The possibility of a new round on tariffs on Chinese goods was not helping equity markets Monday morning, though the dollar held onto Friday's gains as investors try and acclimatize themselves to the ever-fluid trade situation that President Trump seems to be creating himself.
Deflection or negotiation? Whatever the reason, markets continue to wait for the counter punch before throwing all in. China is not expected to be a willing dance partner in proposed trade talks later this month if the Trump administration goes ahead with the additional tariffs expected later today.
The outlook for global trade looked improved last week. However, true to form, inconsistency seems consistent with this Trump administration.
This week the Bank of Japan dominates proceedings on the central bank front. However, recent domestic data remains mixed — Q2 GDP was revised upward while monthly core-machine orders rebounded from June's decline and PPI edged downward — and certainlgly disappointing news to Governor Kuroda's inflation fight.
On tap: AUD monetary policy minutes, BoJ rate announcement, U.K CPI and NZD GDP, SNB monetary policy decision, U.K retail sales and CAD retail sales.
With all this in mind, here are five things the global markets were talking about on Monday.
1. Stocks See Mostly Red
The Nikkei 225 was closed for a bank holiday and other Asia-Pacific indexes struggled with U.S.-China trade worries. Down under though, Australian stocks were the best performer in the region. The ASX 200 rose 0.3 percent as energy and financial stocks logged solid gains and telecom rallied 1.5 percent. The losers were elder care providers — the result of a planned government probe into the sector. In South Korea, the Kospi closed down 0.66 percent on global trade worries.
Stocks in Hong Kong finished lower while China's main Shanghai Composite index fell to its lowest close in four years overnight on fears that Washington is expected to unveil new tariffs on imported Chinese goods this week.
In Hong Kong, the Hang Seng index ended 1.3 percent lower, while the China Enterprises index closed down 1.1 percent. In China, the Shanghai Composite index dropped 1.1 percent, while the blue-chip CSI300 index also declined 1.1 percent.
2. Oil Higher As Iran Sanctions Raise Supply Concerns
Oil prices remain better bid as the market focuses on the potential impact of U.S. sanctions on Iran despite promises from Washington that the Saudis, Russia and the U.S. could together raise output fast enough to offset falling supplies.
Note: Washington is aiming to cut Iranian oil exports to force Tehran to renegotiate the nuclear deal. Iran exports have declined by 580,000 bpd in the past 90-days.
On Friday, U.S. Energy Secretary Rick Perry said that he did not expect any price spikes and that the world's top three oil producers could raise global output in the next 18-months.
Also capping oil prices, U.S drillers added two oilrigs in the week ending September 1, bringing the total count up to 749 according to Baker Hughes energy services.
Note: A Joint Technical Committee of OPEC and non-OPEC producers are due to meet today to coordinate production.
3. Sweden's Riksbank Ready To Hike Rates
This morning minutes from Sweden's Riksbank suggests that the board has become more tolerant of downside surprises to inflation and that it is now ready to hike rates before core-inflation has returned all the way to target.
Board members indicated that inflation expectations are "firmly anchored at the target, indicating that this is sufficient to start a very gradual tightening of the currently very expansionary monetary policy." The bond market is pricing in a 25 bps hike in early Q1 2019. The SEK is rallying, with EUR/SEK down 0.4 percent at €10.4774.
In Germany, the 10-year Bund yield was unchanged at 0.45 percent, while in the U.K, the 10-year Gilt yield nudged up than 1 bps. The spread of Italy's 10-year BTP's over Bunds narrowed by 8 bps.
4. Sterling Rallies On Irish Border Hopes
The pound is trading atop of the psychological £1.31 handle on optimism of progress on the Irish border question ahead of this week's E.U summit.
E.U. chief negotiator Michel Barnier is supposedly working on a plan to minimise physical checks at the Irish border by tracking goods using barcodes on shipping containers.
Note: The first of three Brexit summits will be held on Thursday, and E.U leaders hope a deal can be struck within the next two months.
EUR/USD was little changed at €1.1636. The dollar is expected to remain contained this week due to the absence of Tier 1 U.S. data releases, while euro gains may be capped on ongoing Italian concerns.
Emerging market currency's trade under pressure once again on tariffs threats, with the USD/TRY over 1.6 percent higher. The USD/INR was 0.8 percent higher as the Reserve Bank of India plans to curb INR's fall fail to lift the rupee.
5. Eurozone Annual Inflation Down To 2%
Data Monday morning from Eurostat showed that the Eurozone's annual inflation rate was 2.0 percent in August, down from 2.1 percent in July. A year earlier, the rate was 1.5 percent.
For the European Union, annual inflation was 2.1 percent in August, down from 2.2 percent in July. A year earlier, the rate was 1.7 percent.
Digging deeper, the lowest annual rates were registered in Denmark, Ireland and Greece — all slightly below 1 percent. The highest annual rates were recorded in Romania, Bulgaria, Estonia and Hungary — ranging between 3.4 and 4.3 percent.
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