It seems that nobody is willing
To trade, ere Nvidia’s spilling
The beans on their income
So, markets remain numb
Awaiting an outcome, fulfilling

 

Some days it is extremely difficult to find a noteworthy story at all, and today is one of those days.  The combination of a lack of new economic data on which to build theories and models, along with most of the central banking community taking their summer vacations has left the trading and investment communities without any new catalysts for action.  Arguably, the story that will soon drive things is this afternoon’s Nvidia earnings report, but that is far outside this poet’s lane of travel.  With this in mind, it should be no surprise that market movement overnight has been quite limited.

Perhaps the most interesting story was a speech given by BOJ Deputy Governor Ryozo Himino (the Japanese don’t typically take off all of August) describing that the BOJ would continue to “normalize” policy, albeit at an indeterminate rate.  Speaking in Yamanashi prefecture, west of Tokyo, he said [emphasis added], “The bank’s basic stance on the future conduct of monetary policy is that it will examine the impact of market developments and the July rate hike and that, if it has growing confidence that its outlook for economic activity and prices will be realized, it will adjust the degree of monetary accommodation.”  You will not be surprised after a ‘powerful’ statement like that, the Nikkei managed a 0.2% rally while JGB yields edged higher by 2bps.  Perhaps the latter qualifies as a large move although the 10yr yield there remains well below 1.00%.

Otherwise, passing comments by two different ECB bankers, one a hawk (Knot saying he wants more data before deciding on a September cut) and one a dove (Centeno saying it is clear another cut is due) were the best that we had.  Perhaps that was enough to generate some excitement as the dollar has managed to rebound from the lows seen yesterday, although that is just as likely a trading bounce as a change in sentiment.

So, with this very limited amount of new information in mind, and prospects for a quiet day ahead, let’s look at what happened overnight.  While US markets did edge slightly higher yesterday, the movement was tiny, less than 0.2%.  And that type of movement was the rule of thumb in Asian markets as well with one exception, both China (-0.6%) and Hong Kong (-1.0%) continue to lag global markets as ongoing concerns over the pace of growth in the Chinese economy weigh on markets there.  I believe one of the new concerns is that Western nations (Canada being the latest) are coming together as one with respect to tariffs on Chinese goods in an effort to prevent a massive onslaught that damages their own companies.

In fairness, European shares have seen some more positive performance, notably the DAX (+0.8%), although that is due to some slightly better than expected corporate earnings releases rather than any broader macro story.  Looking across the rest of the continent, and the UK, there is a mix of gainers and laggards with nothing more than 0.2% in either direction.  Again, not much excitement here.  As to the US, futures are essentially unchanged at this hour (7:10) as all eyes are on the tape after the close when Nvidia releases its earnings.

In the bond market, yields, which backed up a few basis points yesterday, are ceding those gains this morning.  10-year Treasuries are lower by 1bp while European sovereigns are down by as much as 4bps to 5bps.  However, that is tracking what Treasuries did yesterday afternoon after the European close.  In the end, fixed income markets in the G10 remain rangebound in yield as investors continue to try to determine the timing of the widely anticipated rate cuts.  Yields have clearly declined from levels seen in the spring, but I believe for much further movement will need to see a far more aggressive rate cutting stance by central banks.

In the commodity markets, oil (-2.0%) is giving back its recent gains as supply disruption fears that were piqued by the shutdown of part of Libya’s production seem to have dissipated, or at least have been overwhelmed by the weak demand story on slowing growth in China and Europe.  At this point, it is very difficult for me to get too bullish on oil as there appears to be ample spare production capacity in OPEC to prevent disruptions and the global economic outlook is clearly fading.  Arguably of more interest is the metals markets which are under pressure this morning with gold (-0.8%) giving back some of its recent gains, although remaining above $2500/oz, while both silver (-1.8%) and copper (-3.6%) feel far more pressure on the weak economic story.  

One other potential drag on the metals markets is the dollar, which has bounced nicely from its lows yesterday.  For instance, the euro (-0.5%) is the G10 laggard although that is after testing the round number of 1.12 again yesterday.  It seems that Klaas Knot is not seen as a viable spokesman for the ECB with visions of rate cuts coming.  But we are seeing weakness in the pound (-0.25%), yen (-0.3%) and even Swiss franc (-0.2%).  In other words, it is pretty broad-based dollar strength.  In the EMG bloc, the CE4 are all substantially weaker, more than -0.5%, while KRW (-0.6%) led most APAC currencies down.  The one exception this morning is MXN (+1.0%) which is rallying nicely on the back of Banxico comments that they will maintain restrictive monetary policy for the time being.  

The data calendar has only the EIA oil inventories coming at 10:30, with more drawdowns expected, and then much later this evening, Atlanta Fed president Bostic speaks.  As trading desks remain lightly staffed given the Labor Day holiday approaching next week and given that there is important data coming after the close as well as tomorrow (Initial Claims) and Friday (PCE), today has all the hallmarks of a sleeper.

Good luck

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