Morning Report APAC: US durable goods soothes market, volatility eases
- Fed's Dudley says case for a September hike has become less compelling
- US durable goods orders show two consecutive monthly rises, stoking optimism
- US stocks rose sharply, supported by dovish words from Dudley
- Gold still being ignored despite the turmoil in the markets
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
1000 (0200GMT): PHP – GDP SA QoQ (Exp. 2.0%, Prev. 0.3%), YoY (Exp. 5.7%, Prev. 5.2%)
1400: GBP – Nationwide House PX MoM (Exp. 0.4%, Prev. 0.4%), YoY (Exp. 3.1%, Prev. 3.5%
2030: USD – GDP Annualised QoQ 2Q (Exp. 3.2%, Prev. 2.3%)
2030: USD – GDP Price Index (Exp. 2.0%, Prev. 2.0%), Core PCE QoQ (Exp. 1.8%, Prev. 1.8%)
2030: USD – Initial Jobless Claims (Prev. 277k), Continuing Claims (Prev. 2254k)
2200: USD – Pending Home Sales MoM (Exp. 1.5%, Prev. -1.8%), YoY (Exp. 9.0%, Prev. 11.1%)
0900: EUR – European Central Bank executive board member Benoit Coeure speaks in Paris
Federal Reserve Bank of New York President William Dudley said that the case for a September interest rate increase has become less compelling. However, he also suggested that a hike at that time remained a possibility if markets regained their equilibrium, since the uncertainty is almost all "foreign made".
Dudley also pushed back at the idea the Fed will provide more stimulus to the economy. “I’m a long way from quantitative easing. The US economy is performing quite well.”.
US durable goods increased for a second consecutive month in July suggesting domestic demand is gaining ground even as exports suffer. New orders for durable goods rose a seasonally adjusted 2% month-on-month (Estimate: -0.4%) from an upwardly revised 4.1% in June (Previous +3.4%).
The USDJPY however consolidated around 119.5 level, having advanced in yesterday’s session helped by the Nikkei recovery. The pair reached a daily high of 119.91 after the release of positive US data, but hit resistance at the 120 critical level. For today, 120.40 is a key pivot area.
Foreign exchange movements
G10 volatilities reduced during the European session as risk sentiment improves following better support seen in Asian equities. USDJPY curve is significantly lower from the start of the week as spot recovered off the lows and market is less in a rush to cover downside gamma. Asian emerging pairs are still seeing volatilities at elevated levels as pressure on currencies remain.
Treasuries slumped while equities rallied and July orders strengthened unexpectedly. The bond market briefly bounced off the back of Dudley's comments, however resumed their decline after an auction of five-year Treasuries drew the lowest demand since 2009. The weakness even led to innuendos that perhaps the Chinese were unloading UST.
European stocks gave back some of Tuesday’s rebound following a zigzag trading session in Asia. Monsanto Co (MON) abandoned efforts to acquire Syngenta (SYNN) (top maker of pesticides) cratering the stock 18% and weighing down the Swiss Market Index.
However, US stocks rose sharply, supported by dovish words from Federal Reserve’s William Dudley and improving durable goods data, triggered the biggest rally since 2011.
Technology companies led the gains with Apple (AAPL), Google (GOOG) and Intel (INTC) rising at least 5.5%; while Amazon (AMZN) surged 7.4%. The morning was slow, however as the European close gave way to a midday reversal with gains in equities accelerated in the final hour. The S&P 500 climbed 3.9%, the Dow Jones Industrial Average up 4% and the Nasdaq up 4.2%, for its strongest increase since August.
– Edited by Adam Courtenay
This report was compiled by the Saxo APAC Sales trading team in Singapore – the home of social trading. Follow the team on @SaxoStrats or post your comment below to engage with Saxo Bank's social trading platform. Follow us on @SaxoStrats on Twitter
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