Oil prices rise amid the negative impact of hurricanes. The New Zealand dollar remains under pressure

On Monday, the Dow Jones (US30) rose by 0.55% and set a new record high, while the S&P 500 (US500) rose 0.13%. The NASDAQ Technology Index (US100) closed negative 0.52%. Apple (AAPL) shares fell more than 2% on Monday, pressuring the overall market on signs of weak demand for new iPhones. However, Intel (INTC) rose more than 6% on Monday and lifted the Dow Jones Industrials Index after the chipmaker formally claimed $3.5 billion in federal grants to produce semiconductors for the Pentagon.

Today, the market will focus on Tuesday’s US retail sales report for August to see if consumer spending is holding up. The consensus is that retail sales for August will decline 0.2% m/m. Markets will also keep an eye on the 2-day FOMC meeting starting on Tuesday and whether policymakers will decide that lowering the target range for the federal funds rate by 25 bps will be sufficient for a US economy showing signs of losing momentum. Or whether they will decide on a larger 50bp rate cut instead. Fed Chair Powell’s comments after Wednesday’s meeting will also be scrutinized for further Fed policy intentions.

Equity markets in Europe traded flat yesterday. The German DAX (DE40) was down 0.35%, the French CAC 40 (FR 40) fell by 0.21%, the Spanish IBEX 35 (ES35) was up 0.35%, the British FTSE 100 (UK100) closed Monday up 0.06%. European equity markets opened higher on Tuesday, recouping losses from the previous session as traders increased bets that the US Federal Reserve will cut rates by 50 basis points on Wednesday. The Bank of England, Bank of Japan, and Norges Bank will also make monetary policy decisions this week.

WTI crude oil prices rose to around $70.6 a barrel on Tuesday, marking the second consecutive session of gains on supply concerns. The remnants of Hurricane Francine continue to weigh on activity, with more than 12% of crude oil production and 16% of natural gas production in the US Gulf of Mexico still offline as of Monday. In addition, there were signs of reduced supply from Libya, where oil exports have fallen significantly recently.

Asian markets traded mixed yesterday. Japan’s Nikkei 225 (JP225) was down 0.68%, China’s FTSE China A50 (CHA50) did not trade due to a holiday, Hong Kong’s Hang Seng (HK50) was up 0.31%, and Australia’s ASX 200 (AU200) was positive 0.27%. 

The New Zealand dollar declined to $0.618 after rising 0.7% in the previous session. The kiwi was pressured by recent signs of economic weakness in China, New Zealand’s largest trading partner. New Zealand’s second-quarter GDP data will be released on Thursday, with markets expecting a 0.4% contraction from the previous quarter. This has raised concerns about the overall health of the economy and emphasized the need for further monetary easing. Markets have fully priced in the possibility of a 25 basis point rate cut in October, while there is a 25% chance of a more aggressive 50 basis point cut.

The Australian dollar held on to its recent rise to $0.675, sitting at a one-week-high. Traders have increased bets on an aggressive rate cut by the US Federal Reserve this week, with markets pricing in a two-thirds chance of an excessive 50 basis point cut. Rising gold, copper, and oil prices also supported the local currency as Australia is a net exporter of major commodities. Meanwhile, markets are eagerly awaiting Australian employment data due out later this week to gauge the state of the labor market and potential implications for domestic monetary policy.