Sample Category Title

U.S. Lawmakers Agree On Debt Limit Extension. The dollar recovered from its recent dive on an extension of the debt limit deadline to December 15 to make way for Harvey disaster bill and resignation of FOMC member Fischer due to personal reasons.

The Loonie Stands Tall After Rallying On BOC Hike And Upbeat Canadian Data. The Bank of Canada decided to hike interest rates by 0.25% instead of staying put for the second time this year. That gave the Canadian a strong boost across the board, on top of the pickup in crude oil prices in anticipation of better than expected EIA inventory data. Upcoming Canadian jobs release could garner a lot of market attention as this could make or break future hike speculations.

Euro Awaits ECB’s Policy Decision Due Later On Thursday. The euro held firm on Thursday ahead of a European Central Bank policy meeting. The euro edged up 0.1 percent to $1.1928 , although it was still trading below last week’s high of $1.2070, its highest level since January 2015.

Watch Out Today For:

09:00 am GMT: EUR Gross Domestic Product

11:45 am GMT: EUR ECB Interest Rate Decision

12:30 pm GMT: EUR ECB Monetary Policy Statement And Press Conference

USDSEK has been range-bound over the past week as the pair pauses after two months of heavy losses. Upside momentum has been gaining ground during the past week according to the stochastics, with the %K and %D lines trending up to rise above 50. However, the RSI is indicating only an easing of the bearish bias as it remains below the 50-neutral level and its flat direction suggests the consolidation will continue in the near-term.

Should the upside momentum gain further traction, immediate resistance should come at the top of the current range at 8.0200. Further up, the area around 8.12 could act as another hurdle as this has been a heavily congested region in the past. Above this area, the 50-day moving average (MA) comes into focus (currently at 8.17), followed by the previous resistance level of 8.225. A break above the 50-day MA would shift the bias to positive.

To the downside, the bottom of the range at 7.9065 is the nearest support. A break of this level would take the pair towards the May 2016 low of 7.8913. Further declines below this trough would deepen the bearish bias not only in the short term but also in the medium term, and open the way towards the 7.50 level.

EUR/USD has posted slight gains in the Thursday session. Currently, the pair is trading at 1.1960, up 0.31% on the day. On the release front, German Industrial Production came in at a flat 0.0%, shy of the estimate of 0.5%. Later in the day, the ECB releases its monthly statement, followed by a press conference with ECB President Mario Draghi. In the US, the key event is Unemployment Claims, which is expected to jump to 245 thousand.

The euro continues to trade at high levels, and is within striking distance of the symbolic 1.20 level. The euro has risen 13% against the dollar in 2017, and the trend could continue if the ECB decides to withdraw or taper its current quantitative easing (QE) program, in which the ECB makes monthly asset purchases of EUR 60 billion/month. The QE scheme is scheduled to terminate in December, and the ECB is yet to determine what happens next. Policymakers must weigh competing interests – Germany would like nothing more than the ECB to simply exit the program, which was brought in as an emergency measure to begin with. However, other eurozone members, which are not enjoying German-style growth, favor a gradual tapering of the program, perhaps lowering monthly asset purchases from EUR 60 billion to EUR 45 billion. Analysts are not expecting any announcements regarding QE at the Thursday meeting, although Mario Draghi has surprised the markets in his press conferences more than once. The exchange rate has also become a factor, as a stronger euro is equivalent to a raise in interest rates and has resulted in monetary tightening even without the ECB taking any action. In determining what course of action to take, ECB policymakers must wrestle with a dilemma which the Federal Reserve and other central banks are also struggling with – is tighter monetary policy warranted when the economy has improved, but inflation is mired at low levels? The markets will be dissecting the rate statement and Draghi's follow-up comments, and any hints about a change in policy could trigger significant movement from the euro.

It's been a disappointing week for German industrial numbers. Factory Orders declined 0.7%, well off the forecast of a 0.2% gain. This marked a 3-month low. On Thursday, German Industrial Production followed suit, as the reading of 0.0% missed the estimate of 0.5%. The unexpectedly weak readings come as a surprise, as the German economy has looked strong in 2017, and has been an important factor in the improvement in the eurozone economy. Global demand, which had been very strong in the first half of 2017, is showing signs of softening, and this could have a negative impact on the manufacturing sectors in Germany and throughout the eurozone. Germany releases Trade Balance on Friday, with the markets braced for a drop in the surplus for July.

Fresh bullish acceleration in European session broke above key barriers provided by daily cloud top and Fibo 61.8% of 1.3268/1.2773 descend, generating strong bullish signal.

Bulls are pressuring round-figure barrier at 1.3100 and may extend to 1.3151 (Fibo 76.4%), with close above 1.3080 required to confirm.

Hourly 10/20SMA/Tenkan-sen/Kijun-sen bull-crosses at 1.3050 underpin the action and offer solid supports.

Res: 1.3100, 1.3151, 1.3164, 1.3200
Sup: 1.3080, 1.3050, 1.3020, 1.3000

Spot Gold is trading in extended consolidation under fresh high at $1344, posted on Tuesday, as broader bulls are taking a breather before resuming higher.

The yellow metal is riding at the third wave of five-wave cycle from $1204, which eyes its next target at $1347 (FE 138.2%), but bulls may be delayed by negative signals from overbought daily studies.

Extended dips should be contained by rising 10SMA (currently at $1320) before bulls resume.

Conversely, early downside rejection would prompt fresh bullish acceleration towards initial target at $1347, possibly to $1352 (04 Sep 2016 peak) in extension.

Gold remains well supported as deterioration of geopolitical situation over North Korea’s nuclear probes maintains strong demand for safe-haven assets.

Res: 1344, 1347, 1352, 1358
Sup: 1331, 1326, 1321, 1318

• Yesterday was a very eventful day, as Donald Trump struck a deal with the Democrats on Harvey aid, government funding until December and a suspension of the debt limit until mid-December.
• In our view, this is just kicking the can down the road, as we now risk a government shutdown in December and/or a government default at some pint early next year.
• Yesterday, the Fed's Vice Chair Stanley Fischer announced that he will step down on or around 13 October, leaving four empty seats in the Board of Governors.
• The Wall Street Journal reports that President Trump is unlikely to nominate Gary Cohn as the next Fed Chair. This has increased the probability of the reappointment of Janet Yellen but Trump is known for wanting his own people in key positions.
• The many empty seats mean that it is difficult to say what direction the Fed will take next year. The Republicans may use the opportunity to shift the Fed in a more hawkish and rule-based direction.

Debt limit suspended until mid-December

Despite Republican House Speaker Paul Ryan saying that the Democratic proposal to suspend the debt limit for months was ‘ridiculous and disgraceful', President Trump sided with the Democrats. This means that we now have a bipartisan deal on Harvey aid, funding for the government for three months and a suspension of the debt limit until mid-December. The deal came earlier than we had expected, as we thought (in line with Republican members of Congress) the Trump administration would be willing to fight harder for a longer lasting solution to the debt limit. Basically, the deal means the risk of a government shutdown has only been postponed from the end of this month to December. Republicans still need a budget for the fiscal year 2018 (lasting from 1 October 2017 to 30 September 2018), eventually allowing them to avoid filibusters in the Senate through budget reconciliation. However, the main problem for the Republicans remains the internal disagreement between the fiscal hawks and the more moderate Republicans. The former, unlike the latter, wants to make major cuts in fiscal spending.

While the suspension of the debt limit expires in mid-December, the stricter deadline is likely some months afterwards, as the Treasury can now ‘refill' some of the extraordinary measures it has exhausted in recent months. This means there is still a risk of a government default at some point in 2018. It is not an option only to increase the Treasury's cash buffer at the Federal Reserve, as it needs to be back at the current level when the suspension of the debt limit expires in mid-December.

The suspension of the debt limit also means that the US Treasury can increase its debt issuance again.

Vice Chair Fischer steps down, four out of seven seats are now vacant

In addition, Fed Vice Chair Stanley Fischer has written a resignation letter to President Trump due to personal circumstances. Fischer will step down on or around 13 October, leaving four vacant seats at the Fed. While this move caught everyone by surprise, most believed Trump would not reappoint Fischer anyway when his term expired in June next year, so markets barely moved on the announcement.

With four out of seven seats at the Fed Board of Governors currently vacant – and possibly soon five, as it is not our base case that Trump will reappoint Janet Yellen as Fed Chair (see more below) – Trump has the power to shape the Federal Reserve in the way he wants (although the Senate has to approve his nominations). This makes it more difficult to say what the Fed will do next year, as it is difficult to say in which direction the Fed will go. Trump has not said much about monetary policy but he has said a few mutually contradicting things: (1) he says he wants higher rates but is a ‘low interest rate guy’ and (2) he says a strong USD is a sign of strength but that a weak USD is good for US exports. In other words, it is difficult to say whether the Fed will turn more hawkish or more dovish, as Trump does not really seem interested in monetary policy, as he thinks of economic policy in terms of trade policy and tax reform/deregulation/infrastructure investments. While President Trump does not seem very interested in monetary policy and the Fed, the Republican Party certainly is, as many Republicans are dissatisfied with the Fed’s low-rate policy. Many Republicans want a more rule-based Fed, which bases its monetary policy decisions on a policy rule. Based on a simple Taylor rule, which links the Fed funds rate to inflation and unemployment, the Fed funds rate should be around 3% now. In other words, we might see a more hawkish and rule-based Fed next year but the uncertainty is high. For more, see what we wrote back in February: Research US: Trump to nominate three Fed governors – Tarullo resigns, 13 February. Overall, it seems fair to say, the Fed’s independence may come under greater pressure.

Trump has already nominated Randal K. Quarles, as former Treasury Department official, to serve as Fed Vice Chair for Supervision (see NY Times). Quarles is considered more dovish on financial regulation than Daniel Tarullo, who was previously in charge of supervision (at least in practice).

Trump’s economic adviser Gary Cohn was favourite to succeed Yellen as Fed Chair but The Wall Street Journal reports that Trump is unlikely to nominate him due to Cohn’s criticism after Charlottesville. According to PredictIt, the most likely scenario is now that Yellen will be reappointed but this is not our base case.

Today, investors will be sitting on the edge of their seats in anticipation of the ECB policy gathering. Given that no change in rates is expected, market focus may be on whether the Bank will remove from its statement the easing bias that QE can be expanded both in terms of size and/or duration if needed. However, last week, reports citing sources familiar with ECB discussion, poured cold water on any removal expectations.

In our view, this suggests that in case the Bank maintains its QE easing bias, the market may react little, as it has already responded to the aforementioned reports. EUR/USD could tumble, but not much. It could test once again the key support barrier of 1.1830 (S1), or the medium-term uptrend line taken from the low of the 17th of April. The surprise would be a removal of that easing bias. This could cause EUR/USD to surge above the 1.2000 (R2) figure, and even break above 1.2100 (R3).

Another key point of interest may be any comments regarding the rapid pace of the euro's appreciation. However, even if the Bank seizes the opportunity to express some further worries about the euro's strength, we expect something like that to only trigger a correction. As long as Draghi continues to remind us that financial conditions remain accommodative, we don't expect a reversal in the common currency's uptrend. The risk to that view is any signals that financial conditions in general have started to tighten due to that.

The BoC did it again

Yesterday, the Canadian dollar skyrocketed after, in a surprise move for many market participants, the BoC decided to increase interest rates for the 2nd gathering in a row. The tone of the statement accompanying the decision remained on the hawkish side, with officials noting that recent economic data have been stronger than expected, confirming their view that growth is becoming more broadly-based and self-sustaining. On the inflation front, the Bank acknowledged that price pressures have evolved largely as expected in July, and that the latest increase is consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack.

As for future monetary policy decision, the Bank said that they will be guided by incoming economic data and financial developments as they inform the outlook for inflation. As such, investors are likely to pay extra attention to upcoming economic data in order to assess the probability for another rate hike this year. Specifically, the employment data tomorrow and the CPIs on the 22nd of September may be proven critical on that front. At the time of writing, the probability for another rate increase by year-end is around 55%. That probability could rise further if data continue to suggest that the economy continues to perform in line or better than the Bank anticipates.

USD/CAD collapsed yesterday, following BoC's unexpected decision to lift rates. The pair broke two support levels in a row, and stopped fractionally above the 1.2120 (S1) barrier, a support marked by the low of the 18th of June 2015. Then the rate rebounded and currently, it is trading slightly below the 1.2260 (R1) resistance. The BoC collapse confirmed a forthcoming lower low on both the 4-hour and daily charts and thus, we believe that the outlook remains negative. If the bears manage to take advantage of the rebound near 1.2260 (R1), we would expect them to pull the trigger for another test near the 1.2120 (S1), the break of which could open the way for the psychological zone of 1.2000 (S2).

As for the rest of today's events:

A few hours ahead of the ECB, the Riksbank will announce its own interest rate decision. The upbeat inflation data, and the stronger than expected economic growth for Q2, make us believe that the Bank could proceed with removing its interest rate bias at this policy gathering. What could make the Riksbank hesitant to remove its easing bias, is the strengthening SEK.

As for the economic data, we get Eurozone's final GDP print for Q2. Given that it is coming a couple of hours ahead of the ECB meeting, we expect it to pass unnoticed. In the US, we have initial jobless claims for the week ended on the September 1st, while in Canada, building permits for July and the Ivey PMI for August are due out.

Besides President Draghi, who will hold a press conference following the ECB decision, we have two more speakers on the agenda: Cleveland Fed President Loretta Mester and New York Fed President William Dudley. Following the latest dovish remarks from Brainard, Kashkari and Kaplan, it would be interesting to hear their view.

EUR/USD

Support: 1.1880 (S1), 1.1830 (S2), 1.1730 (S3)

Resistance: 1.1950 (R1), 1.2000 (R2), 1.2100 (R3)

USD/CAD

Support: 1.2120 (S1),1.2000 (S2), 1.1920 (S3)

Resistance: 1.2260 (R1), 1.2335 (R2), 1.2430 (R3)

EURUSD

The EURUSD had another indecisive movement yesterday. The bias remains neutral in nearest term. Immediate resistance is seen around 1.1950. A clear break above that area could trigger further bullish pressure testing 1.2000 psychological /key level which need to be clearly broken to the upside to end the current bearish correction phase targeting 1.2175 area. Immediate support is seen around 1.1900. A clear break below that area could trigger further bearish pressure testing 1.1823 key support. Overall I remain bullish and any downside pullback should be seen as a good opportunity to buy.

GBPUSD

The GBPUSD attempted to push higher yesterday topped at 1.3082 but closed lower at 1.3041, formed a bearish pin bar as you can see on my daily chart below, suggests a potential bearish view. The bias is bearish in nearest term testing 1.2980 support area. Immediate resistance is seen around 1.3082. A clear break above that area would nullify the bearish pin bar scenario targeting 1.3125/60 region as nearest bullish target. Overall I remain neutral.

USDJPY

The USDJPY attempted to push lower yesterday slipped below 108.70 key support but again, unable to make a clear break below that key level and closed higher at 109.17. The bias is neutral in nearest term. Key support remains at 108.70, which is a good place to buy with a tight stop loss. Immediate resistance is seen around 109.40. A clear break above that area could trigger further bullish pressure testing 110.00 region but key resistance is seen at 111.00 which is a good place to sell. On the downside, a clear break and consistent movement below 108.70 would expose 108.00 – 107.50 as nearest bearish target. Overall I remain neutral.

USDCHF

The USDCHF was indecisive yesterday. The bias is neutral in nearest term. Immediate support is seen around 0.9525. A clear break and daily close below that area could trigger further bearish pressure testing 0.9450 key support which remains a good place to buy with a tight stop loss. Immediate resistance is seen around 0.9615 followed by 0.9650 but key resistance remains at 0.9765 – 0.9807 region which remains a good place to sell with a tight stop loss. Overall I remain neutral.

EUR/USD

The EUR/USD pair posted another modest advance this Wednesday, ending the day not far below a weekly high of 1.1949 achieved in the US afternoon. The greenback remained under pressure during the first half of the day amid persistent risk aversion, extending its losses during the American afternoon on poor US macroeconomic figures. Germany released its July factory orders, unexpectedly down by 0.7% in the month, but with little effect over the common currency. As for the US, trade balance figures showed that the deficit shrank to 43.7B beating expectations of -44.6B, but the final services PMI for August were below expected, with the Markit index at 56.0, and the official ISM one down to 55.3 from market's forecast of 55.8.

Focus now shifted to the upcoming ECB monetary policy decision, and how Draghi will balance a cautious stance on QE with the optimistic economic outlook. A leaked draft of the ECB's statement made the rounds in the US afternoon, suggesting the ECB will cut its 2018/19 inflation forecast, anticipating also that they will plan the discussion over QE but won't reach any decision until the next meeting, by the end of October. Seems unlikely Draghi would say anything negative enough to put the common currency under pressure, despite nothing would make him more happy than a weaker EUR.

The technical picture is short-term neutral for the EUR/USD pair, confined to a tight range above a still directionless 20 SMA in the 4 hours chart, but also well above the larger ones. Technical indicators in the mentioned chart have turned marginally lower above their mid-lines, lacking enough strength to indicate the upcoming direction. The pair has relevant intraday lows in the 1.1860 region, the immediate support, followed by last week's low of 1.1822. Below this last the risk will turn towards the downside, but there's still a long way ahead before calling it bearish. Steady gains beyond 1.2000 after the ECB's dust settles, will open doors for gains beyond the yearly high set late August at 1.2070.

Support levels: 1.1900 1.1860 1.1820

Resistance levels: 1.1960 1.2000 1.2035

USD/JPY

The USD/JPY pair fell to a fresh weekly low of 108.45 late Asia, changing course abruptly in the US afternoon to settle above 109.30, on the back of news indicating that the US Congress agreed on a Harvey aid package, and extending the debt ceiling to avoid defaulting. The news brought relief to the poor greenback, hit by different fronts these last few days, although across the FX board, the yen seems to be the most sensitive to the headline. Japan will release its coincident and leading indexes during the upcoming session, although market will likely remain cautious ahead of the ECB announcement later on the day. Technically, the recovery remains corrective, as despite the almost 100 pips' advance, the pair remains below its moving averages in the 4 hours chart, also below the 23.6% retracement of the July/August decline, this last around 109.75. Technical indicators in the mentioned chart have bounced sharply from oversold readings, but remain within negative territory, overall indicating that the upward potential is limited at least as long as the price remains below the mentioned Fibonacci resistance.

Support levels: 108.60 108.10 107.70

Resistance levels: 109.00 109.35 109.80

GBP/USD

The GBP/USD pair kept advancing this Wednesday, with no negative UK headlines to alter its latest advance. The pair rallied up to 1.3081, its highest in over a month, before retreating from the 61.8% retracement of its August monthly decline, holding, however, on to gains at the end of the day. Dollar's broad weakness was the sole responsible of Pound's gains, as there were no macroeconomic releases coming from the UK, whilst the c calendar will remain scarce this Thursday. On Friday, however trade balance and industrial production figures for July will take center stage. Brexit negotiations remain in a limbo as the clock keeps ticking towards the 2-year term. For now, seems not a big issue for the Pound, but sooner rather than later will take its toll. In the meantime, the pair retains its positive tone in the short term, as in the 4 hours chart, it holds well above a now bullish 20 SMA, which advance well beyond the 200 EMA, this last around 1.2945. In the same chart, technical indicators are modestly retreating from overbought levels, but still well above their mid-lines. Nevertheless, the pair would need to surpass the mentioned Fibonacci resistance to be able to extend its gains, with scope then to test 1.3140 region.

Support levels: 1.3020 1.2985 1.2950

Resistance levels: 1.3080 1.3110 1.3140

GOLD

Gold trimmed all of its Tuesday's gains, plummeting in the US afternoon as the greenback surged against safe-haven assets, on news announcing US President Trump agreed to a request from Democrats to raise the debt ceiling and extend government funding through Dec. 15, alongside with approving an aid package for the victims of Hurricane Harvey. The commodity fell to a daily low of $1,331.62 a troy ounce, and stands right above this last ahead of Wall Street's close, pointing to its lowest settlement for the week. From a technical point of view, the commodity is poised to correct further lower, as in the daily chart, technical indicators are finally retreating substantially from overbought readings, although the price remains far above bullish moving averages, these lasts indicating that the bullish case is not over yet. Shorter term, and according to the 4 hours chart, the risk has also turned towards the downside, as the price is breaking below its 20 SMA, the Momentum is entering negative territory with a strong downward slope, whilst the RSI also heads, south, but currently at 53. The weekly low was set at 1,326.40, while Friday's close comes at 1,324.21, making of the region around 1,325.00 a strong support level, and a line in the sand ahead of a steeper declines for this Thursday.

Support levels: 1,331.60 1,325.00 1,318.40

Resistance levels: 1,338.50 1,344.30 1,352.55

WTI CRUDE OIL

Crude prices keep advancing this Wednesday, with the US benchmark settling at $49.10 a barrel, its highest settlement in nearly a month. The commodity maintains the positive tone amid renewed demand for crude after the Hurricane Harvey passed through Texas, and ore refineries are resuming activity. A new Hurricane in the area, Irma, also helped lifting prices, on fears it will hurt US oil production. News that Russia and Saudi Arabia may extend the output cut, added to the bullish case. The daily chart shows that the price moved one step further towards the 200 DMA, but closed right below it, whilst technical indicators have extended beyond their mid-lines, maintaining their strong upward momentum ahead of the API release. In the 4 hours chart, the price is far above its 100 and 200 SMAs, while technical indicators consolidate within overbought readings, far anyway from suggesting upward exhaustion. The 50.00 level is a tough bone to break, yet if WTI manages to break above it, 52.00 becomes a more than likely bullish target.

Support levels: 48.20 47.70 47.15

Resistance levels: 49.40 49.90 50.40

DJIA

Wall Street closed with gains, with the DJIA adding 54 points, to 21,807.64, and the Nasdaq Composite up 0.28%, to 6,393.31. The S&P added 7 points and settled at 2,465.54. Backing the rally were higher energy prices, as oil began recovering post-Harvey, while US lawmakers reached a deal to extend the debt ceiling until December. Home Depot was the best performer within the Dow, up 2.37%, followed by Chevron that gained 2.15%. Exxon was also within the top 10 winning list, after gaining 2.07%. United Technologies, on the other hand, was the worst performer, losing 1.42%. The index trimmed part of its Tuesday's losses, but further gains are still at doubt, as in the daily chart, the intraday advance stalled around the 20 SMA, while technical indicators have turned modestly higher, but are currently within neutral territory. In the shorter term an according to the 4 hours chart, the index remains below all of its moving averages, with the 20 SMA maintains a sharp downward slope, whilst technical indicators have corrected oversold conditions, but are currently resuming their declines within negative territory, limiting chances of further gains as long as the index remains below 21,845, the daily high.

Support levels: 21,795 21,758 21,721

Resistance levels: 21,845 21,891 21,932

FTSE100

The FTSE 100 remained under pressure this Wednesday down 18 points, to close at 7,354.13, as despite market mood improved modestly, the Footsie was weighed by a strong Pound. Despite most members closed higher, the benchmark was dragged lower by Barratt Developments, which shed 4.57%, as despite posting a record annual profit, it offered a forecast of only "modest growth" in the next financial year. Micro Focus International added 6.16% leading advancers, and followed by Next that gained 2.51%. The index has partially recovered previous losses, but is still looking bearish according to the daily chart, as it held below a bearish 20 DMA which extends its decline below the 100 DMA, while technical indicators remain within bearish territory, although with limited directional strength. Shorter term and according to the 4 hours chart, the risk is also towards the downside as the index keeps developing below all of its moving averages, anyway converging directionless in the 7,400 region, whilst technical indicators seem to be resuming their declines within bearish territory.

Support levels: 7,333 7,288 7,241

Resistance levels: 7,400 7,444 7482

DAX

European equities closed marginally higher, led by the German DAX, as the automotive sector was lifted by rating upgrades. The benchmark added 90 points, to end at 12,214.54, with Daimler being the best performer, up by 4.34%, followed by Volkswagen which added 2.98% after Goldman Sachs upgraded the first from neutral to buy. Deutsche Bank added 2.13% after its CEO said that the ECB should begin tapering, in spite of a strong EUR. Only E.ON closed in the red, down 0.56%. The index gained upward potential according to the daily chart, surpassing sharply its 20 DMA, and with technical indicators maintaining strong upward slopes within positive territory. In the 4 hours chart, the index settled a few points above its 200 SMA for the first time in almost two months, and far above the shorter ones, whilst technical indicators have lost part of their upward strength, but remain within positive territory. ECB's announcement this Thursday will be the main market motor for the index.

Support levels: 12,241 12,207 12,166

Resistance levels: 12,301 12,342 12,383

Notes/Observations

Sweden’s Riksbank sticking to its established policy script; keeps both policy and rate path unchanged

ECB expected to keep policy steady; focus on whether ECB provides guidelines on QE taper

China Aug FX Reserves registers its 7th straight month of increase to $3.0915T

Overnight

Asia:

UN Draft resolution has US seeking to freeze the assets of Kim Jong-Un and ban North Korean guest workers. Also continues to seek an oil embargo on North Korea, though Russia has indicated it opposes this move

White House: Trump, China’s Xi condemned N Korea’s latest provocative, destabilizing action. Both leaders committed to achieving denuclearization of Korean peninsula

Europe:

ECB still not likely to reach decision on QE before the Oct 26th MPC meeting. ECB technical committee said to still be reviewing informal policy proposals for the General Council on various scenarios for size/duration of asset purchase for QE program in 2018

PM's Office said to be asking leaders of largest UK companies to sign letter of support for May's Brexit strategy, but many CEOs are refusing

EU to call on UK to find solutions that avoid the creation of hard border with Ireland and guarantee peace on the island

Catalonia Parliament sets binding referendum on independence from Spain for Oct 1

Americas:

President Trump and Congressional leaders have agreed to pass Harvey aid along with a short term debt limit and govt funding bill (would fund the govt and extend the debt limit through Dec 15th). Both sides want to avoid a default in December

President Trump: military action is not the first choice for dealing with North Korea. Would have to see what happens with N Korea. Had very strong, very frank conversation with China President Xi

Fed Beige Book noted that economic activity expanded at modest pace across all districts. Majority of districts saw limited wage pressures and modest to moderate wage growth.

Energy:

Weekly API Oil Inventories: Crude: +2.8M v -5.8M prior

Economic data

(NL) Netherlands Aug CPI M/M: 9=0.2 v 0.7% prior; Y/Y: 1.4% v 1.3% prior

(NL) Netherlands Aug CPI EU Harmonized M/M: 0.2% v 0.8% prior; Y/Y: 1.5% v 1.5% prior

(JP) Japan July Preliminary Leading Index: 105.0 v 105.1e; Coincident Index: 115.6 v 115.8e

(DE) Germany July Industrial Production M/M: 0.0% v 0.5%e; Y/Y: 4.0% v 4.6%e

(NO) Norway July Credit Indicator Growth Y/Y: 5.7% v 5.9%e

(NO) Norway July Industrial Production M/M: 0.7% v 0.3% prior; Y/Y: 0.5% v 5.4% prior

(NO) Norway July Manufacturing Production M/M: 1.9% v 0.8%e; Y/Y: 1.4% v 1.1% prior

(FR) France July Trade Balance: -€6.0B v -€4.9B prior

(MY) Malaysia Central Bank (BNM) left its Overnight Policy Rate unchanged at 3.00% (as expected)

(CH) Swiss Aug Foreign Currency Reserves (CHF): 716.7B v 714.9B prior

(UK) Aug Halifax House Prices M/M: 1.1% v 0.2%e; 3M/Y: 2.6% v 2.1%e

(SE) Sweden Central Bank (Riksbank) left its Repo Rate unchanged at -0.50% (as expected); maintained its Repo Rate path

(CN) China Aug Foreign Reserves: $3.0915T v $3.095Te (7th straight month of increase)

(EU) Euro Zone Q2 Final GDP Q/Q: 0.6% v 0.6%e ; Y/Y: 2.3% v 2.2%e

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro) sold total €4.57B vs. €3.5-4.5B indicated range in 2022, 2027 and 2033 Bonds

Sold €1.78B in 0.4% Apr 2022 SPGB; Avg yield: 0.213% v 0.233% prior; Bid-to-cover: 1.88x v 1.60x prior

Sold €1.31B in 1.45% Oct 2027 SPGB; Avg yield: 1.54% v 1.649% prior; Bid-to-cover: 1.97x v 1.23x prior

Sold €1.48B in 2.35% July 2033 SPGB; Avg Yield: 2.17% v 2.29% prior; Bid-to-cover: 1.78x v 1.37x prior

(ES) Spain Debt Agency (Tesoro) sold €700M vs. €250-750M in 0.65% Nov I/L 2027 bonds; Real Yield: 0.371%; Bid-to-cover: 1.94x

(FR) France Debt Agency (AFT) sold total €8.999B vs. €8.0-9.0B indicated range in 2027, 2036, 2041 and 2060 Oats

Sold €5.214B in 1.00% May 2027 Oat; Avg Yield: 0.67% v 0.75% prior; Bid-to-cover: 1.99x v 2.15x prior

Sold €1.575B in 1.25% May 2036 Oat; Avg Yield 1.38% v 1.49% prior; Bid-to-cover: 1.76x v 2.23x prior

Sold €1.28B in 4.50% Apr 2041 Oat; Avg yield 1.49% v 1.50% prior; Bid-to-cover: 1.95x v 2.25x prior

Sold €930M in Apr 4% 2060 Oat; Avg yield: 1.84% v 2.17% prior; Bid-to-cover: 2.13x v 1.53x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 flat at 373.8, FTSE flat at 7357, DAX +0.6% at 12283, CAC-40 +0.3% at 5115, IBEX-35 +0.1% at 10140, FTSE MIB -0.4% at 21739, SMI -0.2% at 8839, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes:

European Indices trade mixed with outperfomance in the German Dax, whilst weakness is observed on the FTSE MIB and the Swiss SMI. Markets are trading in a holding pattern ahead of the ECB rate decision later today. In the UK Microfocus continues its momentum higher following on from results from HPE, trading a further 4% higher. Bovis Homes outperforms after results, on the downside Go Ahead Group lags after disappointing results. Elsewhere Altran outperforms following earnings whilst Wendel trades sharply lower.
Looking ahead to the US morning, notable earners include Dell Tech, Conn and Barnes and Noble.

Equities

Consumer discretionary [Havelock [HVE.UK] -50% (Profit warning, Go Ahead Grp [GOG.UK] -8.7% (Earnings)]

Financials: [Ashmore [ASHM.UK] -6% (Earnings), ZPG [ZPG.UK] +4.9% (Acquistion), Direct Line [DLG.UK] +3.6% (No reason seen), Wendel [MF.FR] -7% (Earnings)]

Technology: [ Altran [ALT.UK] +4% (Earnings)]

Healthcare: [Circassia [CIR.UK] +15% (Phase III AMPLIFY trial demonstrated a statistically- significant improvement in lung function in patients with COPD)]

Real Estate: [Bovis Home [BVS.UK] +9% (Earnings)]

Speakers

SwedenCentral Bank (Riksbank) policy statement reiterated that 1st rate hike not seen until mid-2018 but was prepared for more easing if necessary. To change inflation gauge to CPIF and introduce variation band around target; 2% target still applied

Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference noted that the domestic economy was developing better than expected but too early to make policy less expansionary. SEK currency has strengthened faster than its July forecast

France Constitutional Council said to have approved labor reform process

Norway Stats Agency (SSB) Quarterly forecasts raised 2017 Mainland GDP from 1.9% to 2.0% but cut 2018 Mainland GDP from 2.2% to 2.1%. It also cut 2017 Underlying CPI from 1.7% to 1.6%

Germany Chemical Industry Group (VCI) maintained its 2017 Sales growth at 5.0% and Production growth at 1.5%

Hungary Central bank's Virag: CPI seen returning to around 2% by end-2017

Ukraine President Poroshenko: 2017 GDP growth seen at 1.8%

Turkey Presidential advisor Ertem: Economy can grow over 5% without creating inflation

Malaysia Central Bank policy statement reiterated that its monetary policy stance remained accommodative and expected headline inflation expected to moderat. MYR currency (Ringgit) had appreciated to better reflect fundamentals. Domestic Demand to remain key driver of growth

China FX Regulator SAFE reiterated to keep forex reserves at reasonable, appropriate level

South Korea Foreign Ministry spokesman: Sanctions on North Korea should inflict pain this time and such practical measures were needed

South Korea President Moon: Warned of another North Korea missile launch possibly as early as this Saturday (national founding day)

North Korea: Will take powerful counter-measures in response to US pressure

Currencies

EUR/USD was slightly higher ahead of the ECB rate decision. ECB expected to keep policy steady with particular focus on whether the central bank would provide any guidelines on its looming QE taper. No final decision on the next steps is expected until at least the October meeting, suggesting there are many variations of the wind-down being discussed. The pair has been holding above the 1.1820 level keeping the current uptrend intact

Overall FX markets relatively quiet but the USD remained on soft-footing. USD/JPY slightly lower just below the 109 level as Korea remains on the front burner with another NK missile launch possible around the weekend.

Fixed Income

Bund futures trades at 162.28 down 28 ticks, ahead of the ECB rate meeting. Trading has been range bound with immediate support at 162.93, with support lying just below 162.00.

Gilt futures trades at 127.37 down 22 ticks trading towards the session low, with continued downside targeting 126.88, followed by 126.49. A reversal targets 127.83 initially.

Thursday’s liquidity report showed Wednesday’s excess liquidity fell to €1.773T from €1.780T prior. Use of the marginal lending facility rose sharply to €1.04B from €248M.

Corporate issuance continued to see strong flows with $13.3B coming to market via 11 issuers following on from $22B seen yesterday. Notable issuers included Visa $2.5B 3 part offering, Sinopec $3.25B 4 part offering and Bank of Montreal $2.5B 2 part offering.

Looking Ahead

(IL) Israel Aug Foreign Currency Balance: No est v $110.1B prior

(MX) Mexico Aug Vehicle Production: No est v 286.4K prior; Vehicle Exports: No est v 243.1K prior

05:30 (ZA) South Africa July Total Mining Production M/M: +0.8%e v -2.6% prior; Y/Y: +2.0%e v -0.8% prior; Gold Production Y/Y: No est v -3.6% prior; Platinum Production Y/Y: No est v -13.7% prior

05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills

05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds

06:00 (IE) Ireland Aug CPI M/M: No est v 0.0% prior; Y/Y: No est v -0.2% prior

06:00 (IE) Ireland Aug CPI EU Harmonized M/M: No est v 0.1% prior; Y/Y: No est v -0.2% prior

06:00 (IE) Ireland Aug Live Registry Monthly Change: No est v -3.0K prior; Live Registry Level: No est v 256.8K prior

06:45 (US) Daily Libor Fixing

07:00 (ZA) South Africa July Manufacturing Production M/M: 0.5%e v 0.0% prior; Y/Y: -0.3%e v -2.3% prior

07:30 (CL) Chile Aug International Reserves: No est v $38.4B prior

07:30 (CL) Chile Aug Trade Balance: $0.1Be v $0.2B prior; Total Exports: $5.8Be v $5.2B prior; Total Imports: $5.6Be v $5.0B prior; Copper Exports: No est v 2.5B prior

07:45 (EU) ECB Interest Rate Decision: ECB expected to keep key rates unchanged; Leave Main Refinance Rate unchanged at 0.00%; Leave Marginal Lending rate unchanged at 0.25%; Leave Deposit Rate unchanged at -0.40%

08:00 (CL) Chile July Nominal Wage M/M: 0.5%e 0.4% prior; Y/Y: 4.4%e v 4.4% prior

08:05 (UK) Baltic Dry Bulk Index

08:00 (PL) Poland Aug Official Reserves: No est v $109.8B prior

08:20 (HU) Hungary Central Bank Gov Matolcsy speaks

08:30 (US) Initial Jobless Claims: 245Ke v 236K prior; Continuing Claims: 1.95Me v 1.942M prior

08:30 (US) Q2 Final Nonfarm Productivity: 1.1%e v 0.9% prelim; Unit Labor Costs: 0.6%e v 0.6% prelim

08:30 (CA) Canada July Building Permits M/M: -1.5%e v +2.5% prior

08:30 (EU) ECB Chief Draghi post rate decision press conference

08:30 (EU) ECB updates Staff Projections

09:00 (MX) Mexico Aug CPI M/M: 0.5%e v 0.4% prior; Y/Y: 6.7%e v 6.4% prior, CPI Core M/M: 0.3%e v 0.3% prior

09:00 (RU) Russia Gold and Forex Reserve w/e Sept 1st: No est v $420.5B prior

10:00 (CA) Canada Aug Ivey Purchasing Managers Index (Seasonally Adj): No est v 60.0 prior

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (US) Weekly DOE Crude Oil Inventories

12:00 (CA) Canada to sell 3-Year Bonds

12:15 (US) Fed’s Meister on economic outlook and monetary policy

19:00 (US) Fed’s Dudley (voter) on economic outlook and monetary policy