Good Morning All; we'll see a new daily markets upadate

Headlines.

•Overnight the US was back from their Public Holiday. US services sector activity slowed to a 6-1/2-year low in August amid sharp drops in production and orders, pointing to slowing economic growth that further diminished prospects for an interest rate hike from the Federal Reserve. It was above 50.0 but printed 51.4 from 55.5 previously. It was the lowest since Feb. 2010 and largest monthly fall since the 2008 GFC. Only nine (of 18) industries reported growth in business activity in August, the fewest since January 2015 (eight). The Fed's Labour Market Conditions Index declined 0.7-point in August, resuming a string of declines that extended from January to June. The modest loss follows a 1.3-pt gain in July, which was the first rise in seven months.



•“September Fed-Hike Window Is Starting to Close for Bond Traders” - Bloomberg

•Two Federal Reserve policymakers plan to warn U.S. lawmakers against changing the Fed's structure to reduce the role of private bankers at the U.S. central bank, according to statements seen by Reuters. Some Democrats, including the campaign of Democratic presidential candidate Hillary Clinton, have advocated for removing private bankers from the boards of regional Federal Reserve banks. "The Fed's public-private structure supports monetary policy independence," Richmond Fed President Jeffrey Lacker said in a statement for a House of Representatives committee hearing scheduled for Wednesday.


•The Bank of England will wait until its November meeting before slicing 15 basis points from Bank Rate in an effort to cushion the expected blow from the Brexit vote, a Reuter’s poll found. Britain's decision in a June 23 referendum to leave the European Union has already started to tip the economy into a mild recession, a Reuter’s poll found last month, although recent purchasing manager surveys have been more upbeat. A further rate cut will depend on the economic evidence. Data has been pretty strong of late with the result that the probability assigned to a further cut has fallen over the past month

•Strong exports and household demand drove economic expansion in the euro zone in the second quarter, but growth slowed from previous quarters on weakening inventories and investment, data from the European Union's statistics office showed on Tuesday. Eurostat confirmed GDP growth in the 19 countries sharing the euro rose 0.3% quarter-on-quarter for a 1.6% year-on-year rise, in line with previous estimates and market expectations. The biggest contribution to growth came from net trade, which added 0.4% points to the final result, and household demand added another 0.1 point.

•German industrial orders eked out a smaller-than-expected rise in July and showed a decline in domestic demand, underlining growing concerns that Europe's economic powerhouse is slowing down. Contracts for goods "Made in Germany" were up by 0.2% in July, the Economy Ministry said on Tuesday. The reading was down -0.7% from a year ago.



•Germany has scope to cut taxes by around €15 billion after the federal election in September 2017 despite increased spending on migrants, Finance Minister Wolfgang Schaeuble said on Tuesday. Campaigning is getting underway for next year's vote and Chancellor Angela Merkel's Christian Democrats, of which Schaeuble is a member, face a tough challenge after their open-door refugee policy alienated some traditional supporters.




•China is lauding its successful hosting of the G20 summit in scenic Hangzhou, with open confrontation largely avoided and broad consensus reached over the fragile state of the global economy and the need for a wide range of policies to fix it. There was even a joint announcement by China and United States that they would ratify the Paris climate change agreement, a significant step for the world's two biggest emitters of greenhouse gases.



•China will step up proactive fiscal policy efforts now that commodity prices are relatively low, the State Council, or cabinet, said in a notice published on its website on Tuesday. The notice is a summary of a routine State Council meeting held by China's Premier Li Keqiang on Monday. The State Council also said it would encourage China's policy banks to step up credit support. It reaffirmed that China would actively reduce overcapacity and further liberalise infrastructure investment, meaning a further opening up to private investment.

•The BoJ will refrain from accelerating money printing or deepening negative rates this month as improvements in the economy make it hard to justify again deploying "bazooka"-like big stimulus, a former central bank executive said. The BOJ may consider making some "adjustments" to its asset purchases at the Sept. 20-21 rate review if it needs to appease investors betting on action, said Kazuo Momma, who oversaw the bank's monetary policy drafting and global affairs until May. "Even so, it won't be a 'bazooka 3' that greatly pushes forward the timing for achieving 2% inflation," he told Reuters on Tuesday.

•The Brazilian central bank said that future interest rate cuts will not depend on any single factor, signalling that policymakers are ready to ease monetary policy as inflation expectations improve. In the minutes of its last rate-setting meeting, the bank said all of its members were satisfied with the progress of disinflation, but remained cautious about high inflation expectations for 2017. Last week, the bank kept its benchmark Selic rate steady at 14.25% for the ninth straight time in a bid to lower inflation that is near 9%. The central bank then listed conditions for a rate cut, including the persistence of food price shocks, uncertainty around fiscal adjustment measures and a pick-up in disinflation. The decision by the RBA came as no surprise given easing in August and May are yet to percolate through the economy.

•Australia's central bank held interest rates steady on Tuesday, a month after cutting to a record low of 1.5%, and left open the question of further easing as the country gets ready to toast 25 years without a recession.
•It will take years for Britain to complete the process of leaving the European Union so Australia will pursue a trade deal with the bloc first, Australian Trade Minister Steven Ciobo said on Tuesday. Since Britain's June 23 vote in favour of Brexit, Australia has said it is keen to seek a trade partnership with Britain. On Monday, Australian Prime Minister Malcolm Turnbull said he wanted to negotiate a "very strong" free trade agreement with Britain.
•The US dollar tumbled on Tuesday after economic data showed the U.S. service sector grew at its slowest pace since early 2010, which dimmed expectations for a near-term interest rate increase from the Federal Reserve. The broader US dollar index fell at least 1% against the yen, euro, Swiss franc, British pound and a number of other currencies, with the pound rising to its highest level against the dollar since mid-July. The dollar index dropped 1.1% to 94.817, it’s the lowest since Aug. 26.



•“Dollar Drops Most in Five Weeks on ‘Shockingly Weak’ Services” - Bloomberg

•The greenback fell 1.3% against the Japanese Yen, slipping to 102.05 yen per dollar. Against the euro the US dollar rose to $1.1255, it’s the highest since Aug. 26 after the data. The poor US data took the chances for a September rate hike off the table and had implications for traders' bets on the speed with which the U.S. central bank will raise short-term interest rates in the future.

•Sterling surged by 1% on Tuesday to trade above $1.34 for the first time since mid-July, after U.S. data disappointed and the view spread that Britain will - for now - manage to dodge a much-feared recession following its vote to leave the EU. A run of upbeat data has shown the economy holding up relatively well in the months following the June 23 referendum on the UK's membership of the European Union, such as Monday's purchasing managers' index survey of Britain's huge services sector. Sterling rose by more than 1% to hit a seven-week high of $1.3445 after data showed the U.S. economy's service sector expanded in August but at a slower pace than in July, and the fall from the previous month was the largest since the 2008 financial crisis. The pound also hit a five-week peak against the euro of 83.335 pence.

•Positioning for a jump in the Czech crown's value against the euro will be the trade of 2017, Dutch bank ING told clients on Tuesday, predicting the country would scrap its three-year-old currency peg early next year. The Czech Republic has kept a lid on the crown since 2013 and intervened with increased regularity over the last year to hold the exchange rate on the weak side of 27 per euro as the country's economy has thrived. It has said it expects to remove the cap around the middle of next year, but after a change of guard at the Czech central bank and with increasing wage pressure expected to fire up inflation, traders are looking more closely at the timing of the move.

•“Deutsche Bank Joins Bears Seeking Shelter From Resurgent Pound” - Bloomberg
•The Canadian dollar rose, notching its strongest close in almost three weeks against a broadly weaker U.S. dollar, as investors cheered stronger domestic data and signs that energy-producing countries may work together to tackle a supply glut. The Loonie has strengthened since data on Friday showed exports jumped 3.4% in July. Weaker U.S. data has dimmed expectations for a near-term rate hike from the Federal Reserve. The Canadian dollar settled at C$1.2847 to the greenback, or 77.84 U.S. cents, stronger than Monday's close of C$1.2930, or 77.34 U.S. cents, according to Reuter’s data. It was its strongest close since Aug. 17. Its official close on Friday before the Labour Day holiday was C$1.2990, or 76.98 U.S. cents.

•The Australian dollar jumped 1.3% against the greenback, bolstered in part by the Reserve Bank of Australia's decision to leave interest rates unchanged at 1.5%. Australia’s dollar rose for a fifth day in the longest winning streak since March. Much weaker US services ISM has market ruling out Sept Fed hike. AUD/USD gained 1.33% with rise in gold and big gains in EM assets underpinning. AUS Q2 GDP key event today with market looking for plus 0.6% Q/Q & 3.4% Y/Y.
•The New Zealand dollar rose 1.5% against its U.S. counterpart to its highest since May 2015. The kiwi was boosted by the weak U.S. data and a rise in milk prices after a strong dairy auction in New Zealand. NZD/USD takes out 0.7400 on the milk/data combinations.

•Latin American currencies rallied on Tuesday as weak U.S. services data reinforced doubts over the possibility of an interest rate hike this year. Brazil’s real climbed the most since June as investors take advantage of high interest rates. Borrowing dollars to buy the real has returned 34% this year, the most among more than 40 currencies tracked by Bloomberg. The Brazil Real strengthened 2.7% against the greenback.

•The rand rose as much as 2.5% against the dollar to its strongest in more than a week on Tuesday, buoyed by data that showed South Africa's economy bounced back between April and June after a rocky first quarter. The local currency climbed to a session high of 14.0070 to the dollar, its firmest since Aug. 26, and was trading 2.35% higher at 14.0420. The bulk of its gains came after Statistics South Africa said the economy grew by 3.3% in the second quarter.

Regards All.