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August 22, 2017

Time (GMT) Currency Event Previous Forecast
08:30 GBP Public Sector Net Borrowing 6.3B 0.4B
09:00 EUR German ZEW Economic Sentiment 17.5 15.3
12:30 CAD Core Retail Sales m/m -0.1% 0.3%
12:30 CAD Retail Sales m/m 0.6% 0.3%

 

Global Commentary

Asian markets began the week on a mixed note, with markets in Japan and Australia falling, while the Chinese linked markets gained.  Mainland China’s Shanghai Composite was the best performer, up by 0.57% as investors generally see improvements for the Chinese economy.  Hong Kong also saw gains, with the Hang Seng higher by 0.40%.  Continued strength from the Yen caused Japan’s Nikkei to end the day lower by 0.40%, with financials and export related shares lagging.  Australia’s S&P/ASX 200 finished with a 0.37% loss as financials lagged there as well, but gains from the energy sector helped mute further losses.

European markets began the week on slippery footing as investors worried about an uptick in tensions between North Korea and the U.S., while also looking ahead to the coming Jackson Hole Summit of global financial leaders later this week.  North Korea warned about a potential descent into nuclear war as a reaction to the beginning of the annual combined military exercises of the U.S. and South Korea.  This prompted heightened risk aversion from investors, and sent the Stoxx Europe 600 lower by 0.40%.  Germany’s DAX led the way lower as it dropped 0.82%, and the French CAC 40 was off by 0.52%.

Shares on London’s FTSE fell as well, with the British index settling 0.07% lower as the drop in many shares was offset by strength from the mining stocks and housing shares.

U.S. markets traded in a tight range around unchanged levels throughout the day, unable to gain momentum in either direction as investor unease regarding the rising tensions between the U.S. and North Korea weighed on sentiment.  There was also a lack of trading volume that contributed to the directionless day.  The high risk cyclical sectors performed the worst, but the Dow and S&P 500 ended the day higher, while the technology heavy Nasdaq declined slightly.  At the close the S&P 500 was 0.12% higher, the Dow added 0.13%, but the Nasdaq edged lower by 0.05%.

 

FOREX

USD/JPY – The pair sank to test the support around the 108.50 level for the third time in the past seven trading sessions on Monday, and this time the rebound off that support wasn’t nearly as strong as in previous attempts.  Instead, the pair remained below the 109.00 level at the close, with safe haven demand for the Yen keeping the pair depressed.  With traders exhibiting caution over the upcoming Jackson Hold summit, and tensions high once again between the U.S. and North Korea we could see the pair break the support at the 108.50 level, leading to a much steeper decline in the pair.

Ripple – The cryptocurrency regained its spot as the fourth largest cryptocurrency by market capitalization on Monday as it gained in response to rumors that it was seeking support from Chinese markets.  The digital currency gained 9.5% on the news, and its gains caused losses for several other digital currencies as traders shifted positions.  Bitcoin was lower by 1%, but DASH lost 4.4% on the day.

 

Commodities

Metals – Precious metals gained solidly on Monday amid returning tensions between North Korea and the U.S.  Gold ended at an eleven week high, while palladium hit a new sixteen year high, and copper is near a three year high as investors are expecting increased demand from China.  Gold for December delivery added $5.10, or 0.4%, finishing at $1,296.70 an ounce, while September silver gained a more modest 0.1%, ending at $17.015 an ounce.  Copper for September rose 1.4%, to settle at $2.981 a pound after tapping an intraday high above $3, and September palladium added 1.3% to finish at $939.00 an ounce.

Oil – Crude dropped on Monday, snapping a two session winning streak as traders worried about rising U.S. crude production, and a meeting of OPEC produced no news regarding the current status of production cuts.  September West Texas Intermediate crude fell by $1.14, or about 2.4%, to settle at $47.37 a barrel.  October Brent crude the global benchmark, fell $1.06, or 2%, to finish at $51.66 a barrel.

 

Indices

S&P500 – The S&P managed to eke out a gain on Monday, ending the day 0.12% higher, despite rising risk aversion in markets.  Eight of the eleven S&P sectors finished the day in the black, but the most heavily weighted cyclical sectors – energy, financials, and technology – were the day’s losers, keeping a cap on potentially greater gains for the index.  While the S&P is just 2.2% off its all time high, technical indications are for a greater decline in the market in the near future.

DAX – Germany’s DAX underperformed the broader market on Monday, falling 0.82% as investor sentiment soured on an uptick in tensions between the U.S. and North Korea.  The fall came on the back of the financial sector, and was despite comments early Monday from Germany’s central bank that the German economy is expected to continue the strong growth seen over the past several quarters.  German investors will have a close eye on the three day Jackson Hole summit that begins Thursday, as well as the latest German Ifo numbers due out Friday.

Nikkei – The Nikkei was the top loser in Asia on Monday as continued strength from the Yen puts downward pressure on Japanese equities.  Export related shares suffered, as did the financials.  Shares of Sony were down 1%, while Nomura Holdings, one of Japan’s largest financial holdings companies, fell by 1.9%.  The drop has taken the Nikkei below the bottom of the trading range seen in the index since May and should be considered a bearish development for Japanese markets.


Stocks

Tesla – Shares of the alternative energy company fell 2.8% on Monday as the company’s recent junk bond issuance has turned into a massive failure.  Just one week after the issuance the bonds are already underwater, trading at just $0.97 on the dollar, and some investors are now questioning the pricing of the bond.  Indeed, with Tesla not expected to move into profitability for many years to come, a 5.3% yield seems quite insubstantial.  The stock itself is trading near $337 a share after Monday’s loss, but looks as if it could easily test the $300 level for support in the coming days and weeks.

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