Currencies

Upbeat NFP report supports USD

American wages climbed in August by the most since the recession ended in 2009 and hiring rose by more than forecast, keeping the Federal Reserve on track to lift interest rates this month and making another hike in December more likely. Average hourly earnings for private workers increased 2.9 percent from a year earlier exceeding all estimates and the median projection for 2.7 percent.

Nonfarm payrolls rose 201,000 from the prior month, topping the median forecast for 190,000 jobs. The unemployment rate was unchanged at 3.9 percent, still near the lowest since the 1960s. On the other hand, Kof economic barometer, a closely watched indicator of Switzerland’s economy, came in at 100.3, a fall from the previous month’s reading of 101.7. Under these conditions we expect USD to rally against CHF.

US-China tensions weaken AUD

AUD/JPY drops to the lowest level since November 2016. With USChina trade relations set to sour even further, that's putting a bid in the yen while also leaving the Aussie offered at the same time. Couple with the fact that there is gaining traction that the US may start to target Japan next on the trade front, and it's adding a second layer of bids for the yen and the negative tones there isn't going to help the Aussie either as equities continue to fall. The Aussie has its own problems already (RBA not hiking, household debt issues, stagnant wages, flagging inflation) but the fact that there is the threat of escalating trade tensions between US and China (and also Japan) is making it tough to see a reason for buyers to stay buoyant. The break below the 61.8 retracement level at 79.30 opens up the potential for further downside in the pair from here on.

Equities

Completion of Bullish Bat Pattern

German business activity grew at the fastest rate for six months in August, according to the latest PMI survey data from IHS Markit which came in at 55.7 (55 in July). Moreover, German business morale improved by much more than expected in August. The Munich-based Ifo economic institute said its business climate index jumped to 103.8 after 101.7 in the previous month. The August reading beat a Reuters consensus forecast of 101.9. Adjusted for seasonality, the level of private sector output in the eurozone’s largest member state rose markedly, supported by stronger growth of new business and driving an acceleration in the rate of job creation. There is completion of Bullish Bat pattern on the daily chart, which suggest upside potential from here on.

North America business improves

Last quarter, earnings topped estimates while sales lagged. Notably, this marked the ninth consecutive quarter of positive earnings surprise. The improvement was mainly attributable to strong performances in its international divisions, propelled by higher revenue growth in developing and emerging markets. Frito-Lay North America (F.L.N.A.) business unit continued to be a source of financial strength for the company during the second quarter of fiscal 2018, ended June 16. Management also said its North American Beverages business is improving compared to previous quarters. We are bullish on Pepsico for the long term.

Metals

Trade tensions underpin gold demand

President Donald Trump elevated trade-war rhetoric with China to a fever pitch on Friday, threatening tariffs on another $267 billion worth of Chinese goods. If Trump follows through with both threats, tariffs would be imposed on $517 billion in Chinese goods coming into the US — virtually everything coming from the country. Last year, the US imported $505 billion worth of goods from China. China threatened to retaliate to that amount with tariffs on $60 billion worth of US goods, meaning almost all US goods sent to China would be subject to tariffs. The back-and-forth is the culmination of months of threats and negotiations. Gold demand is underpinned by these tensions.

Energies

Declining inventories support prices

U.S. crude stockpiles fell more than expected last week, while gasoline and distillate inventories rose. Crude inventories fell 4.3 million barrels in the week to Aug. 31, compared with analysts’ expectations for a decrease of 1.3 million barrels. The decline brought stockpiles to 401.49 million barrels, the lowest levels since February 2015. US second quarter gross domestic product increased at an annual rate of 4.2 percent, slightly above the previous estimate of 4.1 percent. Strong economic growth and declining inventories support oil price.

Bull Gartley Pattern

There are also indications the crop may be getting smaller. This started as hints that the accelerated development could of the crop shorten the time it has to fill. Falling crop ratings have knocked around 4 bpa off estimates made when USDA collected its data. And the latest Vegetation Health Index maps show a similar trend, falling all the way down to 173.3 bpa this week. But with acreage down, production should be below demand tightening stocks left over a year from now. The global ratio of stocks to usage, excluding China, is the tightest since the 2012 drought year in the U.S.

Double Bottom on daily chart

Producers in Brazil can start planting soybeans in mid-September. Post-harvest rally could come when China starts buying from the U.S. again, as seems likely, tariff or not. Brazil in theory could supply China’s needs until growers there begin harvest. But that would take virtually all of Brazil’s remaining inventory. Brazil normally doesn’t sell more than 72% of its crop to China. The potential elimination of rate hike guarantees into December, signaled by Federal Reserve Chairman Jerome Powell last month, could lead to more profit-taking in the dollar this week, while giving commodity prices to rise up again. Buying is expected in line with recent trends and weather forecasts.

 

Source: Matrix PR