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Asian Session – Strong US GDP boosts equities and dollar; Crude oil soars 10%

The dollar held on to most of its gains from Thursday’s stronger-than-expected GDP data for the second quarter. The US economy expanded by 3.7% on an annualized basis in the second quarter, sharply higher than the initial estimates of 2.3%. This put the prospect of a September rate hike back on the table after recent market volatility and worries over China had led investors to lower their expectations of the Fed taking action next month.

US equities responded by extending their gains for a second day, with the Dow Jones closing up 2.3%. Asian shares were also higher with all major indices in the positive in Friday’s Asian session. It was reported that Chinese authorities were once again intervening in the stock market, having scaled back their operations after August 14. Chinese stocks closed up by almost 6% on Thursday and were over 2% higher today in late Asian session.

The yen was steady against other majors after a mixed batch of data. July inflation was unchanged at 0.2% but core CPI fell to 0% for the first time since May 2013. Despite the weak inflation, the Bank of Japan Governor said on Wednesday that he is optimistic about meeting the 2% inflation target and the BoJ stands ready to act if needed. Also out this morning was retail sales data, which grew by 1.2% month-on-month in July. This was much higher than estimates of a 0.6% rise. Unemployment data also surprised as the July rate fell to 3.3%, against forecasts it would stay unchanged at 3.4%. But household spending disappointed, declining by 0.2% in July, versus estimates it would rise by 0.9%.

The dollar was not too far from yesterday’s high of 121.39 against the yen, trading at 121.10 in late Asian session. The euro was steady around 1.1260 against the dollar but edged higher against the pound at 0.7303. Meanwhile, sterling made modest gains to climb to 1.5418 against the dollar.

Oil prices saw their biggest one-day gains since 2008, jumping 10% on the back of the strong US GDP figures. WTI oil futures soared above $40 a barrel and was up 1.3% at $43.09 in today’s Asian session, while Brent crude was up 1% at $48.08. Other commodities also rose in response with copper prices up over 4% and gold up by around 0.5% in late Asian trading.

Higher commodity prices lifted the Australian dollar, which climbed to 0.7205 before easing to 0.7166. The New Zealand dollar was also off earlier highs and was last trading at 0.6465. Another benefiter was the Canadian dollar, which reversed the US dollar’s recent gains on rising crude oil prices. The greenback fell to 1.3202 against the loonie after peaking at a fresh 11-year high of 1.3352 on Tuesday.

Coming up in the rest of the day, the second estimate of second quarter GDP for the UK will be watched closely for any surprises, and German flash inflation figures for August should also be of interest. In the US, personal income and spending data is due, along with the University of Michigan final confidence figures for August.

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