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.
Asia markets which had seen a turbulent week prior, look set for another week with many key events and indicators feeding in.
After failing to see a firm break above the 98.000 level previously, the DXY index had once again traded above the level at the start of the new week. Mirroring the optimism from China’s first pick up in Producer Price Index (PPI) in almost five years, the stronger than expected US PPI data injected some momentum into the market.
Headline PPI came in at +0.3% YoY from a neutral figure in August. Excluding food and energy, PPI was seen at +0.2% YoY. Meanwhile retail sales broadly met expectations, heading into growth territory at +0.6% YoY from -0.2% YoY (revised). The optimism reignited the dollar rally, with the markets still in anticipation of a hike before the end of the year.
Over and above the data drivers, New York Fed President William Dudley supported the dollar strength with more hawkish comments. Although the highly anticipated speech by Federal Reserve Chair Janet Yellen led the market down a dovish path, indicating that a “high-pressure economy” may have its benefits, the market had largely dismissed the words as an attempt to stabilise the market, three weeks ahead of the US Presidential Elections.
JPY had been the worst hit as expected with USD/JPY trading back above 104.00 and the momentum may be carried through to the rest of Asia on Monday. We will also see more data from the manufacturing slice of the economy and comments from Federal Reserve Vice Chair Stanley Fischer in US hours which should help to guide the movement in prices.
Separately, oil prices were weighed into the end of the week, driven by a strong US dollar and an increase in US rig counts. The Baker Hughes rig count rose for a seventh consecutive week, a direction that was also seen in both the API and EIA reports. The lack of developments in the OPEC agreement case have allowed prices to be temporarily swayed by the reports from the US. Lower oil prices coupled with stronger than expected US banks earnings had brought the S&P 500 index to a flat close on Friday.
The dollar rally and oil movements have been the main stories of late and unfortunately, it might remain the case for another week. This is especially so with the third and final US Presidential debate to occur on Wednesday (Singapore time), though China’s Q3 GDP and October’s ECB meeting may add more colour to the markets in the latter half of the week.