US continued to soar against the yen; it was worth ¥103.8180 at 0520 GMT
  • FX trader expectations of a Fed rate hike are driving up the greenback
  • The Australian dollar managed to hold above 0.75, but solid NFP data could push it lower
  • The Aussie dollar was worth 0.7573 at 0520 GMT

From the Floor

Pound of flesh. "We are going to have to see an official response to the GBP flash crash," says Hardy

Full circle. “Gold is back to its pre-Brexit low on dollar strength,” says Hansen

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

In opinion

The GBP flash crash will have consequences because the pound is not some penny stock that should be left vulnerable to some devious market manipulator, says Juhani Huopainen

US data D-day
A good, inflationary US jobs report is expected, writes Juhani Huopainen, and a December rate hike looks more probable.

Pound plummets
It's difficult to know what triggered GBP's crazy plunge by more than 6% in two minutes, writes the team from Saxo APAC Sales Trading.

Crude cap hopes rekindled 
Oil is heading higher, and talk of a meeting between Saudi Arabia, Iran and Russia at an energy congress next week has raised hopes of an output cap, says Michael O'Neill


 Will the Bank of England take action Friday after sterling's overnight shocker? Photo: iStock

Morning Markets goes out on the TradingFloor platform at 0700 GMT, Monday to Friday.
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to make sure you're up to date with the latest developments.

07 October
Patto Patto
Poor coverage of the GBP event by you guys: plodding in 7 hours after all the action. Why was there no commentary while it was happening-apart from a couple of sqwarks by Max McKegg and Julian?
07 October
helicongrowth helicongrowth
Sell all UK bond proxies like Utilities and gilts.....
07 October
Martin O'Rourke Martin O'Rourke
Hi Patto, I'm not sure what you mean as we did have this go out at about 0300 GMT from the guys in Singapore followed up by some additional commentary from Juhani at 0700 GMT and today's Morning Markets looks to move the story on by looking at potential BoE moves in the wake of the flash-crash as well as ahead to the NFP which still remains very pertinent to the agenda.
07 October
Patto Patto
Not convinced: there was nothing up there when all the action was happening. BTW some guy posted a comment saying the GBP low on "Saxotrader 2" was 1.08
07 October
Juhani Huopainen Juhani Huopainen
While the coverage was minimal, it was appropriate in my opinion. Nobody had any idea what happened, what caused it and what would happen next. Just as with other flash crashes, it was and is a mystery wrapped in an enigma.

All of the coverage that I saw on other platforms was simply noise - talking about Hollande, wondering whether it was a glitch and naming the levels that everyone could see from their screens. Little reason to add to the noise.
07 October
Patto Patto
hmmm.....maybe. It just seemed as if this site was off-line/missing in action just when people would have been looking for guidance (with the exception of you Juhani and Max McKegg
07 October
Martin O'Rourke Martin O'Rourke
Hi Patto. I was certainly in bed when this all kicked off but we do strive to make our comment as relevant and up-to-date as possible. I think the fallout from last night still has some way to go and we'll be following closely.
07 October
Martin O'Rourke Martin O'Rourke
This morning's From the Floor provides more analysis of the overnight developments and I have included here a link to the Daily Morning Global Call from which From the Floor is derived.
07 October
Martin O'Rourke Martin O'Rourke
Sterling has broken through the 124.0 handle in the last 15 minutes. It was at 1.2374 at 0918 GMT.
07 October
Martin O'Rourke Martin O'Rourke
A chart from SaxoTraderGO at 0919 GMT
07 October
fxtime fxtime
FWIW I thought the coverage was good....Juhani reported the relevant details concisely and what more coverage could be given? The event occurred and was reported are obviously thin which exacerbates such moves and as Martin rightly suggests imho I suspect we will see more large moves as the latest GBP/UK/Brexit drama plays out. However I can imagine a lot of GBP based fx positions would have been hurt as that was a serious stop hunting move too :-(
07 October
Patto Patto
It's a pity we don't see more feedback from Trading Floor readers other than those on the Saxo payroll..........Regardless, I'm sticking to my point that Saxo's coverage of the Asian trading session is poor (not just yesterday but in general). Also this page seems to go offline as soon as the european session ends - as if nothing is going to happen in the last few hours of US trading ! That being said, overall the site is very good. Most useful is the "Morning Markets" report which summaries the main events and highlights the best commentaries (which in my opinion are from Max Mckeg, Juhani, John Hardy and the Saxo economist).
09 October
fxtime fxtime be clear; I am not on the Saxo/Tradingfloor payroll LOL and I believe Juhani is a freelance reporter/analyst and is thus independent of Saxo opinion.
10 October
Martin O'Rourke Martin O'Rourke
Hi Patto, we are not a 24-hour newsroom and don't have that resource as things stand. What we try to do is compete on analysis and views with strong opinion ('breaking views' to coin a phrase) and as the origin point of the whole TradingFloor project, the European session is where we have always had our most concentrated resource. Maybe over time we can develop to a genuine 24-hr cycle but in the meantime, we'll continue to persevere with what we have!
10 October
Patto Patto
....and yet you have a "Saxo Australia" team and someone who calls himself a "Strategist" from Singapore. What were these people doing during the period GBP was collapsing? As I said the only Saxo rep. who acknowledged something was going on was your man McKegg -followed three hours later by the blogger Julani, long after the action had subsided....Regardless, now that I know Saxo doesn't cover Asia I will look elsewhere for up to date info.


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