Good morning
Risk sentiment took a battering yesterday, equities dropped and USD rallied as Pelosi visited Taiwan, a move China called unjustified, destabilising and provocative. China said it will take measures to defend its sovereignty and ordered military drills in the area to begin tomorrow, which will effectively create a blockade of Taiwans air and sea, in violation of UN rules accordingly to Taiwans defence minister.
I do think the US have stirred up something of a wasps nest that they needn’t have done and for now I hope China show some restraint. Already reports are that China have banned some exports to and imports from, Taiwan. Overnight though, many Asian markets made gains as the immediate threat of action from China subsides. There is some talk UK officials will also visit Taiwan, China again have promised severe consequences should the visit go ahead.
USD also higher on talk from Fed officials who continue to make it clear that the Feds work on inflation is still in full swing. Feds Daly echoed Kashkaris recent comments, saying it is far too early to say Feds work is done on inflation, and that CPI and jobs data will determine future rate rises, while Feds Evans said a 50bps rise in Sept seems appropriate but is not ruling 75bps out, preferring to keep the pace of tightening moving for now but expecting to slow after Sept. Mester meanwhile said US is not in recession and that getting inflation under control remain the key objective. All in all, they are very much in the same page, more Fed officials on the calendar today.
In the UK, Truss leads Sunak in the race to replace Boris Johnson although voting has been delayed after GCHQ warned of a possible hack attempt.
As I type, USD has lost a little of yesterdays gains after a bout of selling this morning that sees EURUSD up to 1.0190, GBPUSD to 1.2200 having been to 1.0150 and 1.2135 respectively overnight. A lot of talk of buying USD if we see EURUSD or GBPUSD rally, particularly if Fed speakers today follow the hawkish line that others have taken recently. GBP remains strong against EUR, trading at 1.1975, so far unable to break through 1.2000. Gold had an interesting day, trading up to $1788 yesterday mostly on Taiwan fears, before trading $30 or so lower to $1756 overnight. Its managed to recover to $1768 right now helped by that USD selling mentioned above.
PMI numbers out today although most are second readings, focus more on Taiwan and comments from Fed officials.
- 09.00 EU S&P services PMI
- 09.30 UK S&P services PMI
- 10.00 EU retail sales
- 12.30 Feds Bullard speaks
- 14.45 US S&P services PMI
- 15.00 US Services ISM, factory orders
- 15.30 Feds Harker speaks
- 16.45 Feds Barkin speaks
- 02.30 AUS trade balance
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