Article / 20 July 2016 at 7:00 GMT

Morning Markets: IMF outlook downgrade keeps tone muted

Consulting editor / TradingFloor



  • Germany: PPI (0600 GMT)
  • Eurozone: Euro area balance of payments (0800 GMT)
  • South Africa: CPI (0800 GMT)
  • UK: Monthly unemployment (0830 GMT)
  • EU: FCCI flash consumer confidence indicator (1400 GMT)
  • US: EIA weekly petroleum status report (1430 GMT)

Asia-Pacific equity market were mixed in muted trade on Wednesday after US stocks lost momentum overnight, and the International Monetary Fund abandoned its forecast for a pickup in global growth this year, citing the Brexit impact as a factor.

The IMF on Tuesday trimmed its global GDP growth forecast for this year to 3.1%  from April’s 3.2% and its 2017 forecast to 3.4% from 3.5% and warned the situation could get worse if confidence falters among investors and companies.

The IMF also downgraded its outlook for the UK, due to Brexit, and said the British economy is likely to grow by 1.7% this year and 1.3% in 2017, which would be the slowest pace since the height of the sovereign debt crisis in 2012. Those projections are down from forecasts of 1.9% and 2.2% published in June, just before the EU referendum.

The dollar remained firm in the Asian session.

Chinese, Japanese and South Korean shares fell, while Australian stocks went against the trend and rose modestly.

Today's UK jobs data will offer a last glimpse of the British labour market before the Brexit blowback kicks in, as James Picerno notes. And the EU's flash consumer confidence indicator will be a health check on the European economy.

Market signals

Asian session

  • Australia's MI Leading Index rose to minus 0.14% in June from minus 0.37% in May
  • It measures the likely pace of economic activity relative to trend 3-9 months into the future
  • International Monetary Fund slashed its forecast for UK growth next year
  • Donald Trump officially became the Republican Party's presidential nominee
  • Fed funds futures show investors see a 50/50 chance of a US rate hike in December
  • Zinc edged up to a 14-month peak on worries over undersupply
  • AMP says the AUD could surge above US80¢ this year
  • South Korea's Kospi and the Nikkei both fell in early Asian trade
  • At 0500 GMT, the Kospi was down 4% and the Nikkei had fallen 0.3%
  • Australian shares bucked the trend and rose 0.4% in early trading
  • At 0500 GMT the ASX/S&P 200 was up 0.5% at 5,478

Forex ahead

  • USDJPY was trading at 105.89 after touching a one-month high of 106.53 overnight
  • AUD stood nearly flat at $0.7504 after falling 1.1% in European time
  • Pressure was renewed on the Turkish lira, which fell to its lowest level since last September

From the Floor

Pound slips.The weak sterling trade is in play,” says Hardy.

VIX tumbles. “The plunge in the volatility index is extreme,” says Garnry .

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

In opinion

Based on the continuing fall-out from Brexit, both the UK labour report and the European confidence indicator will be closely examined today, says James Picerno.

Crystal ball
The outlook for key indices is now trending towards consolidation, with the Nikkei, ASX and S&P 500 looking overbought and ready for profit-taking, says James Woods.

Aussie hit
The Aussie dollar has been hit hard as the market consensus is that the Reserve Bank of Australia will cut rates next month, but is this necessary, asks Max McKegg.

Trauma overcome
Less than a month from the Brexit shock, the trauma this event inflicted on global markets has now been entirely erased except for sterling's sharp drop, says Saxo's John J Hardy.

Shrugging off Trump
Volatility markets have not yet priced in the chance of a Donald Trump election victory, says Michael McKenna in an overview of the American scene as the Republican convention begins.

Race to the bottom
Australia and New Zealand have taken centre stage in a global race to the monetary bottom as their central banks seem to have set the stage for further easing, says Neil Staines.

EU-UK puzzle

It may be premature to dismiss the Brexit shock, as the IMF's global growth 
downgrade attests. Image: iStock 

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