It was a fairly quiet for global markets on Monday as investors continued to digest Friday’s non-farm payroll figures, comments from world leaders at the G20 summit in China while North American markets were closed for the Labour Day long weekend. Asian equity markets were broadly higher following the positive close of U.S. equity markets on Friday as softer than anticipated non-farm payroll figures reduced the odds of a September rate hike from over 30% to roughly 20% currently.
In Japan the Nikkei & Topix indices rose +0.66% & +0.23% while the USD/JPY strengthened +0.54% against the U.S. dollar following a speech by BoJ governor Kuroda where he did not rule out new initiatives to boost inflation as part of an upcoming assessment on the BoJ’s monetary policy meeting on the 20-21st of September.
Data from Japan also showed that labour cash earnings (YoY Jul) increased more than expected, up 1.4% vs 0.4% and real cash earnings which are adjusted for inflation increased 2% against expectations of a 0.7% gain. Further data showed weakness in the services sector with the Nikkei services PMI (MoM Aug) decreasing to 49.6 from 50.4 in July while a composite PMI survey declined from 50.1 in July to 49.8 in August.
China’s CSI300 index gained +0.17% as did the Hang Seng index up +1.65% as services PMI (MoM Aug) increased to 52.1 from 51.7 prior and the composite index (MoM Aug) slipped modestly to 51.8 from 51.9 prior. At the same time G20 leaders met in China which contained the usual rhetoric but little in the way of significant action with leaders stating there are against protectionism, for expanding trade, while recognising global growth remains weak with monetary policy alone unable to burden the responsibility.
The one very interesting meeting for me that came from the G20 was between Russian Energy Minister Alexander Novak and Saudi Arabia Energy Minister Khalid Al-Falih whereby both agreed that an output freeze would be the most constructive instrument for stabilising oil prices. While this adds to the recent comments we have seen signalling a willingness to agree towards an output freeze including those from Russian President Vladimir Putin, we are yet to see any significant action with Al-Falih stating there was no need to currently cap production with “markets trending in the right direction” although he remains confident of the ability to reach an agreement at a meeting between OPEC & non-OPEC producers later this month in Algeria.
Oil prices initially gained over 5% following the announcement of the meeting before giving back some of those gains with WTI & Brent crude oil up +1.64% & +1.22% respectively. Elsewhere copper prices closed +0.34% higher, natural gas prices fell -1.33% while both spot gold & Silver gained +0.13% & +0.40% with the U.S. dollar index modestly lower, down -0.07%.
We continued to see improvement in U.K. data with the services PMI (MoM Aug) jumping to 52.9 from 47.4 in July and against expectations for a reading of 50. At the same time the composite PMI survey (MoM Aug) also surpassed expectations rising to 53.6 from 47.5 previously and estimates of 50.8. The GBP/USD initially gained as much as +0.65% reaching a high of 1.3376 before finishing up +0.14% shown on the first chart below, weighing on the FTSE100 which closed -0.22% weaker while the FTSE250 was relatively flat, up just +0.05%.
At the same time the Euro was relatively unchanged against the U.S. dollar, down -0.03% as were European equity markets with the Euro Stoxx 600 & DAX also little changed at +0.05% & -0.11% respectively.
Locally the S&P/ASX 200 gained +1.06% as did the Australia dollar, up +0.23% meanwhile the market is set to open weaker this morning with ASX SPI200 futures down 20 points in overnight trading. Today marks the final policy meeting for outgoing RBA governor Glenn Stevens who will be succeeded by current deputy governor Philip Lowe in a fortnight. There is very little chance of a rate cut today with futures estimating the probability at less than 5% and following the RBA decision to lower the cash rate by 25 basis points in August to a record low 1.5% the RBA is likely to remain in a “wait and see” mode until at least the next quarterly inflation print at the end of October. Despite the economy expanding at 3% annually there is certainly scope for further easing later this year if we do not see a pickup in inflation and wage growth which have steadily been trending lower.
Data releases:
- RBA Cash Rate Decision (MoM Sep) 2:30pm AEST
- German Factory Orders (YoY Jul) 4:00pm AEST
- German Construction PMI (MoM Aug) 5:30pm AEST
- German Retail PMI (MoM Aug) 6:10pm AEST
- Euro-zone GDP (QoQ & YoY Q2) 7:00pm AEST
- U.S. ISM Non-manufacturing Composite (MoM Aug) 12:00am AEST
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via james.woods@rivkin.com.au or by phoning +612 8302 3600.