Analysts at Westpac note the forthcoming events for traders to pay attention to.
NZ: The Government’s Pre-Election Fiscal Update (PREFU) is expected to unveil an increased operating surplus thanks to a higher tax take. Markets will be interested in any changes to the bond issuance program.
Euro Area: ECB president Draghi gives a key note speech at the opening ceremony of the Lindau Meeting on Economic Sciences.
US: Jul new home sales are expected to be flat. Sales were up 9.1% in the year to June but momentum has slowed a little in recent months. Fedspeak involves Kaplan at a petroleum association lunch in Texas.
Flash Markit PMIs are released for Japan, the Euro Area and the US. The manufacturing PMI in the Euro Area has held above the other regions but pulled back last month to 56.6 from a cyclical high of 57.4. Questions surround whether the momentum will continue to slow as a stronger Euro affects competitiveness."
Today, in another sign of cooling relations between the US and China, the Treasury Department announced an additional set of sanctions for Chinese and Russian companies suspected of aiding North Korea in evading economic sanctions, as noted and explained by analysts at Nomura.
"While the sanctions were primarily aimed at reducing the funds available to Pyongyang for its nuclear weapons and missile programs, the implication of China needing to take further action to address tensions on the Korean peninsula was apparent.
This move follows an announcement by the Office of the US Trade Representative (USTR) last Friday of an official investigation into China’s intellectual property (IP) practices.
While the investigation was expected, following an executive memorandum from President Trump, the speed at which the official investigation was opened was slightly surprising.
However, we do not see any material increase in the likelihood of more serious trade conflicts. While the risk of more aggressive trade actions against China has risen, we still expect the IP investigation to take months, if not more than a year, to be resolved."
Analysts at Westpac offered their market wrap.
Global market sentiment: US equities, interest rates and dollar all rose overnight. A Politico report that Trump’s team was making progress on tax reform attracted market attention.
Interest rates: US 10yr treasury yields rose from 2.19% to 2.22%, 2yr yields from 1.31% to 1.32%. Meanwhile, Fed fund futures yields repriced the chance of a December rate hike at around 36% (from 40%).
Currencies: The US dollar index is up 0.5% on the day. EUR fell from 1.1820 to 1.1745. USD/JPY rose from 109.20 to 109.55. AUD fell from 0.7945 to 0.7898. Underperformer NZD fell from 0.7325 to 0.7273. AUD/NZD rose from 1.0830 to 1.0868.
US Richmond Fed manufacturing activity remained unchanged at an elevated 14 (vs 10 expected), a solid report reflecting a decent growth trend. FHFA house prices rose 0.1% in June (vs 0.5% expected).
German ZEW investor confidence fell from 17.5 to 10, a third consecutive decline which flags some slowdown in growth ahead and gives the ECB more ammo to refrain from any imminent QE tapering signal."
Data source: FX Street
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