Yet again we open the week with a focus on North Korea. Over the weekend we have seen them testing a hydrogen bomb, confirmed by the testing of seismic activity. This is a serious step up in the tensions between the US and North Korea, with a few believing that this is them trying to test the China/US relationship. The Trump administration has called North Korea’s actions “very hostile and dangerous to the US”. Naturally, the option of action by the US is fraught with risks, military action should clearly be the last resort as, with evident capabilities, the outcome could lead to dire consequences. The option mentioned by Trump was that of the US severing ties with any country that has dealings with North Korea, in particular, China, who invest heavily in the country. There is a school of thought that the actions seen by North Korea could have come about in order to manufacture exactly this kind of situation thus testing the China/US relationship.
Naturally, the risk was heavily bought at the open with Japanese Yen, Gold, and Swiss Franc being the main benefactors, bringing us to the bottom of the recent range in USD/JPY. Last week, the early risk move was faded as real money came back into the market to take advantage of the move, but with tensions rising continually, any slight increase in tensions could take us to fresh lows in USD/JPY.
On Friday we had the US Unemployment numbers, with all areas bringing disappointment. The headline number came in at 156k down from the expected 180k we also saw a downward revision to last month’s number, down to 189k. In addition, we saw the Unemployment rate grow from 4.3% to 4.4% and Average Earning drop to 0.1% from 0.3%. This weakness is being partly attributed to seasonality but there are a number of other contributing factors. This month’s lower-than-expected US Payroll data (despite headline payrolls remaining above the 100k mark), coupled with the North Korea situation, the cost of Hurricane Harvey and the vulnerability of Trump, the Federal Reserve certainly have plenty to think about ahead of this month’s Interest Rate announcement.
In the UK we have seen GBP/USD fairly buoyant due to the implied weakness of the US dollar and another quiet week ahead of us, just UK Services PMI on Tuesday expected lower at 53.5 versus 53.8 last month. We get a glimpse of the housing market with Halifax house price index on Thursday where recently we have seen house price growth slowing. On Friday we see considerable data, in particular, Manufacturing Production, where we expect 0.3% up from 0.0% last month. We also get Trade Balance, Construction, and Industrial Production Data at the same time, then NIESR GDP Estimate at 10am.
In Eurozone we saw comments from ECB sources which contradicted the Hawkish comments we heard from Draghi at Jackson Hole, it questioned the readiness to start tapering Quantitative Easing as soon as the next ECB meeting. Bear in mind the appreciation of the Euro, most recently, as a result of the expectancy that the ECB is to commence the tapering programme. Any comments on the matter, this week, will be crucial. Â Data-wise, a relatively quiet week with a raft of PMI data out of the major Eurozone countries on Tuesday.
Earlier this morning we saw the Reserve Bank of Australia leave rates on hold at 1.5% where they have been since August 2016. Whilst the economy is showing signs of strength recently, they decided leaving policy lose at this time was the best course of action. We are due to hear from RBA Governor Lowe at 2pm today.
Have a great week