Global Themes

Even after billions of dollars’ worth of equity market intervention, the Shanghai composite shook it off and shed over 6.1 percent in overnight trading. Close to $1 trillion USD of capital has fled Emerging Markets over the past 12 months as growth forecasts are being slashed from Brazil to South Korea and cheap USD funding is slowly coming to a halt. Vietnam devalued the Dong early this morning, widening their trading band in the wake of China’s Yuan devaluation last week. The aftershocks of the Yuan readjustment are still being felt and will continue being felt across the globe as a rebalancing of world markets will linger throughout the rest of the year. Expect volatility levels to remain high.

GBP

Markets were happy to see a positive UK inflation number publish yesterday morning. The year on year Consumer Price Index jumped to 0.1 percent versus expectations of no change, whilst the Retail Price Index also jumped to 1.1 percent v a 1.0 percent forecast. Now I wouldn’t exactly call this a significant gain by any stretch of the imagination, plus such a little scratch of improvement isn’t going to provide enough impetus for the BoE to hike next month. However, it’s a start. Half a loaf is better than none, so perhaps this could be the beginnings of reflation within the UK economy. Sterling liked it, jumping close to 100 points against the USD post the announcement. Gains were also made against most currency pairs, extending its lead against the EUR & JPY specifically. Additionally, exiting BoE member David Mills said in a BBC interview yesterday that the turning point in the rates cycle is coming ‘pretty soon’. The hawkish comments continue! Since yesterday’s move however, GBP eased back a touch and is sitting tight ahead of US inflation data today plus a new round of jitters emerging from China kept the pressure on. Keep an eye out for technical resistance around current levels today.

USD

The USD is reaping the benefits of a reduction in global risk appetite overnight in light of the Chinese Shanghai stock market, which closed down a whopping 6.1 percent. Posting marginal gains against most majors, the greenback is positioning itself ahead of its own CPI inflation announcement at 1:30pm GMT today. Economists are expecting the year on year number to jump to 1.8 percent, which is in line with last month’s reading. Weaker oil prices could however play their part, hence some bears are expecting a weaker result. Fearing I sound like a broken record, the FOMC is data dependent and the potential for a September interest rate hike is still in the mix. Inflation is a major contributor to this decision. Further light on the Fed’s tone will be shed later on this evening as meeting minutes will hit the market. Scheduled 8 times per year and announced 3 weeks after the Fed rate announcement, the minutes provide the market with an in-depth report on present economic conditions and what influenced their decision.

EUR

The vote is on! Euro Zone nations are heading to cabinet today to vote on the latest Greek bailout. Spain, Estonia and Austria have already given it the thumbs up. Germany is expected to follow suit, however the Dutch government is facing a vote of no-confidence as MPs have been called to an emergency meeting in the Hague this morning. Recent news of descent within the Syrzia party have been played down as PM Tsipras continues to state that his priority is to honor creditors.  The EUR is on the back foot this morning ahead of voting, plus a bout of USD buying reflecting a risk off play is also playing a part. Current Account numbers will be published at 9:00am GMT this morning, though don’t expect any fireworks.

CHF

We have seen a marked reversal in EURCHF over the past 6 days as the franc continued its decline after touching post de peg highs on August the 12th. It is estimated that the SNB has lost close to 50 billion francs so far this year after de-pegging the currency and maintaining ‘active’ currency intervention. A recent Bloomberg report showed that 15 of 23 economists stated that the record shortfall doesn’t matter for SNB policy. Interest rates remain at -0.75 percent, however the survey did specify that a further cut to -1.25 percent is not out of the question.