Morning Markets: Sterling facing the 1.30 trapdoor
- Eurozone: Current Account (0800 GMT)
- Brazil: Economic Activity Index (1130 GMT)
- US: Housing Market Index (1400 GMT)
Oil is helping to spark markets Monday after US benchmark WTI clawed back some of last week's 6.2% slide to rise back towards $44/barrel as a fresh bout of fighting in Libya disrupted supplies. Nikkei took a day off owing to a holiday in Japan but Hang Seng was closing in on a 1% on-day rise towards the end of the Asian close and the Shanghai Composite Index was safely north of the key psychological 3,000 barrier.
Jens Weidmann, president of the Bundesbank, issued a stern rebuke to those promoting the view that Britain has emerged from the Brexit drama intact and ready to march forward to its brave new world. In interview with The Guardian, he said it was far too early to judge the outcome adding that "Britain hasn't even applied to leave yet...to assume on the basis of developments so far that there won't be any negative consequences would be to draw false conclusions."
Weidmann also warned that London could lose its status as a financial hub with passporting rights in particular opening a window of opportunity for rivals such as Frankfurt. Sterling was on the defensive Monday after prime minister Theresa May suggested article 50 could be invoked in January/February.
The looming money markets crisis highlighted on TradingFloor on Friday is starting to provide a somewhat sinister backdrop ahead of new rules set for October 14 aimed at ensuring funds are more transparent about their risks. The Bank for International Settlements warned this weekend that this has widened flows into government funds to the potential tune of $700 billion spiking the dollar LIBOR from 25 to 40 basis points and sharpened tensions through the Japanese banking sector in particular.
Elsewhere, dollar is tentatively feeling its way against its major peers and, while there are some key data Monday, we can expect most markets to move into a holding pattern ahead of the two big central bank meetings in Japan and the US respectively on Wednesday. A rate-hike move on the part of the Federal Open Market Committee is down at around 20% and while that would seem to legislate against a change, the rhetoric as ever will be the key to understanding what Fed intentions may be and markets are likely to shift accordingly.
- Australia's market opened late following a glitch and was halted again in the afternoon
- Other Asian markets rose slightly at the start on higher oil prices
- The Hang Seng was 1% higher at 23,560 at 0500 GMT
- At the same time the SHCOMP and Nikkei were up 0.6% and 0.7% respectively
- Consumer confidence in NZ strengthened in the third quarter, rising two points to 108
- The Japanese equity market is closed today although futures markets are open
- Oil prices bounced on reported clashes at Libyan oil ports
- Dollar hit a two-week high after positive CPI data on Friday
- The Dollar Index rose 0.83% to 96.08
- EURUSD one-month implied vols underperforming real market
- EURUSD spot needs to break 1.10 to keep volatility high
From the Floor
Shifting ground. "The narrative is focusing on the immediate reaction [to Wednesday's meetings] but that could very quickly get drowned by the overall shift away from QE to fiscal stimulus," says Hardy.
Mean reversion. "The Hang Seng has been rallying heavily but there are signs of stress in the China financial system and we're looking at a mean reversion," says Garnry.
Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.
Brazil's economy could be coming out of recession as its service sector recently rebounded but will today's Economic Activity Index indicate this, asks James Picerno.
Not a great start to the week for the ASX as computer problems paused the start of play for 90 minutes, losing an estimated $1 billion in turnover, reports Saxo's Sydney team.
BoJ shows the way
It's all about the Bank of Japan this week even though the Federal Reserve generally always takes centre stage, explains Kay Van-Petersen.
This week will inevitably be volatile for markets centred around Wednesday's key central bank meetings in the US and Japan, says John J Hardy, and that is likely to leave markets confused.
China's property market is ripe for bursting and this could lead to a sudden and sharp downturn in the economy that delivers the much-feared hard landing, says Pauline Loong.
Everything is building towards the big central bank meetings on Wednesday. Photo: iStock
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