Market panorama. 15 August 2018

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I. Market focus

The pound continued to be under pressure in the morning session on Wednesday, due to worries that Britain's economic performance could deteriorate after Brexit. Such fears were fueled by speculation about the inability of London and Brussels to reach a deal on this issue. Additional pressure on the pound was exerted by the UK labor market data, which were released yesterday and turned out to be weaker than forecast, forcing the markets to adjust their expectations about the prospects of the Bank of England’s (BoE) monetary policy.

The main release of the morning session was the Australian report on wage price index. The figures were in-line with economists’ forecasts, confirming the continued sluggish growth of the indicator (if inflation is taken into account, the wage growth was actually flat), which, together with underemployment that is now observed in the Australian economy, suggests that the Reserve Bank of Australia (RBA) will keep its rates at a record low level for a long time.

At the beginning of Thursday’s session, the financial crisis in Turkey continued to be in the focus of markets, but the fears on this matter remained allayed for the second day due to the measures taken by the Turkish central bank on Monday (the regulator pledged to provide all the liquidity the banks need from its reserves, opened an opportunity for banks to borrow foreign exchange deposits in one-month maturities, raised foreign exchange deposit limits for lira transactions of lenders, etc.).

Among the macroeconomic data, set to be released on Wednesday, the most important will be the UK’s inflation statistics (08:30 GMT), as well as the U.S. data on retail sales (12:30 GMT), industrial production (13:15 GMT) and crude oil inventories (14:30 GMT ).


II. The market highlights are:

  • The U.S. Labor Department reported on Tuesday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, was unchanged m-o-m in July after a revised 0.1-percent m-o-m decrease in June (originally a drop of 0.4 percent m-o-m). Economists had expected prices to edge up 0.1 percent m-o-m last month. According to the report, the price index for import fuels advanced 1.6 percent m-o-m in July, while the price index for nonfuel imports declined 0.3 percent m-o-m. Over the 12-month period ended in July, import prices rose 4.8 percent, the largest 12-month advance since February 2012. At the same time, the price index for U.S. exports recorded a 0.5 percent m-o-m decrease last month, after rising 0.2 percent in June. The July decline was driven by a drop in agricultural export prices (-5.3 percent m-o-m), while non-agricultural export prices were flat m-o-m. Over the past year, the price index for exports rose 4.3 percent.

  • The Australian Bureau of Statistics (ABS) announced on Wednesday its wage price index (WPI) rose 0.6 percent q-o-q in the second quarter of 2018, following an unrevised 0.6 percent q-o-q gain recorded in first quarter. According to the report, private sector wages increased 0.5 percent q-o-q and public sector wages advanced 0.6 percent q-o-q in the second quarter. Through the year to the June quarter, the WPI advanced 2.1 percent, the same pace as in the prior two quarters, as private sector wages rose 2.0 percent and public sector wages grew 2.4 percent. Economists had expected the WPI would increase 0.6 percent q-o-q in the second quarter and 2.1 percent through the year. ABS Chief Economist Bruce Hockman noted: "Wage growth in Australia has grown at an annual rate of 2.1 percent, continuing to stabilize between 2.0 and 2.1 percent over the past four quarters. Annual growth across industries is varied with diverse wage pressure across the labour market."


III. Market Situation
Currency Market
The currency pair EUR/USD fell slightly, continuing the previous day’s trend, and refreshing this year’s low. The fall in the pair was attributable to the broad strengthening of the U.S. currency, supported by purchases of the U.S. dollar as a safe haven. In addition, investors are preparing to the release of the U.S. data on retail sales and industrial production. According to economists’ forecasts, retail sales edged up 0.1 percent m-o-m in July, while industrial output rose 0.3 percent m-o-m. In June, retail sales grew 0.5, percent m-o-m and industrial production advanced 0.6 percent m-o-m. Resistance level - $1.1433 (high of August 13). Support level - $1.1311 (low of July 5, 2017).

The currency pair GBP/USD traded slightly lower, near the new 13-month low. The pound remained under pressure due to worries that Britain's economic performance could deteriorate after Brexit, as well as weak data on the UK labour market, which were released yesterday and forced market participants to adjust their expectations about the prospects of the Bank of England’s (BoE) monetary policy. Today, investors will focus on the release of the UK’s inflation data for July. Since the beginning of the year, UK’s inflation has shown a downward trend after the sharp fall in the pound following the Brexit referendum led to an increase in import prices and pushed the consumer price index above 3 percent. In June, inflation was 2.4 percent. The Bank of England (BoE) expects that the price pressures will recover, as distortions associated with Brexit disappear, and the latest GDP data also showed that economic growth accelerated slightly in the second quarter. According to forecasts, the HICP rose by 2.5 percent y-o-y in July. Resistance level - $1.2827 (high of August 14). Support level - $1.2652 (low of June 22, 2017).

The currency pair AUD/USD fell sharply, reaching the lowest level since the end of 2016, due to a pervasive strengthening of the U.S. dollar and data on Australia, which suggest that the Reserve Bank of Australia (RBA) will keep its rates at a record low level for a long time. The Australian Bureau of Statistics (ABS) announced on Wednesday its wage price index (WPI) rose 0.6 percent q-o-q in the second quarter of 2018, following an unrevised 0.6 percent q-o-q gain recorded in the first quarter. According to the report, private sector wages increased 0.5 percent q-o-q and public sector wages advanced 0.6 percent q-o-q in the second quarter. Through the year to the June quarter, the WPI advanced 2.1 percent, the same pace as in the prior two quarters, as private sector wages rose 2.0 percent and public sector wages grew 2.4 percent. Economists had expected the WPI would increase 0.6 percent q-o-q in the second quarter and 2.1 percent through the year.  Resistance level - AUD0.7283 (high of August 14). Support level - AUD0.7158 (low of December 23, 2016).

The currency pair USD/JPY rose moderately, approaching the high of August 7, but then lost almost all gains on the back of a renewed flight from risks and a drop in U.S. Treasury yields. Investors also digested reports that Turkey’s government slapped an additional tax on imports of a broad range of American goods, including cars, cosmetics, tobacco and some food products. Today, the market participants will continue to closely monitor the situation in Turkey and will await the U.S. response to the country's decision to raise duties. Resistance level - Y111.52 (high of August 6). Support level - Y110.58 (low of August 14).

Stock Market

Index

Value

Change

S&P

2,839.96

+0.64%

Dow

25,299.92

+0.45%

NASDAQ

7,870.89

+0.65%

Nikkei

22,204.22

-0.68%

Hang Seng

27,298.20

-1.64%

Shanghai

2,723.64

-2.06%

S&P/ASX

6,329.00

+0.47%


U.S. stock indexes closed higher on Tuesday, as a raft of healthy earnings boosted investor optimism, and the Turkish lira’s recovery spurred a rebound in financials. Market participants also assessed the U.S. data import/export prices for July. The U.S. Labor Department reported the import-price index was unchanged m-o-m in July after a revised 0.1-percent m-o-m decrease in June (originally a drop of 0.4 percent m-o-m). Economists had expected prices to edge up 0.1 percent m-o-m last month. Over the 12-month period ended in July, import prices rose 4.8 percent, the largest 12-month advance since February 2012. At the same time, the price index for U.S. exports recorded a 0.5 percent m-o-m decrease last month, after rising 0.2 percent in June. Over the past year, the price index for exports rose 4.3 percent.

Asian stock indexes closed mostly lower on Wednesday, due to lingering concerns of a financial crisis in Turkey. The Chinese equities lagged as the latest data raised fears that the growth of the world's second largest economy could slow down amid a trade conflict with the U.S. The Japanese market also declined as Turkey worries weighed on investor sentiment, and provoked the strengthening of the yen against the U.S. dollar, putting pressure on the Japanese export-oriented companies.

European stock indexes are expected to trade lower in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.89% (-1 basis points)
Yields of German 10-year bonds hold at 0.33% (0 basis points)
Yields of UK 10-year gilts hold at 1.27% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in September settled at $66.75 (-0.43%). The crude oil prices fell moderately, reacting to the latest data from the American Petroleum Institute (API), and the strengthening of the U.S. dollar. The API reported yesterday the U.S. crude supplies rose by 3.66 million barrels for the week ended August 10. Meanwhile, supplies of gasoline fell 1.56 million barrels, while distillate stockpiles increased by 1.94 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).

Gold traded at $1,188.30 (-0.51%). Gold prices fell moderately, as the U.S. currency firmed amid concerns over the crisis in Turkey. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.07 percent to 96.80. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.

IV. The most important scheduled events (time GMT 0)


08:30

United Kingdom

Producer Price Index - Output

08:30

United Kingdom

Retail Price Index

08:30

United Kingdom

Producer Price Index - Input

08:30

United Kingdom

HICP ex EFAT

08:30

United Kingdom

HICP

12:30

U.S.

Retail Sales

12:30

U.S.

Retail sales excluding auto

12:30

U.S.

NY Fed Empire State manufacturing index

12:30

U.S.

Retail sales

12:30

U.S.

Unit Labor Costs

12:30

U.S.

Nonfarm Productivity

13:15

U.S.

Capacity Utilization

13:15

U.S.

Industrial Production

14:00

U.S.

NAHB Housing Market Index

14:00

U.S.

Business inventories

14:30

U.S.

Crude Oil Inventories

20:00

U.S.

Net Long-term TIC Flows

20:00

U.S.

Total Net TIC Flows

23:50

Japan

Trade Balance Total



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Focus market

  • The number of job openings was little changed at 6.7 million on the last business day of June
  • UK house prices in the three months to July increased by 3.3% against the same period a year earlier
  • German industrial production declined more then expected in June
  • The average of household spending in Japan was down 1.2 percent on year
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