Essential Insights

  • The ASX Index takes a hit as Australia and China tensions brew, could this worsen ?
  • USD stages a rebound , with the survival of the rally in question
  • Could EUR/USD be setting the stage to reach 1.25
  • US and European equity futures rise again, with treasuries slipping

Equities 

US equity bourses rose with the S&P 500 index and Nasdaq jumping along side its counterparts in Europe. This is thought to be in anticipation of broadly positive jobs data being reported today in the US economy, supplemented by a strengthening dollar. A pick up in today’s ADP employment report, especially in the private sector will likely fuel US equities even more.

The issuing on green bonds by Germany has allowed the powerhouse to net $39 billion as orders for the green bonds stacked. The Stoxx Europe 600 index is now heading towards its biggest gain in a month with EUR/USD briefly touching 1.2.

EUR/USD

Could EUR/USD be preparing for 1.25 next ?. It is certainly not off the table, back in August 2017, EUR/USD acted very similar to how prices are currently behaving. Prices also touched the 1.20 level, retracing immediately after followed by a 5% gain which saw prices at 1.25. Supporting current prices are high net long speculative positioning, bullish weekly candles and option positioning which shows a build in traders expected further dollar weakness.

Australia vs China 

AUD/USD slipped around 0.2% overnight during the Asian trading session following GDP data confirming the country has fallen into its first recession, Q2 GDP tanked by -7%  versus estimates of +6%. Additionally it has been reported that China have detained an Australian citizen , Cheng Lei. This is surprising as Journalists are typically not detained like this , a spokesman said this

“In the absence of evidence, the only conclusion we can come to is that she is being used as a hostage in a wider diplomatic spat between Australia and China, or perhaps because of some critical comments she may have made”

It is unlikely Cheng Lei made any rash comments, as an accomplished journalist she would likely know the language barriers on what to not say as a media professional and therefore this seems to be more of a wider ‘diplomatic spat’. It could potentially be related to Australia enquiring in to the origins of covid-19 and also supporting the US on the humans right act bill passed onto China.

US and Emerging Markets 

US ISM manufacturing data showed that the US economy is in expansion, with a reading of 56.0versus estimates of 54.8 and a previous value of 54.2 in the prior month. This is largely what has sparked the recent USD strength, later this week on Friday we have key data such NFP and unemployment (Check macro look ahead post), a disappointment here could easily see the rally reversed , whilst positive data could see the DXY claw back more losses after heavy selling.

The MSCI benchmark for emerging market stocks pushed higher coming into September after five straight weeks of gains. Investors are likely to increase flows here to achieve better returns as emerging economies lag behind developed ones.