Monday saw a sharp rebound in U.S. equity markets following Friday’s sell-off as comments from Federal Reserve Governor Lael Brainard, who is a permanent voting member of the FOMC, helped to stem concerns of tighter monetary policy. There was no real key data to guide markets so more attention was focused on Brainard’s than perhaps usual, which is the final speech before the FOMC’s September 20-21st meeting.
Brainard is seen as a dove, someone who favours lower interest rates and there was speculation as to whether she may adopt a more hawkish tone in her comments similar to those of Boston Fed President Eric Rosengren on Friday whose comments prompted a sell-off in markets. However there were no such hawkish comments as Brainard stated “the case to tighten policy pre-emptively is less compelling” and that “it’s easier for the Fed to react to faster-than-expected demand than to a negative surprise that upsets the economy”.
These comments certainly seemed to reassure markets with the US Dollar Index slipping -0.22% while both the S&P 500 & Nasdaq 100 gained +1.47% & +1.78% respectively. All ten sectors of the S&P500 finished positive for the session with the biggest gains coming from the more defensive sectors of Telecommunications (+2.0%), Consumer Non-cyclicals (+1.86%) and Utilities (+1.73%). Meanwhile Bond yields declined modestly as the treasury auctioned US$44 billion in new debt with the yield on two year securities falling 1.6 basis points to 0.7741% and the yield on the ten year dropping 0.5 basis points to 1.6663%.
Crude Oil prices were boosted by a weaker dollar and news of fighters in Libya, Africa’s largest oil producer, taking control of key export terminals dampening expectations of restoring production to 900,000 barrels a day by the end of 2016. Both WTI & Brent Oil reversed initial losses of up to 2.5% before closing +0.39% & +0.33% higher respectively. Elsewhere United States Natural Gas (NYSE:UNG) prices jumped +3.79% as warmer temperatures in the U.S. are expected to continue for the next two weeks although market expectations are for this to begin to fade in the coming weeks. Elsewhere Copper prices finished +0.65%, as did spot silver +0.14% while spot Gold pared initial losses to finish relatively flat, down just -0.04%.
European equity markets closed lower on Monday however they finished well above the lows of the sessions. The Euro Stoxx 600 closed -0.95% weaker after initial losses of up to -2.03%, as did the FTSE 100 which declined -1.12% having made initial losses of up to -1.80%. Meanwhile the EUR/USD swung between gains and losses before finishing relatively flat, up just +0.09% against the U.S. dollar as the British Pound climbed +0.48%.
Japanese equity markets were decisively lower on Monday with both the Nikkei 225 & Topix 100 indices down -1.73% & -1.54% and despite a stronger USD/JPY overnight which gained +0.74% we can expect a stronger open this morning with Nikkei futures up 130 points. Typically a stronger Yen tends to weigh on the Nikkei given the large portion of overseas earnings by index constituents.
The AUD/USD reversed initial losses to close +0.36% on Monday while the S&P/ASX 200 took a beating finishing down -119.57 points (-2.24%) at 5,219.61. Meanwhile the market looks set to make up a significant portion of this lost ground today with ASX SPI200 futures up 79 points in overnight trading.
Data releases:
· Australian NAB Business Confidence (MoM Aug) 11:30am AEST
· Chinese Industrial Production, Retail Sales & Fixed Asset Investment Excluding Rural (YoY Aug) 12:00pm AEST
· German CPI (YoY Aug) 4:00pm AEST
· U.K. CPI (YoY Aug) 6:30pm AEST
· German Current Situation & Economic Sentiment Survey’s (MoM Sep) 7:00pm AEST
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd.