Equity futures stormed out of the gate on initial relief that a Syria attack may be avoided, which sent oil and the PM complex flash crashing lower. However, overnight, sentiment shifted that the Syrian escalation is at best delayed and as a result Brent regained all losses, with the precious metals also largely unchanged from Friday's close. Futures on the other hand, were perfectly happy to rise on the transitory Syrian risk moderation reduction, and then continue rising when Syria returned to the forefront, this time prodded higher by PMI exuberance out of China and Europe. How credible such manufacturing data remains to be seen. A surging USDJPY was also rather helpful, with the pair breaching 99.00 stops to the upside shortly after the European PMI data printed. And with the cash US market closed, and electronic equity trade halted at 10:30 Central, it is unlikely that concerns about all those "other" things that will define September, will seep in and it is likely the HFTs will push equities to session highs before reopening for the Tuesday trading.
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Stocks traded higher in Europe this morning, as market participants reacted to the release of better than expected macroeconomic data from China and also scaled back expectations of an imminent strike on Syria. Even though President Obama announced that he will seek Congressional approval for military action in Syria, Obama didn't say he was giving Congress veto power over the decision and left open the possibility that he would go ahead without lawmakers. As such, after opening sharply lower, with the front month WTI contract testing the 50DMA line, energy prices have edged gradually higher and closed the opening gap. Nevertheless, oil & gas related stocks underperformed on the back of lower energy prices, while telecoms led the move higher as Vodafone/Verizon deal raised prospect of more M&A deals. Going forward, it is expected to be a fairly quiet trading session given the Labor Day holiday in the US.
Highlights:
- The economic recovery is weaker than expected and downward risks remain according to a draft of the G20's concluding statement.
- Chinese Manufacturing PMI (Aug) M/M 51.0 vs. Exp. 50.6 (Prev. 50.3) 16-month high and Chinese HSBC Manufacturing PMI (Aug F) M/M 50.1 vs. Exp. 50.2 (Prev. 47.7) first expansion in four months.
- US President Obama said on Saturday that he has decided the US should take military action against the Syria regime targets, and to seek authorization for use of force from Congress. Senate will vote on the Syria resolution no later than the week of September 9th.
- Going forward, it is expected to be a fairly quiet trading session given the Labor Day holiday in the US.
Asian Headlines
Chinese Manufacturing PMI (Aug) M/M 51.0 vs. Exp. 50.6 (Prev. 50.3) - 16-month high.
Chinese HSBC Manufacturing PMI (Aug F) M/M 50.1 vs. Exp. 50.2 (Prev. 47.7) - First expansion in four months.
Japanese Economy Minister Amari said that a majority of those in seven consultative panels favoured proceeding with the sales-tax increase, while also urging stimulus to offset the blow to consumption. He added that panel members thought the risks of not raising the tax were much larger than the risks from increasing it as planned.
EU & UK Headlines
UK Manufacturing PMI (Aug) M/M 57.2 vs. Exp. 55.0 (Prev. 54.6, Rev. 54.8) - Highest since Feb 2011.
Eurozone Manufacturing PMI (Aug F) M/M 51.4 vs. Exp. 51.3 (Prev. 51.3)
German Manufacturing PMI (Aug F) M/M 51.8 vs. Exp. 52.0 (Prev. 52.0) - Highest since July 2011.
French Manufacturing PMI (Aug F) M/M 49.7 vs. Exp. 49.7 (Prev. 49.7)
Italian Manufacturing PMI (Aug) M/M 51.3 vs. Exp. 51.0 (Prev. 50.4) - Highest since May 2011.
ECB's Coeure said that the Euro-area isn't ready for monetary policy normalization, though the worst is over for the region's economy.
German Chancellor Merkel faced challenger Peer Steinbruck in their only live televised debate with 44% of those polled declared the chancellor to be the winner, while 43% thought Steinbruck was more effective.
David Smith, Economics Editor of the Sunday Times, writes that economists that make up the shadow monetary policy committee (MPC) have attacked the Bank of England’s low interest rates and forward guidance policy, claiming it will fuel inflation and boom and bust. Members of the shadow MPC say forward guidance is not just based on a flawed model but has also seen money market expectations head in the opposite direction to that desired.
US Headlines
US Markets closed today for the US Labor Day holiday
Equities
Stocks traded higher in Europe this morning, as market participants reacted to the release of better than expected macroeconomic data from China and also scaled back expectations of an imminent strike on Syria. Nevertheless, oil & gas related stocks underperformed on the back of lower energy prices, while telecoms led the move higher as Vodafone/Verizon deal raised prospect of more M&A deals.
Vodafone shares surged at the open after the company has said talks regarding the sale of its 45% stake in Verizon Wireless in the US are "advanced".
FX
The release of better than expected macroeconomic data from China, together with reports that members of consultative panel in Japan favour sales-tax increase, supported the grind higher by USD/JPY which edged back above several technical levels to its highest since late July. Elsewhere, GBP outperformed its peers in Europe amid M&A related flows and also the release of better than expected UK Manufacturing PMI, which rose to its highest level since February 2011. Broad based GBP strength saw EUR/GBP fall to its lowest level since mid-June and more importantly below the key 200DMA line at 0.8480 and the 1m EUR/GBP implied rose to its highest level since late July.
Commodities
US President Obama said on Saturday that he has decided the US should take military action against the Syria regime targets, and to seek authorization for use of force from Congress. Senate will vote on the Syria resolution no later than the week of September 9th.
- US President Obama said the operation would be limited in scope and the US is prepared to strike whenever it chooses.
- The White House believes Congress will vote in favour of US military strike in Syria according to senior administration officials.
- Syrian President Assad said that Syria is capable of facing up to "any external aggression".
- According to a source Iran has warned America of 'dire reprisals', saying 'if you hit our allies in the region, we will hit your allies in the region'. The source suggested that Saudi Arabia and Qatar could be targets of reprisals.
- Morgan Stanley says that Brent crude price rise on Syria is a reason to sell as history suggests that prices rally on geopolitical conflict then fall if production not affected.
China to expand refining by 900,000 bpd this year according to JP Morgan.
Analysts at Citigroup expect gold prices to climb to USD 1,500 on investment demand.
Demand for jewelry, coins and bars will reach as much as 1,000 metric tons in India and China in 2013, according to the World Gold Council. Demand for US gold coins plunged 77% in August to its lowest level in 6 years, according to US Mint data.