European equity close: Solid bounce back

Closing changes for the main equity bourses:

  • UK FTSE 100 +1.0%
  • French CAC +1.6%
  • German DAX +1.2%
  • Spain IBEX +0.9%
  • Italy MIB +1.7%
The DAX hit the highest in a week today as it continues the rebound from dip down to the March lows. The main hurdle now is the Aug 9 high of 11,865.
Closing changes for the main equity bourses:

US weekly EIA oil inventories -2732K vs -1500K expected

US weekly energy inventory and production data:

  • Prior was +1580K
  • Gasoline +312K vs -200K exp
  • Distillates +2610K vs -300K exp
  • Cushing -2485K
  • Production unchanged at 12.3mbpd
API data released late yesterday:
  • Crude -3454K
  • Gasoline -403K
  • Cushing -2803K
  • Distillates +1806K

WTI was trading at $56.76 ahead of the data and was little changed on the headlines. The build in distillates is a bit of a surprise but it’s nothing to get excited about.

IMF says monetary easing unlikely to make a lasting improvement in trade balance

Exchange rates can’t do it all

The IMF is out with a blog post about the effectiveness of using monetary policy to weaken a currency and boost exports.
“One should not put too much stock in the view that easing monetary policy can weaken a country’s currency enough to bring a lasting improvement in its trade balance,” the authors write.
They estimate that a 10% decline in a country’s currency improves the trade balance by about 0.3% of GDP in the near-term, largely via a contraction in imports. Over three years the effect is larger and hits an average of 1.2% of GDP.
One thing they highlight is that much international trade is done in US dollars. This slows and limits the effects of weakening the currency.

Trump blames Fed for ‘highest dollar in US history’

More from the President

Doing great with China and other Trade Deals. The only problem we have is Jay Powell and the Fed. He’s like a golfer who can’t putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT – but don’t count on him! So far he has called it wrong, and only let us down….We are competing with many countries that have a far lower interest rate, and we should be lower than them. Yesterday, “highest Dollar in U.S.History.” No inflation. Wake up Federal Reserve. Such growth potential, almost like never before!
The US dollar is not at the highest levels in history, it’s not even close.
Dollar index:

China says that it is key to resolve trade differences with US through dialogue

Comments by China’s foreign ministry

  • Natural for US and China to have differences on trade
  • US-China relationship is one of the most important bilateral relationships in the world
A little less aggressive in the remarks there but I wouldn’t look too much into it. As it stands, there’s still no clarity as to whether or not proposed trade talks next month will go ahead so I wouldn’t say that we’re making great strides to resolve the ongoing tensions.

Saudia Arabia can’t support oil prices alone

Via Bloomberg

Oil
This is a piece I came across on Bloomberg reflecting that at the start of the month 
 Saudi said that they were prepared to do, ‘whatever it takes’, to support prices. Perhaps Saudi is not quite as resolved as it turns out. The rationale of the article is as follows:
Saudi naturally spoke to the OPEC+ group earlier in the month to try to see what could be done to support oil prices. The progress is as follows:
Russia – E-mailed a statement from their energy ministry saying that ‘it was ‘utterly important to act responsibly’, by giving the market only as much oil as was needed. So, Russia then duly goes and oversupplies! Their output target is 11.19 million b/d which they only matched during the Druzhba pipepline crisis.
Via Bloomberg
Iraq: Tanker tracking data by bloomberg suggest that they are pumping the highest level in three months
West Africa : Robust flows
So, without much help, will Saudi alone shoulder the burden of reducing output? They have been keeping their production underneath the 10.3 million barrels a day pledged in December, but they have signalled an unwillingness to solely try and support oil.
Saudi Arabia
The obvious problem with production cuts is that there is always a financial incentive to break them. Saudi Arabia can’t be the only player keeping the cut levels. So, the article concludes by saying, ‘don’t wait for a big production cut from Saudi to rescue oil prices.’. Full Article here

Economic data coming up in the European session

A light one on the data docket once again

Comic 21-08

Good day, everyone! Hope you’re all doing well as we get things going in the session ahead. There hasn’t been much major movement on the day so far but the yen is a little weaker amid higher Treasury yields this time around today.

The back and forth action in bonds this week is largely to do with positioning as all eyes are on the Fed and the Jackson Hole symposium later in the week.
Looking ahead, there isn’t much else to shake things up so just be on the look out for trade and Brexit developments. Otherwise, risk sentiment will remain a key factor and as such, keep your eyes on the bond market.
0830 GMT – UK July public sector debt data
Prior release can be found here. A glimpse of the UK budget and public finances but it isn’t a major data point at this point in time.
1100 GMT – US MBA mortgage applications w.e. 16 August
Weekly US housing data, measures the change in number of applications for mortgages backed by the MBA during the week. Not the biggest of data points, but a general indicator of the housing sector sentiment.