Another drop in Chinese markets coupled with stress across emerging market currencies have led to a risk-off mood and lower European stocks on Wednesday. Stock index futures indicate a lower open on Wall Street ahead of the release of key inflation data and minutes from the last Federal Reserve policy meeting.
Dung dinged the dong. Vietnam’s Prime Minister Mr Nguyen Tan Dung wants to keep Vietnam’s exports competitive with other Asian nations which have seen their currencies fall much faster than the Vietnamese dong. To help exports the State Bank of Vietnam has devalued the dong for the third time this year as well as widened its trading band.
Asian exchange rates have come under particular stress in response to China’s devaluation which itself is a response to the rise in value of the US Dollar ahead of a possible US rate hike this year.
The FTSE 100 has slumped back to lows last seen in early July when Greece was close to exiting the Eurozone. Shares are almost universally red on Wednesday with poor results from Glencore (LONDON:GLEN) smashing shares down over 8%, supermarkets all down in sympathy with the worst Asda sales decline in over a decade and Asia-focused bank HSBC dropping 2.5%. One of the few in the green was Admiral Group (LONDON:ADML) after a well-received half-year earnings update.
Consumer price inflation data and Federal Reserve minutes will give two of the last big clues on the next policy move on US interest rates.
Headline inflation almost has to fall because of the sharp decline in oil prices in the past month so core prices that exclude energy will be the true indicator. Consensus estimates are for core CPI to remain at 1.8% year-over-year. A rise to 1.9% or above would likely trigger dollar buying since it would be both a positive surprise and take inflation right up to the Fed’s target of 2% inflation.
Fed minutes won’t give any policymaker response to the China currency devaluation but will nonetheless be important to add some colour to the last statement. Any explanation of the additional word “some” with regard to improvement the Fed is looking for in the labour market would be useful. Also, statements that generalise the general view on when a rate hike should take place will be important. Minutes that say something such as “many,” “most” or “the majority” of members believe that either the economic data is good enough to hike or that international concerns are not enough of an issue to delay hiking would be a big hint that September is on.
US retailers Lowe’s and Staples report quarterly earnings on Wednesday.
Futures suggest the:
S&P 500 will open 4 points lower at 2,092 with the
Dow Jones expected to open 42 points lower at 17,469 and the
Nasdaq 100 8 points lower at 4,534.
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