We begin a new week in a similar vein to the start of the previous one, albeit to a lesser degree of magnitude.
By Peter Martin
Monday, August 31, 2015
Risk appetite has waned once again, increasing demand for assets that are perceived as being more safe, while oil and stock prices have slid sharply.
In the forex market, the main beneficiary of this trend has been the Japanese yen, which advanced against a number of currencies in early trade on Monday, including the US dollar, the British pound and the Aussie dollar. USD/JPY fell 0.35% to 1.2128.
The euro also made gains against the US dollar, following better-than-expected eurozone inflation data. The harmonized index of consumer prices (HICP) was +0.2% year-on-year for this month, maintaining the same pace of change as has been seen in the preceding two months. This was firmer than anticipated, with the consensus estimate being for a 0.1% change, and although it is an ostensibly slight rate of inflation, it is a fairly encouraging outcome given the steep falls in oil prices in August.
The ECB meets this Thursday in order to decide on its monetary policy stance and no change is expected. The ECB will be aiming to beef up this slender headline inflation rate in the long term, of course, but the core level of inflation (coming in at 1.0% excluding alcohol, tobacco, food and energy) will perhaps provide some encouragement. EUR/USD rose 0.37% this morning to 1.1224.
We’re still more than two weeks away from the Fed’s next monetary policy meeting, but a key metric that could possibly swing those deliberations is due this Friday — the official government employment figures for August which are scheduled for release on Friday morning. Non-farm payrolls are expected to show an increase of 223,000, which would be a better pace of gains than the 215,000 seen for July, while the unemployment rate is expected to improve to 5.2% from 5.3%. With inflation so tame, though, meeting these expectations may not be enough to cause the Fed to pull the trigger in September for a rate rise. Average hourly earnings are expected to remain cool at +0.2% and it is a lack of traction in this area that is a key issue. With oil prices sliding so much recently and inflation data already well below target, it is unlikely that the FOMC will have enough confidence in the inflation outlook to tighten policy even with the strong advances that have been achieved in the labor market.
Oil fell heavily again today, US crude oil futures dropping more than 1% to $44.72 a barrel, as oversupply concerns continue to weigh on the market. August’s final reading for Chinese manufacturing PMI is set to be released late this evening and worries of an even faster contraction in this sector are acting as a further drag on oil prices.
The depressed risk sentiment in the market also weighed on stock prices at the open in New York, pushing the major stock indices into the red. Shortly after the opening bell on Wall Street, the Dow Jones was down 115 points or 0.69% at 16,528, while the S&P 500 Index fell 0.60% to 1976.8.
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