Greenback Mixed, North Korea and PMIs in Focus

Reports suggesting that North Korea is moving an ICBM missile toward
launch pad in the western part of the country at night to minimize detection,
while South Korea is escalating its military preparedness and the US seeks new
sanctions, keep investors on edge.
Risk assets are mixed.  Gold is slightly lower.   While the yen is stronger, the Swiss franc is heavier. 
Asia equities slipped, and European shares are recouping much of yesterday’s
0.5% loss.  

The Korean story is likely to continue to provide the main geopolitical
backdrop to the investment climate
.  There is some thought that North
Korea may launch its ICBM as early as September 9, National Foundation
Day.  South Korean shares moved lower for the fourth session, and fifth in
the past six.  It fell nearly 0.9% last week and is off another 1.3% this
week.  Foreign investors, who had been small buyers of Korean shares in
the past two sessions, sold the most
Korean shares today in three weeks (~$237 mln).  The Korean won edged
slightly higher against the dollar (~0.15%).  It has risen against the
dollar for the past three weeks (~1.8%).  

Elsewhere the main economic data today consists of the outcome of the
Reserve Bank of Australia meeting and the service sector PMI and composite
  In the North American session, Fed Governor Brainard speaks
early and later factory goods orders.   The Bank of Canada meets
tomorrow.  Strong data, especially the Q2 GDP (4.5% annualized) has
spurred a reassessment of the central bank’s trajectory.  A month ago
(August 4) the market had discounted a little more than a one in three chance
of a hike this week.  Now, interpolating from the OIS, the odds are about
55% in favor of a hike.  

The RBA meeting left rates decisively on hold, as widely expected. 
Like other central bankers, Governor Lowe
is expected that continued improvement in
the labor market will lift wages and inflation. 
Separately, Australia
reported improved net exports for Q2 (0.3% vs.
-0.7% in Q1) and this had spurred speculation that tomorrow’s Q2 GDP may
surprise on the upside.  The median forecast is for a little less than 1%
quarter-over-quarter growth.  The Australian dollar is firm but within the
range seen before last weekend (~$0.7920-$0.7795).   Copper prices
continued to rise and now are at their best level in three years.  Other
industrial metal prices are lower after yesterday’s surge.  

News that China’s Caixin services and composite PMI firmed may have also
helped the Australian dollar. 
The services PMI rose to 52.7 from
51.5.  It averaged 52.2 last year and this year, through July.  The
composite rose to 52.4 from 51.9.  It averaged 51.4 last year and 52.1
through July.  China is expected to report it latest reserve and trade
figures this week.  The August CPI and PPI may be reported before the weekend.    Reserves are expected
to have risen for the seventh month, and
the trade surplus is expected to increase, though both imports and exports may
have slipped.  

The eurozone services and composite
PMI was a little lower than the flash readings.
This is consistent with the recent string of data suggesting that
while growth remains at elevated levels, the momentum has slowed a tough in
Q3.  The aggregate services PMI
eased to 54.7 from the 54.9 flash estimate and 55.4 in July.  It is the
lowest reading since January.  It averaged 53.1 last year year and 55.5
through July.  

The composite reading slipped to 55.7 from the 55.8 flash estimate. 
It was unchanged from July, which was it lowest reading since January as
well.   It averaged 53.3 last year and 56.1 through July.  The
source of the revision was not Germany.  Its services and composite
reading were tweaked higher from the flash reading.  French figures were
revised lower  (54.9 from the flash services of 55.5, and 55.2 for the
composite after the flash showed 55.6).  

Italy and Spain were drags
The Italian services reading fell to 55.1 from 56.3 in July.  Spain
services fell to 56.0 from 57.6 in July, while the composite fell to 55.3 from
56.7.  Italy’s figures remain near recent highs, while the pullback in
Spain is back to levels last seen in January.  

The euro is trading in about half a cent range within yesterday’s range,
which was within the range seen before the weekend. 
Support is seen
ahead of last week’s low (~$1.1825), and
the 20-day moving average is found near
$1.1830.  The $1.1850-$1.1875 range houses about 1.4 bln euros in options
that expire today.  

Sterling is in a tighter range than the euro.  It is holding
above the pre-weekend low just above $1.29,
but it cannot make it back to yesterday’s high near $1.2965.  There is a GBP200 mln option that expires today struck at $1.2940 and an option
for 1.5 bln euros struck at GBP0.9200.  

The UK economic data included a rise in the BRC sales, but apparently due
mostly to the increase in food prices, and a softer than expected services PMI.
The services PMI slipped to 53.2 from 53.8.  It is the lowest reading
since last September.  It averaged 53.2 last year and 54.2 through July
this year.  The composite PMI was at 54.0, in line with expectations and
down slightly from the 54.1 reading in July.  Separately, several reports
are tipping September 21 as the date of an important speech by Prime Minister May
regarding Brexit.  

Lastly, the Swiss reported disappointing GDP and CPI data today. 
Growth in Q2 was 0.3%, not the 0.5% the median forecast in the Bloomberg survey
suggested, and adding insult to injury, Q1 growth was revised to 0.1% from 0.3%.  As if this weren’t enough,
Switzerland reported that its EU harmonized
CPI fell for the first time since May.  The 0.1% decline in August brought
the year-over-year rate to 0.5% from 0.6%.  The franc is flat against the
euro today after falling about 0.8% over the past two weeks.   It
reinforces our sense that the SNB will lag behind other central banks in the
normalization process, while the slower growth of Japanese money supply and
balance sheet may raise questions of the BOJ’s commitment going forward,
especially if Kuroda is not reappointed
when his term ends next year.  


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