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Several market themes stayed in play as New York session traders returned to their desks after the long weekend, but U.S. stocks and the dollar were on the losing end due to downbeat Fed remarks and persistent North Korea jitters.

The yen left most of its counterparts eating dust while the Kiwi managed to hold on to most of its intraday gains.

  • U.S. factory orders fell 3.3% as expected in July
  • U.S. June factory orders upgraded from 3.0% to 3.2%
  • New Zealand GDT auction yielded 0.3% rebound in dairy prices
  • FOMC member Brainard: Caution warranted on further rate hikes
  • Brainard: Persistence of the shortfall in inflation should be closely watched
  • FOMC member Kashkari: Fed may have harmed economy with recent hikes
  • Kashkari: Fed may be overestimating how tight the labor market is, allowed inflation expectations to drift lower

Major Events/Reports

Downbeat remarks from Fed policymakers

FOMC members didn’t exactly kick the month off on a cheery note as policymakers Brainard and Kashkari warned about the dangers of low inflation and how tightening might make things worse.

For FOMC member Lael Brainard, the central bank needs to take a closer look at underlying inflation trends before deciding to hike interest rates again. She mentioned that the economy needs a “considerable undershooting of the natural rate of unemployment” to reach the inflation target. Brainard also pointed out:

“The persistence of the shortfall in inflation from our objective should be one of the considerations in setting monetary policy. Most immediately, we should assess inflation developments closely before making a determination on further adjustments to the federal funds rate.”

Minneapolis Fed President Neel Kashkari even went on to say that the central bank’s interest rate hikes for the past 18 months are doing harm to the U.S. economy. He blamed these tightening moves for keeping jobs growth slow and weighing on inflation.

Kashkari explained that Fed officials may be making a couple of mistakes: First is that they may be overestimating how tight the labor market is and second is that they may have allowed inflation expectations to drift lower.

U.S. factory orders post steep drop

The only piece of data from Uncle Sam underscored the downbeat remarks from Fed officials as factory orders slumped 3.3% in July, erasing the gains seen in the previous month. On a more upbeat note, though, the June reading was upgraded from the initially reported 3.0% gain to show a 3.2% increase.

Underlying data revealed that the record drop in July factory orders was mostly due to weaker demand for transportation equipment. Apart from that, orders for capital goods showed a robust 1.0% gain while mining, oil field and gas field machinery orders rose 1.7%.

Even so, U.S. equity indices started the week in the red, with North Korean tensions continuing to hurt risk appetite:

  • The Dow 30 index is down 234.25 points to 21,753.31 (-1.07%)
  • The S&P 500 index is down 18.70 points to 2,457.85 (-0.76%)
  • Nasdaq is down 59.76 points to 6,375.57 (-0.93%)

Gold, on the other hand, kept raking in gains and is closing in on its yearly high on safe-haven flows. The precious metal is up 1.09% to $1,344.96 per troy ounce.

Major Market Mover(s):

JPY

The Japanese currency was the one safe-haven to rule them all as the franc was previously dragged lower by weaker than expected Swiss GDP while the dollar reacted negatively to Fed officials’ remarks.

USD/JPY is down from 109.72 to 108.86 (-0.77%), EUR/JPY slipped to 129.67 (-0.67%), CAD/JPY fell to a low of 87.70 (-0.57%), and CHF/JPY is attempting to break below 114.00 (-0.45%).

NZD

Even with the presence of risk-off vibes, the higher-yielding Kiwi managed to advance against most of its counterparts likely due to the 0.3% rebound in dairy prices during the GDT auction.

AUD/NZD is down from 1.1092 to 1.1043 (-0.42%), GBP/NZD is sitting right on the 1.8000 handle (-0.30%), NZD/JPY is up to 78.73 (+0.22%), and NZD/USD is up from .7162 to .7238 (+1.06%).

Watch Out For:

  • 1:00 am GMT: Japanese average cash earnings y/y (0.5% expected, -0.4% previous)
  • 2:30 am GMT: Australian Q2 GDP (0.8% expected, 0.3% previous)