US MARKET WRAP – Something For Everyone; US National Finances Receive A Stop-Gap, The BoC Hikes, ECB Sources And Fake News On North Korea

Risk assets were boosted in early NY afternoon dealing after US President Trump said that “military action is not his first choice” and that “we will have to wait and see what happens with North Korea.” The move gained further traction as US House and Senate leaders suggested that the President and the Congressional leadership had agreed to pass Harvey aid and an increase in the debt limit/government funding through 15^th December (n.b. the FOMC is set to issue its final monetary policy decision of the year on the 13^th December), which was subsequently confirmed by Trump.

On the central bank front, the Bank of Canada surprised economists by hiking its benchmark rate for a second consecutive meeting, although markets had assigned a near 50% probability of such a move (the full RANsquawk quick take on the decision is available here). The statement didn’t contain any pre-commitals and many analysts are now focusing on the December meeting, with markets now pricing in a circa 50% chance of a hike at that particular decision following today’s move.

The usual ECB sources piece did the rounds in front of tomorrow’s monetary policy decision (the full RANsquawk preview for the decision is available here). This instalment suggested that the central bank is “unlikely a to reach decision on QE before its October meeting despite plans for informal discussion regarding the parameters around the programme.” The sources also noted that “the 2018 & 2019 inflation forecasts are likely to be trimmed” in tomorrow’s staff macroeconomic projections.

Another point to highlight is that risk did take a hit in the European morning on erroneous reports of a fresh earthquake being detected in North Korea.

Today also saw the Fed vice chair Stanley Fischer announce his resignation, effective on or around 13^th October 2017, he cited personal reasons.

The CAD was the standout performer in the FX space, with the USDCAD settling around 1.2230, away from the 1.2140 low that was hit in the wake of the BoC’s hike, but the cross was still over 150 pips lower on the day. Manulife see more room for CAD appreciation and suggested that the pair could hit 1.20. The JPY backed up as risk sentiment improved, with USDJPY pushing back above 109, as the CHF also took a hit. The AUD benefitted from CAD spill over effects, while the NZD appeared to be capped by AUDNZD appreciation. The EUR was choppy over the ECB sources piece, but finished the session virtually unchanged, with GBP operating in a relatively tight range.

US stocks moved higher through the Wall St afternoon as risk sentiment improved. The energy sector led the way as crude continued to rebound, industry heavyweight Valero (VLO) affirmed its capex outlook in the wake of Harvey and Exxon (XOM) received a notable ratings upgrade). The S&P 500 closed up 0.31% at 2,465.54, the NASDAQ 100 closed up 0.31% at 5,951.13 and the Dow closed up 0.25% at 21,807.43.

US Treasuries fell in the latter part of the session, tracking risk sentiment, with the short-end continuing to garner a lot of attention on the back of the debt ceiling worry/developments. US Dec’17 10y T-note futures settled at 127.03, down 10+ ticks.

The oil markets continued to rebound, while gasoline fell as Texan refineries continued to recover following Harvey. We also had murmurings out of Kuwait and Russia that there will be a November discussion regarding the potential extension of the OPEC/non-OPEC output cut deal (although both remained non-committal). These two positives outweighed force majeure being lifted on loadings of Libya's Sharara crude from the Zawiya terminal. WTI crude futures settled at USD 49.16/bbl, up USD 0.50, while Brent crude futures settled at USD 54.20, up USD 0.82 as traders await the weekly API crude inventory release scheduled for this evening.

06 Sep 2017 - 21:00- Fixed IncomeEconomic Commentary- Source: RANsquawk