Indices around the world are up again today with the FTSE and DAX both climbing 0.7% while US index futures are up 0.2%. The US Dollar continues to bounce back against other major currencies and gold but at a more moderate pace.
It's the last day of the month, bringing a lot of economic reports for the street to digest. Chinese PMI reports were mixed with manufacturing beating expectations but non-manufacturing falling from last month. In Europe, inflation continues to rise, but German retail sales disappointed.
There are a number of significant announcements scheduled for North America today. Canada is expected to post strong Q2 GDP which could remind the street how the long-term benefits of reconstruction from a big natural disaster (last year’s Fort McMurray wildfire) can boost economic growth more than the short term negative impact of the disaster. In the US, core PCE inflation and Chicago PMI continue the run up to Friday’s nonfarm payrolls and national manufacturing PMI reports.
Hurricane Harvey continues to impact energy markets, especially gasoline where the September contract is up another 5% to $1.90 per gallon. More refined product pipelines from the Gulf Coast to the Northeast have closed due to lack of product. Farther out months remain lower indicating the street still sees the impact as temporary.
The US Dollar appears to be breaking out of its summer slump. In addition to the positive economic environment, the need for hurricane relief has sparked speculation that US politicians may postpone their big budget battle and agree to a short term spending and debt deal (time will tell, I’m not convinced) and enable the Fed to act on balance sheet normalization (I’m not convinced, if the battle drags on the Fed may not be able to act until December or later). Regardless, EUR, CAD, Gold and JPY all completed significant technical reversals yesterday and it looks like currency trends may have passed a tipping point.
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