10 Factors Affecting FX, Bonds and Equities

1. Following a series of interest rate hikes overnight (Brazil –9% and Indonesia-7%), more FX interventions and a delay for Syria, some of the pressure in Emerging Markets was dampened.

2. The positive USD momentum in G10 continues very gently helping to pressure EUR and GBP lower, while AUD and to a far lesser extent seem at risk of a break lower once the EM jitters return.

3. Analysts note that contagion from EM to G10 remains weak, appearing through a stronger bid for the G10/USD via spot and options. GBP continues to strengthen as expected post Carney speech. There are market rumors of a strong month-end dollar buying.

4. Overnight German data was more mixed (unemployment +7k, jobless rate steady at +6.8%) indicating that the rise in European positive economic surprises, which had supported a higher EUR higher, has now potentially topped.

5. Treasury yields (10’s +2.78%) have edged higher as a risk-on trading tone is pushing core bond prices lower. US FI traders are waiting for a $29b 7-year issue to be priced at 1:00pm EST.

6. Global equities remain in the “black” on signs that a US led military strike on Syria may be delayed. Also aiding the Dow is the fact that the US economy expanded at a faster pace than previously estimated in Q2 (+2.5% vs. +2.2%). This has been boosted by robust exports and business investment outlook.

7. US jobless claims fell by -6k, w/w, to a seasonally adjusted +331k for Aug 24th week ended. Consistent with levels that indicate that the US labor market is expanding – taper when?

8. Crude prices are taking a breather as prices technically pull back from their high prints from earlier this week. Did the market overreact to the commotion surrounding Syria or is this the temporary lull ahead of a risk premium long US weekend?

9. Gold prices spiked to a three-and-a-half month high yesterday ($1,433.85) as investors sought traditional “safe haven” assets. With no immediate strike against Syria and higher Treasury yields combining to support the dollar it was only a matter of time before the ‘yellow metal’s’ price would come under pressure. However, Gold and Oil prices seem well supported on major setback.

10. Month end management seems to favor the dollar – It may help the market to price in any Middle East Risk premium requirements ahead of the long weekend.

Dean Popplewell, Director of Currency Analysis and Research @ OANDA MarketPulseFX

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