In the absence of major economic releases, global markets were generally subdued heading into the week’s close. The S&P closed marginally higher, while Europe’s Stoxx 600 rose 0.2%, boosted by energy stocks as oil prices continued to rise. U.S. Treasury yields rose, supporting the U.S. dollar, which rose for the eighth straight week, its longest rise since 2005. The strong U.S. dollar continues to attract the attention of policymakers in Japan and China.
In commodity markets, Brent crude oil prices rose 0.8%, taking gains over the week to over 2%. Oil prices are at their highest since November last year and have been supported by Saudi Arabia and Russia, which said they would extend production cuts until the end of this year. Speculative accounts increased long oil positions to their highest level in about six months, according to data from the Commodity Futures Trading Commission (CFTC) for the period ending September 5.
Consumer prices in China rose 0.1% year-on-year in August after falling 0.3% in July, in line with consensus forecasts. Although China has overcome deflation, weak price pressures point to weak demand and have prompted policymakers to unveil a range of measures aimed at restoring investor confidence. Meanwhile, producer prices fell 3% year-on-year, putting pressure on manufacturing profits and highlighting continued weakness in the industrial sector.
Monthly activity data on industrial production, retail sales, investment and credit data in China will be released this week. Most economists expect the People’s Bank of China (PBOC) to keep the medium-term lending facility (MLF) rate unchanged at 2.5% on Friday, although a minority forecast a 10 basis point rate cut after a similar cut in June.
Global bond markets were mixed on Friday. German Bunds were little changed, with the 10-year yield holding near 2.61% as investors look ahead to this week’s European Central Bank (ECB) meeting. The market expects about a 40% chance of a 25 basis point rate hike. Meanwhile, US Treasury yields rose with a lead at the front end. Two-year Treasury yields rose 4 basis points to close the week at 4.99%, while 10-year Treasury yields rose 2 basis points to 4.26%. Tonight, $44 billion of 3-year Treasury bonds are available ahead of auctions for 10- and 30-year Treasury bonds later in the week.
Japanese policymakers have continued to warn the market of excessive weakness in the yen. Finance Minister Suzuki said that “the foreign exchange market should reflect fundamentals” and that policymakers “will monitor foreign exchange movements with great urgency and will not rule out options to manage excessive movements.” USD/JPY temporarily weakened following the comments but ended the week at recent highs, highlighting the waning effect of verbal interventions.
The U.S. dollar’s decline was quickly reversed overnight on Friday, with the dollar index making small gains and closing near multi-week highs. EUR/USD briefly rose above 1.0740 but quickly fell back to close near 1.07, its lowest level since June, with weak activity in the euro zone contrasting with the resilience of the US economy. The Canadian dollar outperformed G10 currencies after better-than-expected jobs data. CFTC positioning data showed widespread U.S. dollar buying in foreign exchange futures markets.
NZD/USD rose towards 0.5920 but retreated in line with a strengthening US dollar to close the week at around 0.5880. NZD/AUD finished little changed at 0.9230, continuing the directionless cross trading of recent weeks.
New Zealand government bond yields fell in Friday’s local session, with the long end outperforming, resulting in a flatter yield curve. 10-year bonds ended the day down 6 basis points at 4.94%. NZDM confirmed tender lines for this week and inflation-linked bonds (IIBs) will be offered alongside NZ$500 million of nominal bonds. This is the first time IIBs have been advertised since May. The yield on Australian 3-year and 10-year bond futures is nearly 3 basis points higher than Friday’s local close, suggesting New Zealand yields are trending slightly higher early in the week.
There is no significant economic data available today.
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