Market update: Risk aversion ahead of Fed

“It is not China’s aggressive foreign policy that is the source of the disturbance in the capital markets, but its aggressiveness at home as it asserts over control parts of the tech sector and toughens its anti-trust efforts.” – Marc Chandler.

Treasuries have led European bonds higher, as stock markets remain cautious ahead of the FOMC announcement. Risk aversion continues to dominate as virus developments cloud over the outlook for growth in the second quarter. Also, China’s regulatory clampdown spooks investors.

• The delta variant is keeping central banks in wait and see mode for now although the more hawkish camps are likely to push for a discussion on tapering after the summer – at least in the central scenario.

• BoJ’s summary of opinions also highlighted the need for ongoing caution with regard to tightening.

• Earnings reports have actually been better than expected on the whole. – GER30 and UK100 futures are still down -0.2%, US futures also slightly lower.

• Australia bonds rallied despite a spike in CPI inflation to 3.8% y/y in the second quarter.

• German GfK consumer confidence held steady in the advance reading for August, against expectations for a further marked improvement. 

• US reports revealed a modest under-performance for the durable goods figures and another robust round of home price gains. For durables, the June data were modestly disappointing, but most May metrics were revised upward, leaving only a slight disappointment.

In FX markets: The USD Index lifted out of a 13-day low, while EURUSD concurrently ebbed back towards the 1.1800 level, down from yesterday’s 13-day high at 1.1841. The Dollar remained comparatively softer versus the Pound, which rallied across-the-board yesterday as markets reacted to the sharp drop in Covid cases and the IMF’s sharp upward revision in its UK growth forecast for 2021, which, to recap, it expects at 7.0% and would mark the joint fastest growth out of the major advanced economies. Cable settled just off Tuesday’s 13-day peak at 1.3895. AUDUSD was heavy, AUDJPY also managed to hold above its Tuesday lows after a sharp decline yesterday and USDCAD ebbed back to the upper 1.2500s after yesterday’s short-lived foray above 1.2600, which left Friday’s peak at 1.2608 unchallenged.

Biggest FX Mover @ (06:30 GMT) CADCHF(+0.57%) – Spiked to 0.7280 from 0.7245, breaking PP. Currently the fast MAs are flattened, MACD signal line & histogram under 0 line, and RSI is at 46 and moving lower with all suggesting that the spike was limited and a pullback could be seen.