· Worries about a slowing U.S. economy and the possibility of further interest rate cuts in the wake of weak U.S. manufacturing data kept the dollar pinned down on Wednesday, as investors sought shelter elsewhere.
The greenback steadied or fell against most major currencies, after dropping from a two-year high overnight when data showed the U.S. manufacturing activity contracted at the fastest pace in more than a decade in September.
The weak data “was a very big miss”, said Westpac currency strategist Sean Callow in Sydney, adding that the market “went into it seemingly not ready for bad news.”
“It’s probably going to reverberate for a little bit longer,” he said, and then investors would shift to jobs data due on Friday to seek a broader read on the health of the world’s biggest economy.
· The dollar eased slightly against the euro to $1.0933 per euro and gave ground to the Australian and New Zealand dollars, retracing a bit of the large gains it made against them on Tuesday.
· The pound sank 0.2% against the dollar to $1.2280. It was headed back toward an almost one-month low plumbed overnight as traders are increasingly nervous about Britain crashing out of the European Union at the end of the month.
Prime Minister Boris Johnson will unveil his final Brexit offer to the European Union on Wednesday and make clear that Britain intends to leave the EU on Oct. 31, no matter what.
The dollar also rose marginally against the yen, to 108.84 yen, but steadied against a basket of currencies at 99.159 while the manufacturing shock echoed through other markets, dragging bond yields and Asian stock markets lower.
· Heading into October, it was clear Federal Reserve officials would face a difficult decision at their meeting at the end of the month. Just one day into October, the challenges have already become even more intense.
Analysts have been expecting that Fed policy makers would probably announce a plan on Oct. 30, after their two-day meeting, to expand the size of the central bank’s balance sheet. The questions would simply have been by how much and whether Chair Jerome Powell could stress that the move wasn’t a return to post-crisis quantitative easing but rather was “organic” growth in line with Fed tradition. It would have been a tough tightrope act to begin with, particularly given Powell’s tendency to speak off the cuff and the fact that he played down the repo market’s mayhem after the Fed’s most recent decision.
But that act just got tougher because it looks as if the Fed will have to deal with recession fears on top of repo strains.
The Institute for Supply Management’s factory index, which measures U.S. manufacturing, dropped to 47.8 in September, the lowest since June 2009.
President Donald Trump, for his part, didn’t take long to notice:
· Forecasts that the Fed will cut rates at its October meeting rose to 65.7% on Tuesday from 39.6% the previous day according to CME Group’s FedWatch tool.
· We’ll get a first reading on the strength of the labor market on Wednesday with private payroll data from ADP for September coming out at 8:15 a.m. Economists surveyed by Dow Jones are estimating 125,000 jobs added in September, down from 195,000 created in August.
Wednesday’s ADP job count comes ahead of Friday’s more closely watched Labor Department nonfarm payrolls report. A robust job market could curb investors fears that the U.S. economy may be slipping into a recession. Data on Tuesday showing the weakest manufacturing activity in a decade knocked the stock market.
· Two former officials who were engaged in the Trump administration’s dealings with Ukraine will meet with U.S. congressional committees starting this week, as the impeachment inquiry into President Donald Trump gains steam.
· The leaders of three U.S. House of Representatives committees accused Secretary of State Mike Pompeo of intimidating witnesses on Tuesday, and said doing so is illegal and “will constitute evidence of obstruction.”
Pompeo earlier on Tuesday sternly objected to the committees’ efforts to obtain depositions from five current and former State Department officials, as the Democratic-led House looks into President Donald Trump’s request to Ukraine’s president to investigate a domestic political rival, Democratic presidential candidate Joe Biden.
· Prime Minister Boris Johnson will on Wednesday unveil his final Brexit offer to the European Union and say that, if Brussels does not engage with it, Britain will stop talking and leave on Oct. 31 regardless.
· Billionaire hedge fund manager Ray Dalio said the White House’s deliberation on a block on U.S. investments in China made him wonder if bigger moves are on the way.
Dalio, founder of the world’s largest hedge fund, said in a lengthy LinkedIn post President Donald Trump could use special emergency powers like the freezing of Japanese assets and embargoing of oil to Japan in the 1940s.
“Regarding the capital and currency wars, the ability of the US president to unilaterally cut off capital flows to China and also freeze payments on the debts owed to China and also use sanctions to inhibit non-American financial transactions with China must be considered as possibilities,” Dalio, the co-chairman of Bridgewater Associates, said.
· The International Monetary Fund expects a more significant global slowdown than it did three months ago, said First Deputy Managing Director David Lipton, adding it’s difficult to see an economic recovery if the trade uncertainty continues.
· German Finance Minister Olaf Scholz said on Wednesday that Europe’s largest economy would be able to counter an economic crisis if there were one but added that he did not expect a downturn as bad as in 2008/2009.
· Japanese companies’ inflation expectations continued to stagnate in the three months to September, a Bank of Japan survey showed, a sign the central bank is making little headway in hitting its 2% price target despite years of heavy money printing.
Companies expect consumer prices to rise an average 0.9% a year from now, unchanged from their projection three months earlier, according to a poll taken by the BOJ as part of its detailed “tankan” survey released on Wednesday.
Firms also said they expect consumer inflation to hit 1.0% three years from now and an annual 1.1% five years from now, both unchanged from three months ago, the survey showed.
· Japanese Chief Cabinet Secretary Yoshihide Suga said the North fired two ballistic missiles from the country’s east coast, and one of them appeared to have landed inside Japan’s exclusive economic zone off its northwestern coast.
South Korea’s Joint Chiefs of Staff did not immediately confirm what the weapons were, how many were fired or how far they flew.
“We will continue to cooperate with the U.S. and the international community and do the utmost to maintain and protect the safety of the people as we stay on alert,” said Japanese Prime Minister Shinzo Abe.
· Now that China’s 70th anniversary celebrations are over, Beijing could take a “much harder” line on Hong Kong if violence continues to mount in the city, says a professor at Cornell University.
“I think the escalation of protests on the day of the anniversary celebrations has already tested Beijing’s patience and the situation now seems ripe for Beijing to stage a direct intervention,” Eswar Prasad, a professor of trade policy at Cornell University, told CNBC on Wednesday.
Police shot an 18-year-old protester in Hong Kong on Tuesday as violence escalated in the Chinese territory, despite a ban on rallies that day. It came the same day China celebrated the 70th year of the Chinese Communist Party’s rule with a massive display of its military might.
The shooting in Hong Kong was the first such known incident since pro-democracy demonstrations in the territory began peacefully on June 6. The rallies have since turned increasingly violent.
· Oil rebounded from several days of falling prices after industry data showed a surprise drop in U.S. crude inventories and offset weak economic readings in the United States that have depressed global stock markets.
Brent crude rose 47 cents, or 0.8%, to $59.36 a barrel by 0657 GMT, claiming back some of the ground lost over the past three sessions. U.S. West Texas Intermediate crude was at $54.29 a barrel, up 67 cents or 1.3%.
Front-month WTI prices settled down for a sixth straight session on Tuesday, their longest losing streak this year, after U.S. manufacturing activity dived to a 10-year low as U.S.-China trade tensions weighed on exports.
· WTI technical analysis: Mildly bid above $54, bias remains bearish
WTI oil is currently trading at $54.16 per barrel, representing 0.41% gains on the day.
The bounce from Tuesday's one-month low of $53.09 could be short-lived, as the daily chart indicators are biased bearish. For instance, the 14-day relative strength index is holding below 50.
The MACD histogram is printing deeper bars below the zero line, signaling a strengthening of bearish momentum. The 5- and 10-day moving averages (MAs) are also trending south, indicating a bearish setup.
More importantly, the downside break of the trendline connecting Aug. 7 and Sept. 3 lows confirmed on Monday is still valid.
All-in-all, the path of least resistance remains to the downside and the bearish outlook would be invalidated above the trendline resistance, currently around $55.55.
Thai
Eng