Markets Morning - More EM currency turmoil Brexit risks hit Pound help FTSE

Market Analysis /
Greg McKenna / 04 Sep 2018

Welcome to my daily Markets Musings.

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Short and sweet this morning given the US holiday

Not a lot of action in the past 24 hours to kick off the week although the release of global PMI’s was a reminder that the trade wars are having a palpable effect on businesses across the globe. In the collapse in South African manufacturing PMI (43.3 versus 51.5 last) we also see what generalised uncertainty and a currency crisis can do to business too.  

And this morning beside the Brexit induced funk for the Pound – which fell 0.7% against the USD to 1.2873 and 0.8% against the Euro with EURGBP at 0.9023 – there have also been some big moves on Em currencies as Argentina grapples with its economy and currency, Turkish inflation is through the roof, and the general sense that the USD and Fed will continue to put pressure on EM countries continues.

As it stands this morning the Argentine peso is down 2.6% with USDARS at 37.75, the Turkish lira is at 6.6072 down 1.36% against the USD, the Brazilain real has lost 2.5%, the South African rand is 1.1% lower while the Russian rouble has lost about 0.9%. EM currencies and markets are still a big risk folks.

Looking at the G10 it’s a much quieter 24 hours with the Aussie dollar the stand out performer with a 0.3% gain to 0.7212. The Kiwi has, in contrast lost 0.3% to 0.6599, while the CAD is 0.4% weaker with USDCAD up at 1.3091. Euro was stronger though with a 0.15% gain to 1.1616 and the Yen is marking time once more at 111.11.

To stocks and the FTSE was 0.97% higher on the back – it seems – of the weaker GBP even though the GBP fell because Brexit is becoming a mess and could tank the UK economy. That’s short termism for you I guess. The DAX and CAC were 0.15% either side of flat.

Asia, and Chinese commodity markets had a shocker yesterday – down again. That didn’t hurt the local market too much with the ASX losing just 9 points. SPI traders were down three an hour ago, then up 5, now they are down 2 again. We’ll see where we go today.

To commodities and Shanghai copper, aluminium, and nickel were all lower to kick off the week. Nothing like a 14 month low for the Caixin manufacturing PMI to do that. With the real chance we could see another $200 billion of tariffs placed on Chinese exports to the US in the next couple of weeks commodity markets are nervous about the Chinese economic outlook.

Gold is at $1200 still, Bitcoin is largely unchanged too at $7,295.

On the day South Korean GDP and inflation kicks us off before the Australian Q2 current account and government data to feed into tomorrow’s Q2 GDP. We also get the RBA decision and governor’s statement at 2.30 pm my time and then governor Lowe is speaking in Perth this evening.  Euro PPI, UK construction PMI, and then US ISM and Markit manufacturing PMI’s are released along with construction spending and the IBD/TIPP economic optimism index.

Macro Stuff that affects everyone and everything – either today or eventually


  • PMI’s yesterday were on the weaker side showing again that the sweet spot of global growth has passed and that the trade tensions are weighing on the outlook.
  • Check out the Chinese Caixin Manufacturing PMI chart. Not just a 14 month low but a clear roll over in growth it seems to me.
  • Argentina has had to go the austerity route after the Peso collapsed last week and the IMF had a pop at them about propping up their currency over the weekend. Reuters reports, “President Mauricio Macri on Monday announced new taxes on exports in the world's third-biggest soy producer and steep cuts to government spending in an "emergency" bid to balance next year's budget as his center-right government aims to persuade the IMF to accelerate a $50 billion” release of cash.
  • Turkey is still saying nothing to see here move along please but its inflation hit 17.9% in August and the central bank did say it would react – higher rates, much higher I guess. But what will Erdogan say.
  • FTSE rose 1% as the Pound fell out of bed again with a 0.67% fall of its own against the USD and 0.76% against the Euro on the intractability of the positions held by Theresa May and EU negotiator Barnier who moved closer to their corners over the weekend.
  • The DAX was down a little, CAC up a little, and the FTSEMIB in Italy up 0.62%. Not sure on that one but it’s interesting that the two leaders of the government have said they are likely to favour Italy over Brussels and push the envelope when it comes to the budget deficit. The technocrat economy minister is trying to resist that but he is not part of either party and we can ignore him. Watch this space.
  • And watch this Italy-Germany 10 year bond spread. It’s holding for now. But when Luigi Di Maio, head of the 5-Star movement says, “we can’t think about listening to the ratings agencies and reassuring the markets, and then stab Italians in the back. We’ll always choose Italians first,” you know there is a collision coming between Rome and Brussels.
Click on me, I'll expand
Click on me, I'll expand

Have a great day's trading.

Greg McKenna

Chief Market Strategist

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