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Cable And Euro Pushed Higher On Disappointing Chicago Fed Data

Published 21/08/2017, 16:18
Updated 03/08/2021, 16:15

Europe

Stock markets in Europe are lower on the day as traders remain nervous due to the continued stand-off between the US and North Korea.

Tensions surrounding North Korea are still running high, and this week we could see them ratchet up as the US and South Korea will commence their annual 10-day military exercise. The North Korean regime are always upset by it, and I would be surprised if we didn’t have some sort of angry reaction from Pyongyang.

The Chinese central bank injected 50 billion yuan into the country’s financial system in a bid to beef up the banking system. China’s growth rate has cool in recent years but the Beijing authorities are keen to intervene whenever they feel it is necessary. The cash injection pushed up the price of base metals, and in turn the share price of BHP Billiton (LON:BLT), Rio Tinto (LON:RIO) and Antofagasta (LON:ANTO) are higher today.

US

US equity indices are in the red as the stalemate between them and North Korea continues. The North Korean government has a history of getting worked up because of the military exercise the US and South Korea carry out, and given that tensions have been running high recently we could see another flare up.

The US made it clear they are not interested in regime change, which may well give North Korea an excuse to push the envelope, and agitate the American government.

The announcement of the departure of Steve Bannon from the Tump administration was another knock to the markets confidence in the Trump-led government. Mr Trump has done a lot of hiring and firing in his relatively short time in office, and while he has a revolving door policy when it comes to high ranking staff, traders will keep losing faith in his ability to ‘make America great again’.

The US indices lost ground for two weeks in a row last week, and the bearish sentiment continues because of the political uncertainty at home and abroad.

FX

The GBP/USD has edged higher today, but it was more to do with a decline in the US dollar rather than buying of the pound. The Rightmove house price index showed that average UK house prices fell by 0.9% in August on a month-on-month basis, and that compares with a 0.1% rise in July, but it didn’t have much of an impact on the currency pair. Sterling was given a boost when the US announced the latest Chicago Fed national activity figures, as the report, came in below expectations.

The EUR/USD is higher on the day after the US revealed the Chicago Fed national activity index in July swung to -0.01, while traders were expecting a reading of 0.16, and the June report came in at 0.13. There was no major economic indicators from the eurozone today so the volatility in the single currency was low. The EUR/USD has been losing ground this month, and seeing as Mario Draghi, the head of the European Central Bank, won’t be talking about tapering the stimulus package at the Jackson Hole symposium which starts on Thursday, the single currency may find it tough to find buyers.

Commodities

Gold is gaining ground today as global equities are suffering. The metal has been in a solid upward trend since early July, and on Friday it traded at its highest level since November 2016. The standoff between the US and North Korea is assisting the asset and so is the political uncertainty surrounding Donald Trump’s administration. While the White House has a high staff turnover, it will be hard to imagine the Federal Reserve hiking interest rates again this year.

Brent crude and WTI are lower on the day as traders await the completion of a meeting between OPEC and non-OPEC members today. Major oil producers are meeting today in order to discuss compliance with the agreed production cut. In July, compliance with the production freeze fell to 75%, and this tells us that oil producing nations are more interested in their own needs, rather than that of the group. OPEC has lost some credibility within the energy market, and traders don’t heed it as they once did.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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