Morning market report

September 22, 2015 10:59 AM

The U.S. dollar approached two-week highs on Tuesday morning after Atlanta Federal Reserve Bank President Dennis Lockhart said he predicts the U.S. central bank will raise interest rates at the October or December FOMC meeting.

Today’s news features low-voter turnout in Greece's national election, expectations for Europe’s bond-buying program, falling U.S. oil production, and public appearances by members of the Federal Reserve.

Market Selloff: The Dow Jones Industrial Average dropped more than 223 points in the opening hour after traders weighed concerned over global growth prospects. While Lockhart’s statements fueled sentiment, the real action will likely happen on Thursday when Federal Reserve Chair Janet Yellen speaks in Amherst, Mass. Traders are seeking any clues on whether the Fed will take action this year, or wait until 2016.

China Growth Slashed: The bad news keeps coming out of China. This morning, The Asian Development Bank slashed its forecast for China’s annual economic growth to 6.8%, down from its previous expectations of 7.2%. Later this afternoon, keep an eye out for the September report on Chinese manufacturing activity. The report could affect currencies and the broader markets for the rest of the week, particularly in Japan and Australia.

Brazilian Blues: The Brazilian real hit an all-time low this morning after the nation’s economic leaders announced a large austerity package to address their slumping economy. The country is mired in a period of shrinking economic growth and rising inflation. Last week, the nation announced a $17 billion austerity package designed to plug its budget hole and restore faith in President Dilma Rousseff’s flailing government.

Oil Prices in Focus: Oil prices slumped again this morning on concerns about global economic growth and a massive surplus in supplies. U.S. WTI prices slumped 1.52% today, while Brent prices slipped 1.04%. Falling oil prices have affect the operations of many domestic shale producers, who are choosing to shut down production rather than lose money at current market prices.

Forex Snapshot                                                            

The ICE U.S. dollar index gained 0.22% against a basket of six international currencies to hit 96.11. Traders anticipate a rate hike by the Federal Reserve, and expectations rise for further easing from the European Central Bank and the Bank of Japan.

USD/JPY: The dollar was sliding 0.44% against the yen this morning, as traders flock to safety in the wake of the Dow’s triple-digit decline. Japanese markets remain closed for a three-day holiday and will resume trading on Thursday.

EUR/USD: The euro dipped 0.34% this morning against the dollar. Overall sentiment suggests that the markets anticipate further action by the European Central Bank to boost bond purchases. Tomorrow, ECB head Mario Draghi will meet with policymakers in Brussels, Belgium to discuss monetary policy.

AUD/USD: The Australian dollar is cratering over broader concerns in the Pacific economy. This morning, an article in the Sydney Morning Herald explained that foreign investors are abandoning Australia over bearish concerns related to its exposure to China. According to a National Australia Bank report, one investor called the economy “toast.” The Australian dollar was down 0.79% against the dollar this morning.

USD/CAD: The dollar gained 0.07% this morning against the loonie as falling commodity prices continue to weigh down the Canadian currency and broader economy. Risks for the Canadian dollar are rising ahead of the nation’s federal election on October 19, but political risks don’t outweigh the risks of falling oil prices fueled by rising supplies and weak market fundamentals.

GBP/USD: The cable was down 0.71%. This morning, the U.K. announced that public sector net borrowing for August was far below consensus expectations. The nation tacked on an additional £11.31 billion in debt, far more than economists anticipated in £8.65 billion.

Check back on Wednesday at for an update on China’s manufacturing sector. France will report second-quarter GDP, while Europe reports continent-wide PMI data, and the U.S. reports crude inventories.

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