by Marc Chandler
My articles My offerMy siteAbout meMy videosMy books
Follow on:LinkedINTwitterSeeking AlphaAmazon
Overview: The stronger than expected ISM services, which the market has seemed particularly sensitive this year lifted the two-year yield to about 3.71%, its highest level since the last employment report. The 10-year yield, which had been toying with 3.80%, finally settled above it for the first time in a month. The Dollar Index extended its advance to four sessions, matching the longest in six months. The focus is on the US employment report. The greenback is mixed and is mostly consolidating against ahead of the US employment report. Most emerging market currencies have a heavier bias. The dollar may be more sensitive to a downside surprise than upside given the recent price action and short-term market positioning. That said, the Fed will see another jobs report before its November meeting.
Stocks are firmer, though were off to a less impressive start in Asia Pacific activity. Hong Kong recovered yesterday's losses and rose 2.8%. Japan and South Korea eked out a small gain, while Australia, Taiwan, and India fell. Europe's Stoxx 600 has steadied after dropping nearly 1% yesterday. US index futures are a little firmer. Benchmark 10-year yields are 2-5 bp higher in Europe and the 10-year Treasury yields almost 3.85%. Gold is trading higher in a $2654-$2668 range. Fear of further escalation of the Middle East conflict is helping oil extend its gains after rallying 5% yesterday. November WTI is near $74.50, having finished last week below $69.
Asia Pacific
Outside of the weaker than expected Australian household spending in August, (unchanged vs. expectations 0.5%) and the downward revision to July (-0.5% vs. 0.8% initially), the news stream is light today from the region. There have been two highlights this week in the region. First, Japan has a new government, which seeks a public mandate in a national election toward the end of the month. Although Prime Minister Ishida ran against Abe, he does not appear anti-Abe as some in the press depicted. In fact, given the cabinet appointments and early pronouncements, Ishida is very much part of the LDP mainstream. A supplemental budget that may include new energy subsides for households, has been tipped. And the new government is not eager for the BOJ to raise rates. The BOJ seemed to signal the same after softer Tokyo CPI, much weaker than expected industrial production, and heightened uncertainty about the global economy. Second, although China's mainland markets have been closed since Monday, the dramatic response to the stimulus continued. The index of mainland shares that trade in HK rallied another 15% this week after a 14% surge in the previous week. Beijing has successful spurred a short squeeze of the yuan and Chinese stocks. That said, many foreign economists, concerned about quantities and prices are more pessimistic that Beijing's efforts will suffice, but the critical variable, household confidence, will likely be boosted by the various measures. China's markets re-open Tuesday.
The dollar consolidated between JPY146.30 and JPY147.15 in North America yesterday. Despite the rise in US rates after the stronger than expected ISM services survey (especially the headline, prices, and new orders), the greenback was unable to reach a new session high. It returned to status quo ante around JPY146.60. It is in a JPY145.90-JPY146.90 range today. The Australian dollar set the session low yesterday in early North American turnover near $0.6830. It spent the remainder of the session below $0.6855. It barely traded above $0.6850 so far today. The daily momentum indicators warn of the downside risk. Nearby support is seen in the $0.6800-$0.6820 area, and a break could spur a move toward $0.6750. The dollar reached an eight-day high against the offshore yuan near CNH7.0650 today. The move does not seem complete. Initial potential extended toward CNH7.0740, but the risk may extend toward CNH7.10 in the coming days.
Europe
The EU holds the vote on boosting tariffs on Chinese electric vehicles later today. The EC has determined that Beijing has used unfair subsidies to support its industry and that around an increase of the tariffs to as high as 45% (varies according to producer) is appropriate. Approval requires a qualified majority of at least 15 members and representing 65% of the bloc's population. Germany and Spain have been most vocal in their opposition, and they prefer continued negotiations with Beijing. It appears, though, that rather than vote against the EC's recommendation, they will abstain, and some others may join them. Still, the EC seems confident that it has the necessary votes. A typical EU outcome would be for the EC to carry the day but continue negotiations with China. Separately, the highlight of the week has been the faster decline in eurozone CPI than expected. All four of the largest members reported sub-2% inflation, and the swaps market is confident (90%+) that the ECB will cut rates again when it meets on October 17 (and again in December).
The dollar buying after the stronger ISM services report saw the euro approach $1.10, where options for 1.75 bln euros expire today. The euro was pushed slightly below $1.1010, the lowest level since September 12, the day after the US reported the soft August CPI before being greeted by buyers who sent it back to around $1.1035. It is in a narrow $1.1020-40 range today. A close today below $1.10 would undermine the euro's technical tone. Sterling had a tough day yesterday, falling nearly 1.10%, the most since October 2023. It had fallen in the previous two sessions and looked vulnerable. Yesterday's sell-off pushed sterling through the up trendline drawn off the August and September lows (found ~$1.3210). It has stabilized today above $1.3100, though unable to rise above $1.3170. The risk remains on the downside.
America
The three-day dockworkers strike has ended, but the US employment report is front and center. With the Fed's confidence that inflation is on a sustainable path back to target, the labor market performance has taken on heightened importance. Barring a dramatic downside surprise, which the ADP estimate and weekly jobless claims argue against, the base case, as Fed Chair Powell indicated is for two quarter-point rate cuts in Q4. The US labor market is slowing but the operative word is gradual. Through August, pending revisions of July and August, US nonfarm payrolls have risen by an average of 184k this year, down from 266k average in the January-August 2023 period. The unemployment rate was at 3.8% in August 2023 and 4.2% in August 2024. Over the past year, the participation rate slipped to 62.7% from 62.8%. Average hourly earnings growth slowed to 3.8% year-over-year from 4.5% in August 2023. Ahead of the report, the Fed funds futures are discounting a little more than a 1-in-3 chance that the Fed delivers another 50 bp cut next month. That is down from about 55% at the end of last week. The market has about 66 bp of cuts discounted for the remainder of this year, down from nearly 77 bp at the end of last week.
The US dollar reached a new eight-session high yesterday near CAD1.3560 in late dealing after an option for $360 mln at CAD1.3555 expired out of the money earlier in the session. The next target is the CAD1.3600-CAD1.3650 area. Oil continued to rally, but we note that both the Canadian dollar and Norwegian krone traded heavily yesterday. The 30-day correlation of changes in the exchange rate and oil has risen to 0.30. The correlations with changes in the Dollar Index, gold, and the S&P 500 are more robust. Meanwhile, the US dollar fell against the Mexican peso for the fourth consecutive session. It traded down to MXN19.2925, its low since September 24. It is consolidating in a narrow MXN19.30-MXN19.40 range today. There is support near MXN19.25 and below it is the MXN19.00-06 area that may be more formidable. The greenback successfully tested support near BRL5.40 twice this week. It briefly traded above BRL5.51 but finished near BRL5.47. Continued broad consolidation is the most likely scenario. The markets typically do not react much to Brazil's trade figures, which will be released late today, but next week's CPI reports may be more impactful. The swaps market has about 200 bp of tightening discounted over the next 12 months, which seems a bit much.
You Might Also Like
The Market Discounts around a 40% Chance of not One but Two 50 bp Cuts in last Three FOMC Meetings of the Year Ahead of Jobs Report
2024-09-06
Overview: The US jobs report is front and center. The market is going into the report with about a 40% chance of a 50 bp Fed rate cut later this month. The Dollar Index is trading lower for the third consecutive session. Helped by the fifth consecutive decline in US 10-year yields, the yen approached last month’s high but without the turmoil seen in July and August. Still, equity markets are under pressure. Most large markets in the Asia Pacific region fell. Taiwan and Australia were exceptions. Europe’s Stoxx 600 is off for the fifth consecutive session, the longest drop in a couple of months. The US index futures are trading below yesterday’s lows. The bond markets continue to draw the safe haven flows. European benchmark 10-year yields are mostly around four basis points lower, and the
The Greenback Consolidates while Sustaining Break against the Yen
2024-06-27
Overview: The dollar is sporting a softer
profile today against all the G10 currencies but the Swedish krona. The
Riksbank sounded more dovish than previously, signaling the possibility of a
cut in each of the last three meetings of the year. The dollar has sustained its
push above JPY160 against the Japanese yen. Most emerging market currencies are
also firmer, with the notable exception of Türkiye and South Africa. Türkiye is
expected to keep its one-week repo rate steady today at 50%, while the Czech
central bank is seen delivering a quarter-point cut. (to 5.0%). The central
bank of Mexico meets later today and will hold the interest rate target at
11.00%. Equities are under pressure
today. All the large bourses fell in the Asia Pacific region but India. The
losses were led by a 2%
USD Pushes above JPY160
2024-06-26
Overview: The dollar is firm, and the market is challenging the JPY160 level, which it has traded above in Europe. Japanese officials say that they do not defend a specific level. The market is nervous though and some participants have professed intentions to sell dollars above there. The Australian dollar is the main exception to the greenback’s strength today. A strong monthly inflation print boosts the chances of a rate hike. The Aussie, though, has not broken out of its $0.6600-$0.6700 range that has dominated since mid-May. Most emerging market currencies are weaker, including the Chinese yuan, which is at new lows for the year (both on- and offshore). Equities are higher. Asia Pacific bourses advanced with Australia’s market being the outlier, on the heels of the higher CPI and an
Euro Sold After EU Parliament Elections and Macron’s Gambit
2024-06-10
Overview: With mixed elements, the market took the
US jobs data as relatively strong and took the dollar and US rates higher. The
EU Parliament election has shaken up European politics, with the Belgium
government collapsing and French President Macron calling a snap legislative
election for the end of the month. Holidays in China, Hong Kong, Taiwan, and
Australia made for thinner Asia Pacific trading, but the euro was sold and has reached to
one-month lows slightly below $1.0740 in the European morning. The dollar is mostly firmer today
against the G10 currencies and emerging market currencies. Ahead of Wednesday’s
US CPI and FOMC meeting, the greenback is likely to remain firm. Japanese stocks moved higher, but
that is the notable exception. Most other markets in the region fell, and
Jump in Japanese Bond Yields Fails to Lift the Yen
2024-05-20
Overview: The foreign exchange market is quiet. Most
of the G10 currencies are +/- 0.1% against the dollar. The crash that took the
of Iran’s president and foreign minister may have helped lift gold to new
record highs ($2450), the impact seems more muted, as poor weather rather than
foul play, seems to be main narrative. July WTI reached nearly $80, its best
level since May 1 but is hovering around unchanged levels (~$79.50). Canadian
markets are closed today for a national holiday, while no fewer than five Fed
officials speaks today, which includes three governors and two regional
presidents who vote on the FOMC this year. The MSCI Asia Pacific Index rose 2.4% last
week and it has not had weekly loss since the week ending April 19. It is off
to a firm start this week. All the large and
Consolidative Tone to Start the Week
2024-05-13
Overview: The new week has begun off quietly. The
dollar is in narrow ranges against the G10 currencies, +/- 0.15% as the North
American market prepares to open. The Dollar Index is trading inside the narrow
pre-weekend range. With softer US CPI, retail sales, and industrial production
due this week, we have a downside bias for the greenback. Most emerging market
currencies are firmer. A few Asian currencies, including the Chinese yuan and
Philippine peso are among the exceptions.Equity markets are mixed. The
MSCI Asia Pacific Index was flat last week after rally more than 6% in the
previous two weeks. Japanese, Chinese, and South Korean markets traded heavier
today, while other large bourses in the region advanced. Europe’s Stoxx 600 is
threatening to snap a six-day advance and is
Yen Retreats, while Stronger EMU GDP Underscores Nascent Recovery and Lifts the Euro
2024-04-30
Overview: Stronger than expected eurozone GDP
strengthened the sense that a nascent recovery may be taking hold and has given
the euro a bid in the European morning. The dollar, though, is enjoying a
firmer tone against the other G10 currencies today. Australia’s unexpected
weakness in retail sales has weighed on the Antipodean currencies. The Aussie
and Kiwi are off slightly more than 0.5% today. Japanese data were mixed (a
recovery in industrial production but weakness in retail sales) and the market
has taken the dollar to almost JPY157. It had settled near JPY156.35 yesterday.
The market is still treading gingerly after yesterday’s drama and possible
intervention. Emerging market currencies are mixed, with Turkey and Hungary
leading the advancers and the South Korean won and South
US Employment Data to Set Dollar’s Course
2024-04-05
Overview: The
focus is squarely on the US employment report. At the risk of oversimplifying,
given the position adjustment in the past 48 hours, a solid report can see the
greenback recover, while a disappointing report will likely see it deepen the
correction of the rally that began with the February jobs report. The dollar
recovered in the North American afternoon yesterday and many observers
attributed it to the bevy of Fed comments. Yet, the interest rate market saw
little reaction. It seemed that it was the dramatic reversal in US equities
that helped dragged global shares down today, that forced US rates lower.
Asia Pacific equities tumbled, led by more than 1% losses in Japan and South
Korea. Europe’s Stoxx 600 is off around 1.2%, and if sustained, could be its
biggest loss so far
Tags: #USD,Australia,Currency Movement,EU,Featured,Japan,jobs,newsletter,US
