US Open Preview – Sterling bounces in quiet markets; trade updates awaited

XM Market Review
XM Market Review

Here are the latest developments in global markets:

  • FOREX: The dollar index was up by 0.14% on Wednesday, drawing support from a robust reading on US consumer confidence yesterday, and looking set to snap a three-day losing streak. Against the euro, the dollar gained 0.21%, while it was practically flat against the Japanese yen. Meanwhile, the British pound was in recovery-mode, with investors seemingly brushing aside reports suggesting UK Brexit Secretary Raab is frustrated that EU chief negotiator Barnier is rarely available for face-to-face talks. Sterling/dollar edged up by 0.11%, while euro/sterling fell by 0.39%, erasing all of its upward move from yesterday – when the pair briefly touched a fresh one-year high of 0.9099. In commodity-related currencies, dollar/loonie held close to its opening levels as investors awaited updates on the US-Canada trade talks that are underway in Washington. Elsewhere, aussie/dollar underperformed, declining by 0.43%, while kiwi/dollar was nearly unchanged.
  • STOCKS: European stocks were a sea of red. The UK’s FTSE 100 was down by 0.59% amid a modest rebound in sterling. Since this index is constituted mainly by large multinational companies that earn most of their revenues abroad, a strengthening pound typically weighs on the FTSE, and vice versa. The Spanish IBEX 35 was the other underperformer – down by 0.80% –, dragged by a sizeable decline in Inditex’s stock (-5.94%). Elsewhere, losses were limited. Germany’s DAX 30 and Italy’s FTSE MIB both fell by 0.09%, while the French CAC 40 declined by a fractional 0.04%. The STOXX 50 and the STOXX 600 edged down by 0.09% and 0.14% respectively. In the US, futures tracking the S&P 500, Dow Jones, and Nasdaq 100 are pointing to a higher open today, albeit only marginally so.
  • COMMODITIES: Oil prices edged up, recovering some earlier losses. WTI was up by 0.31% at $68.74 per barrel, while Brent crude gained 0.18% to trade at $76.09/barrel. The rebound may have been aided by some comments from the head of the International Energy Agency, who said oil markets could tighten further this year. In precious metals, dollar-denominated gold was up by 0.18% near $1204 an ounce, even despite the greenback being higher on the day.

Day ahead: Second look at US GDP coming up; trade talks in the spotlight

In terms of economic data, the highlight on Wednesday is likely to be the second estimate of US GDP growth for Q2, due for release at 1230 GMT. In the meantime, market participants will look to Washington for any updates in the US-Canada trade talks, which could drive the loonie.

Kicking off with the data, US GDP growth for Q2 is expected to be revised marginally lower to an annualized rate of 4.0%, from 4.1% in the preliminary estimate. Even if that is the case though, 4.0% would still represent a particularly strong figure, and is unlikely to materially alter investors’ expectations regarding the pace of future Fed hikes. Hence, for the dollar to react to this figure, it may require a much more pronounced revision than what is expected. A second look at the GDP deflator and core PCE prices for the same quarter will also be made public alongside the GDP print. Lastly, pending home sales for July are due out at 1400 GMT.

Meanwhile, Canada will see the release of current account data for Q2, at 1230 GMT as well. Expectations are for the nation’s deficit to have narrowed notably. While that could prove somewhat positive for the loonie on the news, the biggest determinant of the currency’s fortunes will likely be how the US-Canada trade talks play out. Reports in Canadian press yesterday indicated Ottawa is willing to make substantial concessions on some of the sticking points, including dairy issues, which suggests that further progress in the talks may be on the cards this week. Any encouraging signals on this front – particularly from Canada’s foreign minister Freeland and US trade representative Lighthizer – could bring the loonie under renewed buying pressure, as the NAFTA risk premium fades.

In oil markets, traders will keep an eye on the weekly EIA crude inventory data, due at 1430 GMT. Forecasts point to a drawdown of roughly 0.7m barrels, after stockpiles dropped by around 5.8m barrels in the preceding week.

Looking ahead, Australia’s capital expenditure (capex) data for Q2 will hit the markets at 0130 GMT on Thursday. Forecasts point to an acceleration in capex, which may help to alleviate some of the selling pressure on the aussie.

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