US MARKET WRAP – ECB Sources At It Again As Markets Await North Korea’s National Holiday
The latest ECB sources piece suggested that the governing council discussed 4 QE scenarios on Thursday and agreed that the next step is to cut stimulus, which should be implemented with the broadest possible consensus. Markets shrugged off the piece, and various ECB members weighed in on different matters throughout the session. Weidmann suggested that slow inflation and uncertainty over inflation’s path were behind the ECB's decision yesterday, with the bank set to wait and assess the monetary situation. Liikanen noted that he is of the belief that “policy must remain accommodative” and that “some decisions on QE will be taken in December” (akin to Draghi’s comments in yesterday’s press conference). Bank of Ireland chief Lane posited that “(the ECB’s) accommodative stance is there until we see convincing evidence inflation is on a sustainable path towards target,” and stressed that the “ECB is working out calibration of its instruments.” Rimsevics was the final ECB member to appear today, and he is of the belief that “it's not the ECB's job to worry about the euro's value.”
We also got some comments from the US Federal Reserve, as the influential permanent voter Bill Dudley stated that “inflation below the 2% target allows the Fed to be patient.” He also believes that is “too soon to judge the timing of next hike” and that “the balance sheet unwind is likely to happen relatively soon."
The USD continued its grind lower, although a tick up in yields helped the DXY off of its lows. Cable was the major beneficiary through European and US trade, despite a lack of GBP related headlines. The AUD and NZD gave up a chunk of their overnight gains, while the CAD moved away from best levels following a soft breakdown in the latest Canadian labour market report (despite a strong headline). The JPY benefitted on radiation detection from the most recent North Korean nuclear test, and although it moved away from its strongest levels the USDJPY cross continued to trade on a 107 handle.
Risk sentiment remained capped ahead of the weekend. Early sentiment next week is likely to be dictated by weekend events centring on North Korea. Saturday 9th September marks a national holiday, with South Korea suggesting that their Northern counterparts could conduct another nuclear/ballistic missile test on this day. This is not outside the realms of reality with Washington-Pyongyang tensions simmering and this holiday has experienced similar provocative acts in the past (although aerospace consultants have suggested that solar storms could prevent an ICBM test). As a result, the S&P 500 closed down 0.15% at 2,461.43, the NASDAQ 100 closed down 0.85% at 5,913.37 and the Dow closed up 0.06% at 21,797.39.
Fixed income operated in a narrow range in New York dealing ending well off of best levels, US Dec’17 10y T-note futures settled at 127.16, down half a tick.
Crude continued to slide on a headline-light day, ignoring the weekly Baker Hughes rig count. Late on Exxon stated that it is preparing to begin restart activities at its Beaumont Texas refinery after a sources piece suggested that the refinery may remain shut until the first week of October. Sources also suggested that the Motiva Port Arthur Texas refinery was preparing its large crude unit to restart production, the refinery noted that it remains on target to restart at 40% capacity by Monday. Both headlines came after futures settled and helped crude to move a few cents higher from worst levels. WTI crude futures settled at USD 47.48/bbl, down USD 1.61/bbl and Brent crude futures settled at USD 53.78/bbl, down USD 0.71/bbl.
08 Sep 2017 - 21:00- Fixed IncomeBank Speaker- Source: RANsquawk
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