Markets hesitant as investors look to data for direction

Monday, September 28, 2015

After a somewhat disappointing September FOMC meeting as policymakers in the US opted to keep interest rates unchanged despite the hype surrounding the decision among market participants around the world Fed chair Janet Yellen offered additional clarity late last week. Comments on Friday offered investors reassurance that recent tumultuous market conditions were not going to dictate Fed policy and that the recovery in the US was still on track. The encouraging comments helped support a rebound in European markets as benchmark stock indices throughout the region added between 2.5-3.5%, however, US stocks struggled to push higher as a firm dollar capped upside potential. The dollar index rallied towards 96.700 against a basket of major currencies on Friday before pulling back towards the 50 day MA.  

The yen continues to find firm support around 120.00 against the dollar as Chinese growth concerns continued to weigh heavily on investor sentiment. Activity throughout September has been dominated by sideways trading either side of 120 as investor demand for the safe haven currency improved ahead of the September’s FOMC meeting and after disappointing Chinese PMI data. Today’s release of Chinese industrial profits for August further compound worries of sluggish economic performance with profits falling -8.8% y/y in August from -2.9% y/y the previous month. Early moves have seen the yen trade back towards 120.30 against the greenback, strengthening from Friday’s levels after it hit a two week high towards 121.24. Investors will be keeping a close eye on Japanese industrial production and retail sales data due out later on this week for any further yen appeal which could see strength over the coming sessions push it back towards 119.00 against the USD.

The pound sterling faced another under pressure week last week as selling dominated trading activity and dollar strength saw the pound lose over 2.6% throughout the week. Having recovered some of late August and early September’s steep losses against the greenback in a staggered fashion throughout the first half of the month, last week’s intense selling pressure largely owing to dollar strength and uncertainty regarding the Bank of England interest rate outlook have seen sterling revisit territory towards 1.5130. However, market participants are starting to turn bullish as a growing camp of analysts and economists expect policymakers to push for an early 2016 rates rise as improvements in the labour market and solid retail sales tighten what remaining slack there is in the UK economy. Investors will be paying close attention to data out this week, with the Nationwide house price index as well as the final second quarter GDP reading both due out on Wednesday while Markit’s manufacturing PMI reading later on this week will offer further insight into the health of the UK economy.   

JPY traded rangebound throughout most of September

JPY Curncy Japanese Yen Spot 2015 09 28 07 58 50

GBP posts steep losses against USD last week

GBP Curncy British Pound Spot 2015 09 28 08 39 51

Events for today

0245

CN

Aug

Industrial Profits

1330

US

Aug

PCE & Personal Income

1500

US

Aug

Pending Home Sales

1530

US

Sep

Midwest Manufacturing

Topics: GDP, US Fed, USD, BoE, JPY, DXY, GBP
More from: Kash Kamal