Sunset Market Comentary

Markets:

Trading today developed in some kind of interlude as investors pondered the consequences of yesterday’s disappointing PMI’s while at the same time looking forward to the insights from Fed Chair Powell (and ECB president Lagarde) at the Kansas City Fed Jackson hole symposium tomorrow. According to the PMI’s, activity is cooling sharply especially in EMU and the UK. The loss of momentum in the US proved less aggressive. At the same time, an ongoing rise in input costs (especially wages) reaccelerated price rises despite faltering growth. Quite an uncomfortably stagflation mix as centrale bankers have to guide markets on the final stage of their tightening cycle. Regarding today’s data, US weekly jobless declined further/more than expected from 239k to 230k, suggesting ongoing labour market resilience. Headline US July durable goods orders declined a bigger than expected -5.2% M/M (-4% expected) after a strong +4.4% June reading. Capital goods shipments also printed slightly below expectations (-0.2% M/M), but given the volatile nature of these data series, the report still didn’t bring any market relevant message. US yields are ‘rebounding’ 3-4 bps across the curve., with the 2-y yield trying to regain the 5% barrier. German yields maintained yesterday’s decline, changing less than 2 bps across the curve. Equities again show a mixed picture on both sides of the Atlantic. The Eurostoxx 50 at the open tried some catching up with yesterday’s WS gains, but the rebound failed miserably (currently -0.3%). EMU investors apparently stay cautious on recessionary fears, despite yields coming off recent lows. US equites outperform with the S&P 500 opening in green (+0.25%) after yesterday’s rebound.

On FX markets, the dollar yesterday briefly corrected on lower core yields and a better (US-driven) risk sentiment. However, the greenback today again convincingly retakes its rally since mid-July. Maybe yesterday’s (US) data aren’t the trigger yet for Powell to already formally prepare markets for the end of the central bank’s anti-inflationary crusade. EUR/USD at 1.0825 again drops below the 1.0834 support and is nearing yesterday’s low at 1.0804. DXY is closing in on the reaction top just below 104. Similar story for USD/JPY (145.85) with the 146.56 recovery top on the horizon. As was the case yesterday, sterling underperformed the euro. EUR/GBP further rebounded from the 0.854 area to currently trade near 0.857. Very weak UK CBI data on retailing only illustrated the BoE dilemma of fighting unacceptably high inflation with recessionary risk looming. In a broader perspective, almost all smaller currencies (AUD/USD 0.643; NZD/USD 0.5925, EUR/SEK 11.92, EUR/NOK 11.59) face strong headwinds against the majors (USD, Euro) as liquidity conditions are at risk of tightening further.

News & Views:

The Turkish central bank (CBRT) raised its policy rate by a much bigger than expected 750 bps, from 17.5% to 25%. Consensus expected a further increase towards 20%. After two meetings of undershooting forecasts, the central bank now does the opposite. They decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior. Recent indicators point to a continued increase in the underlying trend of inflation, but the committee still expects that disinflation will happen in 2024 (towards the 5% inflation target) in line with the Inflation Report. Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved. In addition to the increase in the policy rate, the Committee will continue to make decisions on quantitative tightening and selective credit tightening to support the monetary policy stance. The Turkish lira strengthens significantly today with EUR/TRY falling from near record level above 29.50 to currently 27.75, the strongest TRY level since June.