CURRENCY MARKET WRAP
As of Fri Sep 13th, Singapore Time zone UTC+8
U.S. Dollar Index, -0.22%, 98.43
USDJPY, +0.33%, $108.18
EURUSD, +0.42%, $1.1056
GBPUSD, +0.01%, $1.2329
USDCAD, +0.13%, $1.3210
AUDUSD, +0.02%, $0.6863
NZDUSD, -0.19%, $0.6401
U.S. Total CPI for August increased 0.1% m/m, as expected, while core CPI, which excludes food and energy, rose a stronger-than-expected 0.3% (consensus +0.2%). The monthly changes left total CPI up 1.7% yr/yr, versus 1.8% in July, and core CPI up 2.4% (largest 12-month increase since July 2018), versus 2.2% in July.
In trade, Trump said he will delay the tariff rate increase on $250 billion of Chinese imports to Oct. 15 from Oct. 1. Those goods remain taxed at 25%, but the new 30% rate will be delayed at China’s request, as Oct. 1 marks the 70th anniversary of the People’s Republic of China. Trump also remarked that China is expected to buy large amounts of U.S. agricultural goods. Trump’s “gesture of good will” was followed up by a report from Bloomberg that the Trump’s advisers were considering an interim trade deal with China. This report was later refuted by sources from CNBC, which dampened an early rally effort in the stock market.
The U.S. Treasury market experienced some noticeable price swings on Thursday. Yields fell in unison with the 10-yr German bund yield following the ECB policy decision. Some factors that helped lift yields back up included a turnaround in the German bund yield, weekly jobless claims that remained at historically low levels, and a stronger-than-expected 0.3% increase in core CPI for August. The 2-yr yield increased five basis points to 1.72%, and the 10-yr yield increased six basis points to 1.79%. The U.S. Dollar Index lost 0.22% to 98.43, pressured by a rebound in the euro.
The ECB rolled out a massive stimulus package on Draghi’s last meeting as head of the central bank. Their actions reflect their resolve to boost the Eurozone economy and mitigate the risk of recession. These are the 5 Parts of the ECB September Stimulus Package 1. Interest rates cut by 10bp to -0.5% (as expected). 2. ECB dropped their calendar guidance. 3. Restarted bond purchases. 4. Changed their TLTRO rate to eliminate 10bp spread and provide more favourable bank lending conditions. 5. Introduced a 2 tier reserve system that would exempt part of bank holdings from negative rates. Instead of extending its losses below 1.09, Euro reversed sharply after Draghi’s press conference to trade well above 1.10. One of the reasons for a rebound in Euro was due to Draghi’s call on governments to go big with fiscal stimulus. He said “reform implementation must be stepped but substantially” to raise long term growth potential. The central bank has long felt that monetary stimulus alone won’t be enough and by doubling down on a massive stimulus package, he’s put the ball in their court. In addition, ECB tiering boosts Euro and 2y yields as tiering absorbs Euro liquidity from the interbank market by increasing the relative ECB deposit return. A tiered deposit rate suggests that policy rates have approached the effective lower bound.
STOCK MARKET WRAP
S&P500, +0.29%, 3,009.57
Nasdaq, +0.30%, 8,194.47
Nikkei Futures, +0.78%, 21,727.5
The S&P 500 advanced 0.29% on Thursday, as positive-sounding trade developments and stimulus measures from the ECB helped extend the market’s September rally. The Dow Jones Industrial Average increased 0.2%, and the Nasdaq Composite increased 0.3%. The Russell 2000 (-0.04%), however, finished just below its flat line.