This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
One would have thought Fischer's third appearance in a week and a half would have dulled the impact of his jawboning, but no. Fischer’s keen re-emphasis that the US Federal Reserve (Fed) is “data-dependent” with regards to whether they hike rates has only whetted the anticipation for investors as they await Friday’s non-farm payrolls release in the US. The constant mentioning of data-dependence has made everyone imbue the most “dependent” data point, non-farm payrolls, with even more import than usual. For what has been an unusually quiet low-volume, low-volatility August, many in the markets will be looking for a bit of a volatility kick on Friday.
The 0.6% surge in the DXY US dollar overnight to take it through the key 96 level was a reflection of heightened expectations that we may see a rate rise from the Fed this year. Improving sentiment in the health of the US economy was further emphasised by the surge in US consumer confidence to its highest level since September 2015.
The strengthening in the US dollar and positioning around the potential for a Fed rate rise drove most of the major market reactions overnight. Fears over rising capital costs saw the S&P 500 close down. Financials were the only sector in the S&P 500 to close in positive territory as an increase in rates would help improve their net interest margins.
But gold saw another dismal night, losing a further 0.9% to cap off what has been a terrible August for them. Gold, as a zero yielding asset, historically trades inversely to the movement of US yields, and hawkish Fed chatter this month has seen prices get hammered. The major gold miners in the S&P 500 have had their worst monthly performance since July 2015.
The Aussie dollar has also been a major loser overnight losing 0.8% and falling to US$0.7509. The strengthening of the USD pushed the Aussie down, but it also saw commodity prices pull back, and the Aussie’s close correlation with commodities also saw it weaken more than other currencies against the USD.
The ASX looks like it will be in for a tough day after a poor lead from US markets and the weakening of commodity prices impacting the materials and energy sector. Conversely, the 1% gain in the USD/JPY cross rate looks set to be met with encouragement in Japanese markets with the Nikkei setting up for a strong open.