September 7, 2017
Irma’s on the warpath, debt drama is delayed, and the ECB meeting looms. Here are some of the things people in markets are talking about today.
Irma is heading towards Florida after smashing Puerto Rico as the category five storm accelerates through the Caribbean, threatening to turn into the most expensive hurricane in U.S. history. A mandatory evacuation order has been issued for some areas including downtown Miami and Miami Beach, with Irma forecast to hit by Sunday afternoon. Gas shortages loom, orange juice futures traded near their highest since May before stabilizing, and reinsurance companies could take a big hit as primary insurers have reduced exposure to Florida in recent years, according to analysts. U.S. airlines are capping ticket prices for passengers fleeing the hurricane.
One impediment to the risk rally this month faded after U.S. President Donald Trump agreed a deal to add a three-month extension of the U.S. debt limit to a bill providing relief for victims of Hurricane Harvey, overruling Republicans who wanted a longer agreement, and siding with congressional Democrats. The Treasury bill market is now pricing-in stress for the new debt ceiling deadline of Dec. 15, underscoring how fiscal brinkmanship has been postponed, rather than resolved.
European Central Bank President Mario Draghi is set to give a much-anticipated policy update at 8:30 a.m. Eastern Time, with investors looking for clues on the future of its bond-buying program and any talk of the strengthening euro. The Governing Council has been presented with documents outlining multiple scenarios for adjusting its quantitative easing, according to officials familiar with the matter. Nonetheless, some investors have pared expectations for a tapering announcement despite the economic recovery, citing the euro’s advance, and a decision on how and when to scale back the program likely won’t be made until the Oct. 26 meeting. A more hawkish-than-expected pronouncement, signaling the fading era of monetary support in the U.S. and Europe, will test risk appetite for investors around the world, from junk bonds to emerging markets.
President Donald Trump has more power to chart the course of the U.S. central bank, after Federal Reserve Vice Chair Stanley Fischer, a godfather of global economic policy, announced his decision to step down mid-October. The U.S. dollar dipped after the news on speculation that the Fed succession plan may head in a more dovish direction. Meanwhile, Gary Cohn, top White House economic advisor and former Goldman Sachs Group veteran, is unlikely to be selected to replace Janet Yellen as chair, the Wall Street Journal reported, citing his perceived veiled criticism of the president’s response to a rally of white supremacists in Virginia.
The dollar hit a two-year low, while the euro rose to the strongest level in more than a week as stocks in the region struggled for direction ahead of the ECB meeting. Tensions over North Korea, Hurricane Irma and the clouded outlook for American monetary policy also threaten to outweigh positive sentiment from the U.S. debt extension in today’s trading session. The Topix index rose 0.4 percent at the close in Tokyo, and S&P futures were down 0.1 percent as of 5:55 a.m. ET.