Global Themes

A nascent sense of stability paid a welcome visit to global markets Thursday. The better mood cooled demand for the safer U.S. dollar which moderated from 13-month peaks. Fears about slowing growth in China and Turkey’s currency crisis abated, allowing some of the worst performing currencies of late to be among the best Thursday. Markets are taking comfort from reports that the U.S. and China plan to redouble their efforts to broker a trade truce. Turkey’s currency continued to rebound from historic lows while U.K. consumers stepped up spending, news that added to markets’ cautious optimism. The euro and U.K. pound bounced above mid-2017 lows. Higher oil above $65 lifted the Canadian dollar while the lowest unemployment in years Down Under helped the Aussie dollar rebound from 1 ½ year lows. America’s dollar will look for direction today from U.S. reports on weekly jobless claims, housing starts and the Philly Fed survey of Mid-Atlantic business conditions.


Canada’s dollar maintained a defense posture and within reach of three-week lows. Oil climbed back above $65 but remained near its lowest in two months. Despite mounting evidence of solid economic fundamentals in Canada, the loonie has fallen prey to renewed signs of weakness in China, a top buyer of Canada’s resource exports.


Easing fears about emerging market troubles washing up on euro zone shores helped the euro pare losses after slipping to June 2017 lows. The tentative calm reduced demand for the safer U.S. currency whose outperformance has stiffened a headwind on the single currency. A meaningful reduction in concerns about Turkey’s economic health would be needed to signal a near-term bottom for the single currency, a notion that may be premature yet given the Turkish president’s unconventional policies and his reluctance to raise interest rates to help put a durable floor under the lira.


Sterling firmed above 14-month lows as markets showed some rare of late poise and U.K. retail sales surprised to the upside. Consumer spending jumped by a robust 0.7% in July, recovering from a 0.5% slide in June. Pound moves to the topside side remain on a leash given elevated unease over Brexit and how the U.K. government has yet to reach a trade agreement with the EU, the destination of the lion’s share of British exports.


The dollar parted with some strength Thursday as reassuring news on the U.S.-China trade story sparked a stock rally, tempering the need for safer assets. U.S. data was mixed, showing continued strength in the job market as jobless claims fell by 2,000 to a healthy 212,000, but the Philly Fed index of business activity grew at the slowest rate in nearly 2 years. Dollar fundamentals remain bullish but given the extent to which it has rallied may leave it vulnerable to bouts of profit-taking over the short run.


The Aussie dollar rebounded from 1 ½ year lows on a rare dose of constructive news on the U.S.-China trade spat, a rally that also found support from the bright side of a mixed local jobs report. Australia unexpectedly shed 3,900 jobs in July, versus expectations of a gain of 15,000. But unemployment fell a notch to 5.3%, the lowest in 6 years. The mixed report shouldn’t alter expectations for Australian interest rates to remain on hold for a long time, suggesting limited upside for the Aussie.

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