by Marc Chandler
My articles My offerMy siteAbout meMy videosMy books
Follow on:LinkedINTwitterSeeking AlphaAmazon
Overview: The US dollar is narrowly mixed on the last trading day of Q3 24. The Australian dollar, the G10 proxy for China, is leading the major currencies higher and reached its best level since February 2023 (~$0.6940). The yen and Swiss franc continue to trade heavily and are off 0.2%-0.25%. The euro firm and traded above $1.12 for the fifth time since late August but has failed to settle above there once. The soft inflation readings have boosted the chances of an ECB rate cut in October. In the US, the focus is on the labor market, with the monthly employment report on Friday and an East Coast and Gulf dockworkers strike set to start tomorrow. Most emerging market currencies are trading firmer, but South Africa, India, Indonesia, and South Korea softer. The LDP have called for a snap election in Japan for October 27.
Beijing's cut in existing mortgage rates helped propel Chinese stocks sharply higher. The CSI 300 rallied an 8.5% and is up by more than a quarter in the past five sessions. The Hang Seng advanced by 2.8% for a nearly 16% gain over the past five sessions. The mainland markets are closed until next Tuesday. Of the large bourses in the region, only Australia and Singapore rose. The Nikkei was off around 4.8%. Europe's Stoxx 600 is off 0.65% today giving back Friday's gains plus a little more. US index futures are slightly softer. Benchmark 10-year yields are 2-5 bp higher in Europe and the 10-year US Treasury yield is nearly three basis points high near 3.78%. Gold is softer for the second session. It peaked last week a little above $2685 and is now slightly below $2650. November WTI ran up to about $69.35 before meeting sellers that drove it back to around $68. The low from the second half of last week was just below $67.
Asia Pacific
Even before new LDP leader Ishida is officially prime minister, he announced a late October snap election. The market saw little chance of a BOJ rate hike this month, and the early election and unexpected sharp drop in industrial output on the heels of a moderation in Tokyo's September CPI seems to seal the fate. Industrial production fell 3.3% in August. The median forecast in Bloomberg's survey was for a 0.5% decline. The outlook for September and October is considerably better. Japan also reported a 0.8% rise in August retail sales., which was a little better than expected. Tomorrow, August employment and the Q3 Tankan Survey are out. Ahead of the Golden Week holiday, China's PMI and the Caixin iteration were released. They were rendered moot by the recent package of measures. Australia's private credit expansion continued at a steady 0.5% monthly pace in August. Retail sales are reported tomorrow, and a 0.4% increase is expected after a flat July.
The dollar posted a bearish outside down day against the yen ahead of the weekend. It has initially climbed to a two-week high near JPY145.50 on the ideas that Takaichi was favored to win the LDP leadership contest and the firmer US yields. Takaichi did not win, and US rates fell, and the greenback dropped to nearly JPY142. The losses were extended to JPY141.65 today. With the help of firmer US rates, the dollar has recovered to around JPY142.60 in the European morning. The JPY143 area may cap it. Perhaps not fully appreciated, the yen has emerged as the most volatile (3-month implied) of the G10 currencies (11.7%). China's stimulus provided the impetus to take the Australian dollar above $0.6900 for the first time since March 2023. It reached $0.6940 today. Since the September 11 US CPI report, the Aussie has rallied nearly 5%. The momentum indicators are stretched. A close below $0.6870 may be the first sign the market is tired. The greenback depreciated by about 3.9% against the offshore yuan in the 13 weeks since the end of Q2. It has fallen in all but four weeks. When the mainland markets are closed for an extended period, the offshore yuan tends to trade quietly. Market participants chose to be cautious. Today, ahead of the holiday, the dollar has largely traded in the pre-weekend range (~CNH6.97-CNH7.0050). The PBOC set the dollar's reference rate at CNY7.0074 (CNY (7.0110 Friday).
Europe
The market has warmed up to the idea that the ECB could cut rates on October 17 meeting. A week ago, the swaps market had it as a 40% probability and now it is near 80%. The low French and Spanish September CPI readings reported before the weekend encouraged a move that was already underway, perhaps encouraged by still-elevated speculation of another 50 bp move by the Federal Reserve. On an EU-harmonized basis, France's CPI fell to 1.5% from 2.2% and Spain's fell to 1.7% from 2.4%. German states are reporting today, and the harmonized measure is also seen falling below 2%. The eurozone aggregate estimate is due tomorrow and expected to be flat, which would bring it to 1.9% from 2.2%. The other parties are determined to prevent the far-right Freedom Party from governing Austria and the election results are having little impact on Austrian bonds or stocks today. Lastly, Q2 UK GDP was revised to 0.5% from 0.6%. Weaker government spending and the deterioration in the current account was not fully offset by the upward revision in business investment. Still, the Q2 news had negligible impact as Q3 ends today.
Since late August, the euro has pushed above $1.12 on four occasions, including before the weekend, but has failed to sustain a close above it. Today is the fifth attempt. The euro reached almost $1.1210 in nearly European turnover. Options for a billion euros expires at $1.12 today. Also, the euro has not closed below $1.11 for two weeks. The widening of the US two-year premium over Germany in recent sessions and the oversold dollar more broadly, makes us inclined to see continued near-term sideways trading. Sterling set a marginal new high near $1.3435 ahead of the weekend but settled closer to $1.3375. It recovered to nearly $1.3425 today. The momentum maybe stalling after rallying four-and-a-third cents off the September 11 low, but the consolidative price action still looks constructive. A break of the $1.3300 area would suggest a near-term top has been forged. The euro may also be forming a base against sterling after approached GBP0.8300 last week, its lowest level since April 2022. Resurfacing GBP0.8375 could signal the upside correction.
America
Without talks today, the East Coast and Gulf dockworkers strike is set to begin tomorrow. Hopes of redirecting traffic to Canada has been blocked by the Montreal dockworkers also on strike. Some reports estimate that for every day the ports are closed will take as much as five days to clear the congestion after the strike. The market's attention shift from US prices (moderating) to the US labor market. The highlight is Friday's nonfarm payroll report. The Federal Reserve has underscored the importance of the full employment mandate as its confidence in achieving the price stability mandate has risen. The median Fed projection sees the 4.2% current unemployment rate as the long-term trend (full employment) but sees its rising to 4.4% by the end of this year and staying there next year. Given the non-linear nature of unemployment, this has been questioned. Yet, we note that it dovetails with the results of Bloomberg's monthly survey. The JOLTS report and ADP private sector job estimate pose headline risk but disappointing jobs growth and unemployment rate that will have the biggest impact. That said, the markets are already fully discounting 75 bp of Fed cuts in Q4's two meetings, and at this juncture, an unexpectedly poor report could spur speculation 100 bp instead. We had thought that the upward revision in the growth profile and a reduced gap between GDP and GDI, with a commensurate rise in US savings would have tempered some of the negativity, but alas, the two-year yield is pinned near its 3.50% low and the Fed funds imply another 200 bp of cuts by the mid-2025. Canada's economic diary is light this week, with the PMI and IVEY surveys providing the highlights. Mexico's markets are closed tomorrow when Sheinbaum is inaugurated.
The Canadian dollar is the only G10 currency that has been unable to rise against the US dollar this month. It had turned up briefly in the first part of last week before retreating. The greenback fell to a seven-month low near CAD1.3420 in the middle of last week before finishing the week close to CAD1.3515. A narrow range between CAD1.3500 and CAD1.3525 has been traced today. The CAD1.3535-60 area may offer nearby resistance, and above there CAD1.36 beckons. The Mexican peso also looks vulnerable, but it is trading quietly so far today (~MXN19.62-MXN19.74). Ahead of the weekend, the dollar posted its highest settlement since September 11. Sheinbaum looks to have a short honeymoon in the markets. A move above MXN19.75 could spur a retest on MXN20.00, and the month's high (~MXN20.15). Lastly, note that Colombia is expected to deliver its fifth half-point rate cut today in the cycle that began last December. The overnight target will be at 10.25% at the end of the day.
Full story here Are you the author?
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 Dollar is Bid but Ueda Lends Support to the Yen
2024-09-03
The dollar is bid as the upside correction that began last week continues today. The greenback is trading above last week’s highs against most of the G10 currencies. The yen is the notable exception.
USD is Trading Mostly Firmer, but Yen and Swiss Franc Show Resilience
2024-08-26
Overview: The US dollar is mostly firmer, though consolidating against most of the G10 currencies. The Japanese yen and Swiss franc are the strongest, while the Scandis and Antipodean currencies are the heaviest. Among emerging market currencies, a handful of Asian currencies, including the Chinese yuan are higher, but central European currencies, the South African rand, and the Mexican peso are softer.The news stream is light but the threat of the escalation of the Middle East war has extended the rally in crude oil. October WTI traded below $72 in the middle of last week and is now pushing near $76. Global equities are mixed. Japan and South Korea fell in the Asia Pacific session, but most large markets advanced. Europe’s Stoxx 600 is flat after advancing in 12 of the past 15 sessions.
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%
Tags: #USD,China,CPI,Currency Movement,EMU,Featured,Japan,jobs,newsletter,PMI,US
