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Trade in the overnight session was generally choppy, as a couple of data and events weighed on sentiments. In the US, S&P 500 had a tumultuous trade, falling as much as -1% at one point before rebounding back to close marginally higher. The 1900 level continues to help repel sellers. The ISM manufacturing data eased to the lowest since middle of 2013, at 50.2, underwhelming forecast of 50.6. While there are some knee-jerk reactions to the manufacturing report, as a whole, the negative effect is largely contained.
There is an argument that US manufacturers had ramped up production earlier in the year to meet anticipated inventory demand, which was reflected in the ISM acceleration during the May-July period. It would then make sense to see softer readings in subsequent months as the stockpiling wane. Nonetheless, a data point does not make a trend, so markets would look to several more months of ISM numbers to get an accurate picture of manufacturing activity.
The US dollar also weakened in the run up to the ISM manufacturing report, with the dollar index testing the 96.0 level before climbing back to 96.2. This offered some relief to commodity currencies, where we see AUD, NZD and CAD trading higher against the greenback. Still, the USD/JPY remained below key 120 handle.
The Japanese yen was supported by news that the BOJ is not looking at expanding its monetary stimulus. Bloomberg noted that the BOJ board members would prefer to take a cautious approach and receive a clearer picture of the growth outlook before acting.
The Japanese central bank sees strong corporate earnings and a solid job market supporting economic growth. More importantly, the BOJ said that core inflation is on the rise, which would provide more breathing space for the Bank. Japan’s core CPI, excluding food and energy, rose 0.8% y/y in August. The BOJ will be meeting twice this month, on 7th and 30th October, and nobody is expecting more easing next Wednesday, 7 October.
Meanwhile, oil prices have also undergone a jumpy session. WTI prices spiked to $47, as traders initially reacted to news of renewed Syria tensions and fears that hurricane Joaquin might suspend oil refining activities in the US. However, the prices subsequently retreated back to around $45. Gold remained under pressure, as more traders were bearish on the precious metal ahead of the US payrolls data. Spot gold was seen around $1110-$1115 per ounce in early Asia.
While Chinese markets remains closed till 7 October, there are a couple of news out from China which would be interesting to note.
- The China Securities Regulatory Commission (CSRC) is poising to restart the IPOs, according to SCMP, which noted that the regulator has improved the review process for applications.
- Shanghai Securities News said that China should resume financial reforms, which was halted due to recent crises, citing a speech made earlier this year by PBOC governor Zhou Xiaochuan. It highlighted that China’s banking system needs restructuring to be more resilient
Looking ahead to Asia
Asia is shaping up to see a cautious trade on Friday. With market participants await the NFP release, which may signal to the Fed that the US economy could withstand a higher interest rate environment.
*For more timely quips, you may wish to follow me on twitter at https://twitter.com/BernardAw_IG