It’s Labour Day today in the USA and Canada and a reasonably quiet economic calendar today.
The main news over the weekend was the sixth nuclear test by North Korea on Sunday, a much larger hydrogen bomb, that triggered 6.3 magnitude earthquake. US President Trump fired more Tweets out over the weekend in response and met his military advisors, as all options are on the table. Understandably, South Korea and neighbouring countries desire more diplomacy and a peaceful outcome.
The US Dollar and Australian Dollar are both lower as we start the new week, with safe haven flows favouring the Yen, Swiss Franc and Gold.
We do have three central bank meetings this week: the first being the Reserve Bank of Australia (RBA) tomorrow. The RBA is not ready to make any changes. Monetary growth is accommodative enough and with the recent downgrades to growth along with their concerns over the currency, it is unlikely that they will be tightening any time soon either. The RBA should remain cautious and the Australian Dollar should remain range bound.
Then the Bank of Canada (RBC) meeting is on Wednesday, with potential for a rate hike on the back of strong economic performance from Canada recently. If not this month, then a rate increase in October is likely.
Finally, the European Central Bank (ECB) meets on Thursday. The Euro has been one of the strongest performers recently, buoyed by flows out of US Dollar and the British Pound, but the ECB is expected to warn against Euro strength at a press conference, yet maintain their stance for a rate hike in December.
Sterling ended the week not far from where it opened. Last week’s UK data was mostly better than expected, with mortgage approvals rising and manufacturing activity accelerating. The UK Manufacturing Purchasing Managers’ Index (PMI)
rose to 56.9, from an upwardly revised 55.3 in August. Looking ahead, the Pound will probably take its cue from Brexit-related headlines and the ongoing situation in Asia. UK Construction Sector PMI was released this morning, with results a little softer, showing only a marginal increase in overall construction activity and a drop from 51.9 in July to 51.1 in August, however, residential building performed well, with accelerated month-on-month growth. The markets will probably pay more attention to the Service Sector PMI data, which is due tomorrow morning.