Markets
The dollar caught all market attention yesterday. Surging against everything and everyone, the trade-weighted index closed beyond the 104.7 resistance (May high). EUR/USD (1.0722) lost the upward trading range and the next (intermediate) support at 1.0735 also succumbed. USD/JPY (147.72) finished at the highest level since November last year, bringing the October 2022/multi-decade high of 150+ ever closer again. It triggered the strongest warning from Japan’s top currency official, Masato Kanda, this morning. He said speculative moves are being seen in the market and if they continue, the government will deal with them. Last year, the government intervened several times after USD/JPY hit 145 and 150 thereafter. US yields leg higher on their first trading day of the week supported the dollar’s move. Changes varied between 7 and 9 bps across the curve with the real yield component responsible for about half of the gains. Whether or not the Fed skips a hike at the September meeting, from the recent batch of economic data it is becoming ever more clear that rates will need to stay at elevated levels for quite some time. Markets are coming to terms with that. German yields rose 2.2-5.5 bps. Equities felt some pressure from rising (real) yields. WS closed with minor losses up to 0.56% (DJI). Oil prices surged to (above) $90/b (Brent) after the Saudis and Russia extended their voluntary production cuts through end this year (see below).
Japan’s verbal intervention offers the yen some respite but it’s unconvincing. USD/JPY loses a few ticks to 147.34. The US dollar in general is trading marginally softer after yesterday’s impressive run. EUR/USD consolidates around the 1.0735 support/resistance zone. USD/CNY is less than an inch away from the multi-year highs seen intraday in November 2022. Another record strengthening bias in this morning’s fixing failed to do anything for the yuan. Equities in the Asian-Pacific region trade mixed with Japan marginally outperforming. US yields lose a few bps.
Bank of England governor Bailey appears before parliament today. We’ll be looking closely to what he has to say about monetary policy going forward. Headline CPI has eased sharply in recent months but core inflation remains sticky. EUR/GBP has been trapped between a 0.85/0.87 sideways trading range since June with the pair currently nearing the lower bound again. Other features on the eco calendar are the Fed’s Beige Book and the US services ISM. Consensus expects more or less a stabilization at 52.5. That would underscore the ongoing US eco resilience, offering a floor below US yields as well as the dollar in a daily perspective. For another leap higher, in particular US yields above the current cycle highs, we might need green light from next week’s August CPI.
News and views
According to data published by the Australian Bureau of Statistics this morning, Australian GDP rose 0.4% in the April-June quarter. Activity was 2.1% higher compared to the same quarter last year. The economy grew 3.4% over 2022-23. Q1 activity was upwardly revised from 0.2% Q/Q to 0.4% Q/Q. Growth was mainly driven by investment and exports. Consumption growth rose a modest 0.1% Q/Q with a limited 0.1% contribution to growth. Household saving to income fell for the seventh consecutive quarter to 3.2 per cent. Government expenditure rose 0.4%. Net trade contributed 0.8 ppts, with a rise in exports (+4.3%) partly offset by a smaller increase in imports (+0.7%). Total public investment increased 8.2%. New private investment increased 1.6%. Dwelling investment fell 0.2% as increased activity in the construction of apartments and townhouses was offset by a continued decline in demand for renovations. Changes in inventories was the predominant detractor from GDP growth. Yesterday, the Reserve Bank of Australia left its policy rate unchanged as it assess the decline in inflation. The Aussie dollar stabilizes close to recent low at near AUD/USD 0.638.
Brent oil this morning is trading near the $90 p/b mark as Saudi Arabia and Russian extended established production cuts not only on a monthly basis but towards the end of the year. Saudi Arabia since July additionally removed 1 mln barrels a day from the oil market. Russian recently applied a 300k bpd export cut. The move risks reigniting global inflationary pressures. Brent oil has rebounded from levels near $70 p/b in spring this year and is again nearing price levels recorded about a year ago potentially halting the downward contribution from a lower oil price to (headline) inflation.
