Originally published by Rivkin Securities
Gold climbed again overnight to settle just below US$1,350 per ounce, very close to a one-year high. The climb in gold coincides with reducing probabilities of a further rate hike by the Federal Reserve this year as the Fed may want to wait longer to see how the economy is progressing. US stock markets closed almost unchanged overnight despite the risk-off sentiment in other assets.
The official Department of Energy oil inventory data showed a bigger than expected crude build while gasoline and distillates drew down quite significantly. This was the expected effect of hurricane Harvey as refineries were taken off-line, thus reducing gasoline production but also reducing crude demand. The data for this week and next will be taken with a grain of salt as the underlying trend will be obscured by the effects of the hurricane. US crude production plunged by approximately 9% last week as the hurricane shut-in a significant percentage of Gulf of Mexico production as well as some onshore production. WTI crude prices maintained above US$49 per barrel following the data.
The prices of many re-insurance companies have fallen substantially as many of them write major catastrophe insurance and they will certainly face a large number of claims from hurricane damage. The S&P reinsurer index is down 17% over the past month.
The AUD/USD has now firmly broken through the US$0.80 level and is now trading at US$0.805. This marks the high since early January 2015 although it should be seen more as a case of US dollar weakness rather than Aussie dollar strength. The US Dollar Index hit a 2.5-year low last night as traders appear to be questioning the safe haven status of the dollar. In Tuesday’s rate statement, The Reserve Bank of Australia (RBA) mentioned that it expects a stronger Aussie dollar to weigh on the outlook for output and employment as well as a slower pick-up in economic activity. Significant further strengthening above US$0.80 will likely concern the bank. Yesterday’s weaker than expected retail sales (0% growth for July) and lower than expected trade surplus initially weighed on the Aussie dollar although this reversed as the US dollar started to fall.
Data Releases:
- Australia RBA Governor Lowe Speaks 6:30pm AEST
- UK Manufacturing Production 6:30pm AEST
- UK Goods Trade Balance 6:30pm AEST