Category Archive: 4) FX Trends
September 2022 Monthly
The highlights of September include continued substantial rate hikes by the major central banks, save Japan. The Tories will pick a new leader, who will become the next prime minister of the UK. Italy looks determined to have a right-wing government. Sweden goes to the polls in mid-September.
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New Lockdown in China and the First Drop in South Korea’s Chip Exports in 2 years Euthanizes Animal Spirits
Overview: The precipitous fall in equities continues while the dollar remains buoyant. Nvidia’s warnings about US curbs on sales to China and the first drop in South Korea’s chip exports in two years, coupled with the largest lockdown in China since Shanghai encouraged investors to move to the sidelines.
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EMU August CPI at 9.1%, while the Core Rate Jumps to 4.3%
Overview: The rise in global interest rates continues. The US 10-year yield is a few basis points near 3.15% and European benchmarks are mostly 5-6 bp higher. Of note, the sharp sell-off in UK Gilts has being extended. Yesterday’s 10 bp rise has been followed by another 14 bp surge today. Italian bonds are also getting hit. The 10-year yield is up a little more than 10 bp.
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Turn Around Tuesday Began Yesterday, Likely Ends before Wednesday
Corrective pressures were evident yesterday and they extended today in Asia and Europe but seem to be running their course now. Market participants should view these developments as countertrend and be wary of waning risk appetites in North America today.
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Stocks and Bonds Sell Off, while the Dollar Rallies
Overview: The reverberations from last week continue to roil the capital markets today. Equities and bonds have been sold and the greenback bought. Most of the large markets in Asia Pacific fell by more 2%, including Japan’s Nikkei, Taiwan’s Taiex, and South Korea’s Kospi.
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The Week Ahead: Dollar Bulls Still in Charge
The poor preliminary PMI readings, the ongoing European energy crisis, and the recognized commitment of most major central banks to rein in prices through tighter financial conditions are risking a broad recession. These considerations are weighing on sentiment and shaping the investment climate. Most high-frequency data due in the days ahead will not change this, even if they pose some headline risk.
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Heads up for ECB, SNB, BoK speakers over the weekend
On Saturday at the Jackson Hole symposium there will be speakers from the European Central Bank, Swiss National Bank and Bank of Korea.
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Jackson Hole and More
Overview: Ahead of the much-anticipated speech by
Federal Reserve Chair Powell, the Fed funds futures are pricing in about a 70%
chance of a 75 bp hike next month. The
US 10-year yield is up nearly five basis points today to 3.07% and the two-year
yield is firm at 3.38%. Asia Pacific equities
were mostly higher, with China the main exception among the large markets, after
US equities rallied yesterday. Europe’s
Stoxx 600 is off about 0.3% to...
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Dollar Longs Pared as Jackson Hole Gathering is set to Start
Overview: It seems that many market participants had
the same thing in mind, cut dollar longs before the Jackson Hole gathering. The
Antipodeans lead the majors move, encouraged perhaps by China’s new economic
measures, with around a 1% gain. The euro and sterling are up about 0.35% and
are the laggards. Emerging market currencies are higher as well, with the
notable exception of India and Turkey, which are nursing small losses. Equities
are having...
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New Recession Worry Stalls Dollar Express but Doesn’t Derail It
A simply dreadful flash US PMI stopped the dollar's four-day rally in its tracks. It followed news that the eurozone, Japan, and Australia's composite PMIs are below the 50 boom/bust level. However, the dollar recovered, even if not fully as the market seemed unconvinced that the data could change Fed Chair Powell's message at Jackson Hole on Friday. A consolidative tone is evident today. Asia Pacific equities were mixed.
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Surging Energy Prices Pushing Europe Closer to Recession
The poor eurozone PMI underscores likely recession and weighs on the single currency, which was sold to a new 20-year low. Rather than a "Turn Around Tuesday" a broadly consolidative session is unfolding. Asian and European equities are weaker, while US futures are positive but little changed. Benchmark 10-year bond yields are mostly firmer and the premium offered by Europe's periphery is edging higher. The US 10-year is little changed near...
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No Relief for the Euro or Sterling
Overview: The euro traded below parity for the second time this year and sterling extended last week’s 2.5% slide. While the dollar is higher against nearly all the emerging market currencies, it is more mixed against the majors.
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Flash PMI, Jackson Hole, and the Price Action
For many, this will be the last week of the summer. However, in an unusual twist of the calendar, the US August employment report will be released on September 2, the end of the following week, rather than after the US Labor Day holiday (September 5).
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The Dollar is on Fire
The dollar is on fire. It is rising against all the major currencies and cutting through key technical levels like a hot knife in butter. The Canadian dollar is the strongest of the majors this week, which often outperforms on the crosses in a strong US dollar environment. It is off 1.5% this week.
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Fed Minutes were Not as Dovish as Initially Read
Overview: The sell-off in European bonds continues today. The 10-year German Bund yield is around four basis points higher to bring the three-day increase to about 22 bp. The Italian premium over Germany has risen by almost 18 bp over these three sessions.
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Markets Look for Direction
Overview: The biggest development today in the capital markets is the
jump in benchmark interest rates. The US
10-year yield is up five basis points to 2.86%, which is about 10 bp above
Monday’s low. European yields are up 9-10
bp. The 10-year German Bund yield was
near 0.88% on Monday and is now near 1.07%.
Italy’s premium over German is near 2.18%, the most in nearly three
weeks. Although Asia Pacific equities
rallied, led by Japan’s 1.2%...
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Greenback Remains Firm
Overview: After retreating most of last week, the US
dollar has extended yesterday’s gains today. The Canadian dollar is the most resilient,
while the New Zealand dollar is leading the decline with a nearly 0.75% drop ahead
of the central bank decision first thing tomorrow. The RBNZ is expected to
deliver its fourth consecutive 50 bp hike. Most emerging market currencies are
lower as well, led by central Europe. Equities in Asia Pacific and Europe...
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China Disappoints and Surprises with Rate Cut
Overview: Equities were mostly higher in the Asia
Pacific region, though Chinese and Hong Kong markets eased, and South Korea and
India were closed for national holidays. Despite new Chinese exercises off the
coast of Taiwan following another US congressional visit, Taiwan’s Taiex gained
almost 0.85%. Europe’s Stoxx 600 is advancing for the fourth consecutive session,
while US futures are paring the pre-weekend rally. Following disappointing data...
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Is the Dollar’s Month-Long Pullback Over?
The bullish dollar narrative was fairly straightforward. Yes, the US main challengers, China and Russia, have been hobbled in different ways by self-inflicted injuries. Still, the driver of the dollar was the expected aggressive tightening by the Federal Reserve.
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Week Ahead: More Evidence US Consumption and Output are Expanding, and RBNZ and Norges Bank to Hike
After two-quarters of contraction, many still do not accept that the US economy is in a recession. Federal Reserve officials have pushed against it, as has Treasury Secretary Yellen. The nearly 530k rise in July nonfarm rolls, more than twice the median forecast in Bloomberg's survey, and a new cyclical low in unemployment (3.5%) lent credibility to their arguments. If Q3 data point to a growing economy, additional support will likely be...
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