In this installment of the Investment Bank Outlook 02-09-19, we’re going to bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.


Asia-Pacific—China’s Damage Assessment

Another batch of survey-based sentiment readings that depict how well China is holding up in the face of an adversarial US trading partner will be the week’s main focal points out of Asian markets. Developments in the trade dialogue with specific regard to stalling if US tariff hikes are not reversed could also figure prominently, as the latest round of tariff hikes kick in on Sunday. A policy decision by the Reserve Bank of Australia will also be closely monitored.

The state versions of China’s purchasing managers’ indices for August will be released shortly. The private sector versions of the manufacturing PMI (Sunday night ET) and both the services and composite PMIs (Tuesday evening) will follow. Each of the state and private composite PMIs indicate slowing momentum but continued growth, buoyed more by China’s services sector that is larger than its manufacturing sector. Taking excessive comfort in this point may be unwise. However, given synergies between manufacturing and services, the more domestic orientation of the service industry that is less tradeable, offers some degree of protection from trade tensions. The August PMIs probably face downside risk in light of the August 1st announcement by US President Trump that he would levy tariffs on China, in what would later be amended to a three stage plan on September 1st, October 1st and mid- December.

The Reserve Bank of Australia is not expected to alter its cash rate target when it decides next Tuesday. Twenty-six out of 31 forecasters expect a hold. OIS markets are pricing only about one-in-seven odds of a cut. The status of labour markets has been a key consideration to the RBA, so the 41,000 jobs that were created in July that kept the unemployment rate stable at 5.2% was probably encouraging especially since it rebounded from the only weak month for jobs gains so far this year. Governor Lowe’s recent remarks that “political shocks are turning into economic shocks” but that “Monetary policy cannot deliver medium-term growth. We risk just pushing up asset prices” wasn’t the sort of language that marks a central banker intent on rushing forward with additional easing. Thus, even though trade tensions have escalated over the past month, it’s not clear if the RBA is ready to further deploy its toolkit.

Soon after the RBA decision, Australia will release Q2 GDP. If the bulk of the range of consensus estimates proves to be in the right ballpark, then ½% q/q non-annualized GDP growth may be welcomed by the RBA.

A batch of inflation reports will be released by South Korea and Thailand on Monday, Philippines on Wednesday, and Taiwan on Friday.


Danske Bank

FX markets

The tariff war and a slowing global manufacturing sector continue to put pressure on commodities. By extension, the broad USD is likely to remain strong.

EURUSD dropped below 1.10 on Friday. It was an extension of a trend that started at the beginning of the week and can partly be attributed to rising expectations of deeper ECB rate cuts, coupled with broad USD appreciation. In addition, month-end and a prolonged US weekend may have supported the USD on a broad basis on Friday. EURUSD could continue to trade with a heavy tone today after Chinese PMIs (published over the weekend) showed continued headwind to manufacturing.

In this morning’s edition of Reading the Markets, Norway, we argue for our cautiously bullish view on the NOK. The NOK has suffered heavily over the past month amid heavy headwinds from the global environment. A statistical approach would suggest a 14 figure EURNOK move lower in September (all else equal) if Norges Bank hikes policy rates by 25bp but, with the negative international environment likely set to continue, we do not like the risk-reward of a long NOK position at this stage. Indeed, there is a risk that Norges Bank does not deliver the expected hike in which case we could see EURNOK move above 10.00 on a more sustained basis.

While EURCHF has moved relatively little since the drop in late July-early August, lingering at the 1.09 mark, it starts to look like a tug of war between the SNB and speculators. The latest IMM positioning data (IMM Positioning Update, 1 September 2019) revealed the largest weekly bullish CHF build since June 2017. Meanwhile, sight deposit figures have over the past weeks pointed to significant SNB intervention to fight CHF strength. Overall, CHF positioning is now merely in neutral territory – contrasting with JPY, which is a similar story of a ‘bounded’ central bank – suggesting the SNB will continue to be tested on its willingness to protect downside in the cross. Today’s weekly data from the SNB should be scrutinised to sense whether CHF appreciation pressure continued towards the end of last week. EURCHF to stay offered ahead of ECB in September but pressure may well abate thereafter.


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