Five Things that Happened Monday

1.  The dollar finished last week on a soft note but steadied at the start of the week, edging higher against nearly all major currencies.   The Australian and New Zealand dollars were the weakest, off about 0.3%. The Norwegian krone managed to be the most resilient, virtually flat.  Norway's central bank meets on September 23 and is expected to be the first of the high-income countries to raise rates.  The euro-Swiss franc cross has been adjusting higher, and the cross now sits at its best level in two months.  The euro rose by slightly more than 1% against the franc last week, its largest weekly gain since March.  The price action and the decline in Swiss sights deposits suggest the Swiss National Bank did not feel compelled to intervene last week.  

2.  The JP Morgan Emerging Market Currency Index snapped a six-day rally, its longest in seven months, with a minor loss on Monday (~0.05%). After rallying nearly 2% last week, the Chilean peso was the weakest in the EM space on Monday, falling by 0.65%.  Recall that on August 31, the central bank doubled the policy rate to 1.50%, more than most expected.   The Polish zloty was the second weakest of the emerging market currencies, losing about 0.55% following comments by the central bank governor cautioning that it was risky to lift rates (as Hungary and the Czech Republic have done). The Polish central bank meets on Wednesday, and expectations for a hike were running low in any event.  Inflation stood at 5.4% in August, while the base rate is at 10 bp.  The Turkish lira's almost 0.45% gain put it on the top of the emerging market complex.  The Treasury and Finance Ministry lifted this year's inflation forecast to 16.3%.  In July, the central bank anticipated a 14.1% year-end rate.  Last week, the government reported CPI rose 19.25% in August, the third consecutive increase.  The central bank meets on September 23. There is little room to concede the rate cut that President Erdogan has been pressing for in the one-week repo rate, which stands at 19.00%.  

3. Equities traded higher.  Despite the small losses in the S&P 500 and the Dow Industrials after the disappointing US August employment data, Japan, Hong Kong, and China equity indices rallied more than 1% and were sufficient to lift the MSCI Asia Pacific Index for the seventh consecutive session.  Led by information technology and energy sectors, the Dow Jones Stoxx 600 in Europe advanced nearly 0.7%, the most since late July.  

4.  A coup in Guinea raised fears of a disruption in bauxite, which sent aluminum prices up nearly 2% to their highest level in more than 10 years.  Aluminum prices were already elevated, and as part of its effort to curtail carbon emissions, China has reduced aluminum production.  Still, Guinea provides around 55% of the PRC's bauxite imports (Australia accounts for almost a third).  Separately, Brent was little changed. Saudi Arabia's announcement that it would reduce the premium charged to Asian buyers to $1.70 from nearly $3 while keeping the price to the US, Northern Europe, and the Mediterranean lift changed shows where the competition is the fiercest.  China's front-month iron ore futures contract fell by 2.5% in the regular session and fell another 3.2%, what is counted as Tuesday's session.  Over the six-day slide, iron ore prices are off around 14%.  

5.  German factory orders jumped by 3.4% in July.  The Bloomberg survey generated a median forecast of -0.7%.  Moreover, the June series was revised to show a 4.6% gain rather than the 4.1% rise initially reported.  The July industrial output figures will be reported tomorrow, and a 0.8% gain is expected after June's 1.3% decline.  Recall that the manufacturing PMI edged higher in June and July before falling in August.  The August reading of 62.6 was the lowest since February.  The factory orders were lifted by orders for ships.  Demand from Germany and the euro area decline while orders from outside the monetary union surged by almost 16%.  The German August construction PMI fell for the first time in three months.  Note that it has not been above the 50 boom/bust level since last February. 

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