Global markets came off record highs, trading subdued, with US index futures unchanged as traders are unwilling to make major moves ahead of today’s ECB minutes and tomorrow’s NFP release, and before speeches by central bankers including SF Fed President John Williams and the potential next Fed chair Jerome Powell, as well as ECB executive board members Peter Praet and Benoit Coeure.
There was a modest relief rally in Spain, where the main IBEX 30 stock index traded up close to 1%, with banks across the region seeing some bullish performance as participants continue to guess whether or not Catalonia will declare independence next week as Economy Minister Luis de Guindos poured cold water on Catalonia’s bid for independence. A well-received Spanish bond auction, the first since the referendum and which saw the highest 10-year bid-to-cover ratio since February, added to the optimism. Other auctions out of France and the UK were well digested across markets. The Spanish-German spread posted its first tightening this month.
Asian stocks were mixed after a four-day rally, with markets in Hong Kong, China and South Korea all closed for holidays. The Topix dropped -0.1% with the Nikkei 225 little changed. The MSCI Asia Pacific Index was little changed at 162.93. On Wednesday, the S&P 500 Index posted a slight gain, still ending at a fresh record, after data showed American services industries climbed at the fastest pace in 12 years, while private jobs numbers met expectations. Japan’s Topix index dropped for the first time in three days, led by insurers and transportation companies. Qantas Airways Ltd. closed at the highest level in almost 10 years in Sydney after Goldman upgraded the stock. Other markets: Australia’s S&P/ASX 200 Index was little changed, and New Zealand’s NZX 50 up +0.3%. Straits Times Index +0.8%, Philippines PSEi Index -0.6%, Malaysia’s FTSE KLCI Index -0.1%, Jakarta Composite Index -0.8%, Thailand’s SET Index +0.3%. India’s S&P Sensex Index +0.1%, Nifty 50 little changed
European bourses traded subdued, with outperformance in the IBEX 30, recovering from the losses seen yesterday. The Spanish stock index trades up close to 1%, with banks across the region seeing some bullish performance as participants continue to guess whether or not Catalonia will declare independence next week. A rangebound tone is the theme across the remainder of European indices, as utilities outperform, evident of the lack of risk trade. In Spain, the prospect of secession has increased pressure on Prime Minister Mariano Rajoy while rattling markets. His next move could involve suspending the regional government and implementing direct rule from Madrid. Emerging-market stocks are showing signs of shrugging off declines from last month that were triggered by concern a stronger dollar would hurt developing nations’ currencies.
“The focus is of course upon the situation in Spain and Catalonia,” Dennis Gartman, editor of the Gartman Letter, wrote in his daily emailed report. “Although Catalonia’s Parliamentary President, Mr. Puigdemont, has not yet officially called for an independent Catalan nation, he may do so early next week, at which time 1.17 shall almost certainly be given” for the euro.
The Bloomberg Dollar Spot Index was little changed while Treasuries and stock futures were stuck in tight ranges as traders stayed on the sidelines before a series of U.S. data and speeches by four Fed members including Chair candidate Jerome Powell. The pound and Aussie led G-10 losses while the euro struggled to rise a third day before ECB publishes the account of its September meeting. Currency-market volumes remain muted, with liquidity being described as below average.
GBP has seen the majority of early price action, where sterling saw a 0.6% drop vs. the dollar. Concerns about PM May’s tenure crept into markets overnight and through the morning, following the UK press reports from The Telegraph and The Times. However, Downing Street later came out and said this was not an issue for discussion. Cable could look towards pre hawkish Carney levels around 1.3150.
AUD saw the majority of volatility overnight, as Australian retailers were hit by the worst sales decline in over four years. August’s retail sales came in at -0.6% (M/M) leading to sharp selling pressure in the Australian dollar. AUD lost ground against both its major counterparts yet still consolidates inside current trading ranges, AUD/USD’s 2016 high continues to behave as support for the pair, with AUD/NZD not wanting to look toward 1.09.
Looking ahead, highlights include ECB Minutes, US Trade Balance, Weekly Jobs, Factory orders and a slew of central bank speakers.
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