Risk averse sentiment dominated the price action overnight, with Chinese equities (Shanghai Comp -8.5%) again under heavy selling pressure as market participants were left disappointed by the lack of action by the PBOC to ease monetary conditions further. As a result, equity indices in Europe opened sharply lower and in spite of coming off the worst levels of the session, remain broadly lower, with materials and energy sectors underperforming. On that note, the rout in energy and base metals markets saw WTI fall to its lowest level since February 2009, Brent crude to its lowest level since March 2009, while iron ore and steel hit limit down overnight and traded around 9 year lows.
Looking elsewhere, JPY benefited from risk averse and interest rate differential flows as market participants scale back Fed rate hike expectations, which in turn saw the pair fall below the 200DMA line and hit its lowest levels since mid-July.
US data will once again remain in the spotlight this week, with fewer and fewer data points remaining before the crucial September rate decision. As a reminder, last week saw the release of the minutes from the previous FOMC meeting and saw the central bank highlight both domestic and global concerns, paying special attention to the ongoing situation of China. This was of
particular interest to market participants as the latest meeting took place prior to the most recent developments in China, whereby the PBoC took the
decision to devalue the CNY, while Chinese stocks have continued to fall with the Shanghain Comp today erasing all YTD gains. As such, after the
Fed minutes release, CME Fed watch now suggests markets are pricing in just a 28% chance of a September rate hike, however a slew of
positive data points out of the US may be enough to increase this probability. With this in mind, this week’s highlights include the latest revision to Q2 GDP, which analysts at Nordea suggest could be revised up from 2.3% to 3.2% as a
consequence of upward revisions to final demand including exports, business investment and consumer spending. Elsewhere, durable goods data is expected out on Wednesday with particular focus being paid to the core capital goods orders, while Friday sees the
July reading of personal spending of net income report.
Of note, the Fed’s Jackson Hole `Inflation Dynamics and Monetary Policy` conference begins on Thursday, however the significance of the conference may not
be as substantial as previous years given that Fed’s Yellen will not be attending.
Across the Atlantic, the key European data this week come in the form of the first CPI readings for August, which will be published by both German and Spain, with Eurozone CPI not scheduled for release until next Monday. The latest CPI reading should give a good indicator as to just how significant an effect the latest slump in oil is having on prices.