Daily FX Update, 29 September 2015

OVERNIGHT MARKET UPDATE:

·         US – FOMC Vice Chair Dudley: “The economy is doing pretty well”…“My expectation is that we probably will raise interest rates later this year”…“The reason we are going to go quite slowly, we think, is because the economy is not really that strong and monetary policy probably isn’t quite as easy as people think it is, just judging by the level of short-term interest rates”.

·         US – Fed dove and 2015 voter Evans noting there are risks with moving too early and that signs of a ‘sustained’ increase in inflation may not emerge until mid-2016.   

·         US – August personal income and spending rose 0.3% and 0.4% on monthly basis respectively, while the core PCE deflator was up 1.3% annually, but remained below the Fed’s 2% inflation objective. The picture of firm consumer activity and low inflation remains true. There was however a pullback in pending home sales, with the August reading fell 1.4% m/m.    

·         Currency – USD saw a broad lift as NY Fed President Dudley confirmed that the core of the FOMC is looking for a late 2015 lift-off. EUR and JPY also lifted as ‘risk sentiment’ soured amid tumbling equities and gradualist Fed comments.                 

·         Equity – The 30% fall in Glencore stocks led a mining sector sell-off in Europe, while VW stocks fell further. The Euro Stoxx 50 fell 2.4% with the FTSE 100 down 2.5%. US stocks were also in the red, with the Dow Jones, S&P 500 and Nasdaq down 1.9%, 2.6% and 3.0% respectively.              

·         Rate – Global bond yields fell as investors sought safety amid tumbling equities and as declining commodity prices weighed down inflation expectations, with the US 10-year yields fell 7 bps to 2.09%                

·         Energy – The recovery in crude oil prices faltered after weaker Chinese industrial data signalled a weaker demand outlook. China’s industrial profits declined in August, with the biggest drops concentrated in producers of coal, oil and metals. 

·         Precious Metal – Gold prices declined for a second day around heightened concerns of an imminent US rate hike.