Chart of the Day
Most mainstream economists think the problems with Evergrande will be contained to China, but there are nonetheless some obvious market casualties. One of those is the Australian dollar, which has fallen versus most currencies in recent days. To some extent, it’s surprising how well it’s still holding up against the recent large falls in iron ore prices, one of the country’s main exports. The Aussie dollar could be in for further weakness if problems continue to build. Other commodity currencies like the CAD and NOK tend to move together, but are so far holding up better because oil prices still look relatively strong. For now, the key thing to watch is the Fed meeting today, which could trigger some USD strength if the Fed becomes more hawkish – though that seems unlikely unless they’ve failed to follow the news.
Macro
US housing starts rose to 1,615,000 annualized in August. Building permits increased to 1,728,000 – still very strong in the context of the pre-Covid norm.
UK manufacturing orders are doing well according to the CBI data.
Markets
After Japan caught up with developments on Monday, there was a small rebound in the European indices, but the US indices fell back later in the day – Shanghai was still closed.
There was further weakness in most of the more cyclical sectors, with the notable exception of energy.
The VIX is still elevated by recent standards.
There were rebounds in industrial metals despite some signs of weakness elsewhere.
Traders are talking about the potential for USD strength again due to the concerns emanating from China – the USD struggled to find any momentum against the EUR or GBP yesterday, with the Fed policy announcement on Wednesday probably keeping some of the sidelines.
A selection of assets representing risk-on trades remains within its recent range, suggesting concerns in China are still relatively contained.
The main cryptos continue to fall though.
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