RECAP

As the European Central Bank (ECB), Bank of England (BOE), and the Central Bank of the Republic of Turkey (CBRT) take up most of the session’s attention, they leave the markets in a holding pattern as decisions are being waited on. The TRY spiked lower after Erdogan talked about rate cuts just two hours before the Turkish rate decision, while the AUD was the marginal outperformer overnight after solid employment numbers. The USD/CNH bounced back towards the 6.85 after touching 6.83 on yesterday’s news of U.S/China talks.

The Asian equity markets react positively to the U.S./China talks with the Hang Seng rising +2.5%, while the European equity markets followed albeit with only minor gains; the trade-sensitive auto and mining sectors rallied on the news.

The Italian BTPs opened lower due to ongoing concerns about Finance Minister Tria, even though resignation reports are denied; this brought on a soft BTP auction results which added further pressure, particularly on the new 7y.

The U.S. Treasury curve was slightly steeper, with red Eurodollars continue to see a pick-up in volume with the September 19 and December 19 contracts at cycle lows.

Metals were broadly higher in reaction to trade negotiation news.

In the key headlines for the European session:

  • China Commerce Ministry: has received an invitation for a new round of trade talks with the U.S. and the two countries are now working on details
  • Italy Deputy PM Di Maio has not made any threats or issued any ultimatums to Finance Minister Tria; official also denies earlier reports of Tria offering resignation
  • Erdogan: Turkey should cut this high-interest rate; interest rate is the reason, inflation is the result; “If you are saying the opposite, you don’t know this business”
  • Japan Jul. Machine Orders 11.0% vs 5.5% es.t; y/y 13.9% vs 4.3% est.
  • IEA: oil prices could break out above $80 unless other producers act to offset deepening supply losses in Iran and Venezuela

OUTLOOK

The European session is taken over by the American one, with the U.S. session should be somewhat marginalized due to three Central banks revealing their decision to either increase or hold their interest rates.

The U.S. session still holds some sway over the markets since it is set to release the Initial Jobless Claims, Monthly Budget Statement, and the CPI data, all of which have an impact on the market. With CPI being the main item to look for during the session, it is expected to rise by 0.3%, while the core remaining at 0.2%, which might be correlated to the increase in crude oil that is affecting the CPI and not the Core.

What’s more, the Federal Reserve Bank of Atlanta President Raphael Bostic is due to speak about the economic outlook and monetary policy at the Mississippi Council of Economic Education.

TRADERS VIEW

The dollar was little changed as investors stayed on the sidelines ahead of multiple central bank meetings and U.S. price data. Headlines that generated optimism over the U.S.-China trade spat helped support stocks from Asia to Europe while Treasuries edged lower. Turkey’s central bank meeting may steal the limelight from those of the European Central Bank and Bank of England later Thursday, with economists predicting the one-week repo rate has increased by 325 basis points to 2%.

EUR/USD – The euro has dropped on the last seven ECB meeting days; inter-bank names look to fade a rally to 1.1700-20 with leveraged demand seen around 1.1550.

GBP/USD – GBP/USD was little changed at 1.3042 after gaining almost 1% in the last three sessions.

USD/JPY – The yen fell for the fourth time in five days and the onshore yuan gained after the U.S. was said to have proposed another round of talks with China to rein in an escalating trade spat/

AUD/USD – AUD/USD climbed as much as 0.4% to 0.7200 after a report showed employment rose 44,000 last month, more than twice economists’ forecast.

Dollar Index – The Bloomberg Dollar Spot Index rose 0.1% after sliding 0.5% Wednesday.