Good morning. Our long suffering nightmare known as August 2016 has finally ended. Global markets have turned the calendar to a new month and September is filled with intrigue, suspense, policy meetings and even a presidential debate (I won’t even discuss the return of NFL football). Things kick off tomorrow morning with another hotly anticipated US jobs report. Investors around the world are waiting with baited breath for the announcement, which is expected to yield around 180k jobs created. As usual, the devil will be in the details so a strong headline number, coupled with higher revisions and rising wages, could spark a little Labor Day rally for the big dollar. The greenback has been the bell of the ball this week, edging higher almost every day following last week’s Jackson Hole symposium.
Although it was a quiet Asian session on Thursday, it was not due to a lack of data. Chinese official PMI data showed manufacturing come in at 50.4, better than the 49.9 which had been expected. Similar manufacturing PMIs from Taiwan, Korea and Malaysia were a mixed bag while Australian retail sales were flat for the month of July. The Australian dollar was largely unchanged, as were other commodity currencies, even as oil slumped lower again by a few basis points. Equities had a strong start to the new month, with Nikkei approaching it best levels in three months while shares in Hong Kong finished at the highest level in more than one year. The yen is sliding lower as North American trade kicks off, having fallen now through six of the last seven sessions. Traders have been ditching the yen at the dollar’s expense on the prospects for another US rate hike in anticipation of a big jobs number on Friday.
The euro literally has not moved over the last twenty-four hours despite some good movement by sterling. Overnight, a very strong UK manufacturing PMI was reported, back up to 53.3 for the month of August after July’s Brexit-led 48.3 print. Cable jumped by more than 1% and is not backing off, putting to test its best levels since late July. A slew of manufacturing PMIs from the euro-area were mostly in line with expectations, not garnering any attention from the broad market. Next Thursday’s European Central Bank meeting should come into focus over the next day or so and although no change is expected to be announced, Mr. Draghi’s press conference will again be a hot topic of debate. European equities rose on Thursday, boosted by a recovery in commodity stocks and another jump higher by bank stocks.
Turning to North America, it was announced this morning that only 263k Americans filed first-time unemployment claims for the week ending August 26th. The US Bureau of Labor Statistics also announced nonfarm labor productivity for the month of August, which declined at an annual rate of 0.6% during the second quarter. The big dollar is largely unchanged on these releases as participants sit on their hands ahead of tomorrow’s employment report. The odds for a September rate hike have increased again today, now up to 30% from 23% yesterday as indicated by CME Group’s FedWatch Tool. Just a few weeks ago, the market had given the prospects for a September rate hike at just 15% so it is clear that last week’s comments from the Fed’s Yellen and Fischer were taken very seriously by the market. The Fed will be meeting again on September 21st, to announce its decision on interest rates as well as its domestic economic projections. The Canadian dollar is unmoved this morning, even as oil’s had its best day of the week – only slipping lower by 0.6%. Some chatter overnight concerning OPEC’s unofficial meeting in Algeria, there are rumors that Saudi and Russian officials may be getting more comfortable with production cuts. Now two years into the price war, the cartel may be succumbing to budget pressures and evaluating their production positions to boost per-barrel prices. The commodity bloc is unchanged on these rumors but this yet another important storyline for what should be a busy month of September.
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