Narrow Ranges Prevail as Breakouts Fail

<br /> Narrow Ranges Prevail as Breakouts Fail – Marc to Market<br />


The US dollar remains mostly within the ranges seen yesterday
against the major currencies. 
The market awaits fresh trading incentives
and the end of the summer lull, which is
expected next week.  The Jackson Hole Fed gathering at which Yellen
speaks tomorrow is seen as the highlight
of this quiet week.   
Two of the
three Fed leaders have already provided their general take on the economic
outlook and prospect for a Fed hike this year. 
It seems unreasonable to expect Yellen substantially
deviate, to the extent that she deals with immediate issues as opposed to  addressing the
topic of the title of the symposium: ” Designing Resilient Monetary
Policy Frameworks for the Future.” 
Although a
September hike seems unlikely, there is nothing to be gained from Yellen ruling
it out. 
 The Fed wants investors to know that
every meeting is actionable, though there is no precedent for a move in
November the month of the national election.  According to the Fed funds
futures, the market has upgraded the odds of a Sept hike to 28% as of yesterday
from 18% on August 1 and 26% on August 5 after the US jobs data.  
There are two
other talking points today.
First, the Germany IFO survey was weaker
than anticipated. The market has largely shrugged it off.   Investors may
not be as forgiving if next month’s survey does not show any improvement.
 The overall measure of the business climate fell for the second
consecutive month.  The 106.2 reading is the lowest since February and
compares with a 107.7 average in Q2 and 106.7 average in Q1. 
The business
climate is a function of the current assessment and expectations.
 The current assessment was downgraded to 112.8 from 114.8.  It is
the lowest level since January.  The expectations component also fell for the second month, and at 100.1 (down
from 102.1) is the lowest since February. 
The second
talking point is news that Portugal has struck reached an agreement with the EU
on a 2.7 bln euro injection of public money into its largest bank by assets
(Caixa Geral). 
It is already state-owned, and the
government’s 960 mln euro investment in the bank’s contingent convertible bond will, in fact, be
converted to equity and the bank
will look to raise another one billion euros through the sale of new debt.
The market has
taken the news in stride.
  European shares are broadly lower
today, with the Dow Jones Stoxx 600 off around 0.5%, to stop a three-day rally,
and banks shares are slightly lower.
 Portugal’s bourse is off slightly (~0.15%), and bank shares are slightly
firmer.   The yield on Portugal’s sovereign 10-year benchmark is a single
basis point higher, in line with other European bond markets today.  
There are
several flashpoints in the emerging markets, but there is limited impact on the
broader markets.
 First, the South African rand is
recovering after yesterday’s shellacking spurred by an investigation that
appears to have ensnared Finance Minister
Gordhan.  President Zuma, which has been at loggerheads with Gordhan
expressed confidence in him today.  Second, Turkey has begun military
operations in Syria.  The lira appeared to weaken on the news yesterday but is also recovering today.  
North Korea’s
launch of a missile from a submarine represents a new display of its
 South Korean stocks recovered most of their initial losses
today after testing the Kospi tested its 20-day moving average for the first
time in a couple of weeks.  Taiwan shares rallied a little more than 1%,
the most since early-July.  Foreign demand was noted (~$250 mln).
 Taiwan equities have drawn foreign inflows all year.   Through
today, some $2.27 bln of Taiwanese equities have been bought by foreign
investors this month.  This compares
with foreign purchases of $1.26 bln of South Korean shares.  

The US economic
calendar features the weekly jobless claims, durable goods orders, the Markit
service PMI and the KC Fed manufacturing survey.
 The durable goods orders may be the
most important, and have impact on Q3 GDP forecasts.  A modest improvement
is expected, including in shipments.   Whether it is sufficient to break
the market’s doldrums is a different story. 


Narrow Ranges Prevail as Breakouts Fail
Narrow Ranges Prevail as Breakouts Fail

Reviewed by Marc Chandler

August 25, 2016

Rating: 5

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