Started by PocketOption, Sep 25, 2023, 08:07 am
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Overview: The BOJ's failure to do anything orfurther ideas that an exit of the negative target rate, despite the firm CPIreport helped the dollar recover the ground lost yesterday against the yen. Thefocus has returned to "intervention watch" and the market continuesto press for the official pain threshold. Sterling is the weakest of the G10currencies, off another 0.5% today following the BOE's decision not to hikeyesterday. The dollar-bloc currencies enjoy a firmer tone. Emerging marketcurrencies are mostly firmer, including the Chinese yuan.
Reports that Beijing isconsidering reducing some capital controls helped lift Chinese and Hong Kongequities today. Taiwan and Australian equities also advanced, while the otherlarge bourses headed south. Europe's Stoxx 600 is extending yesterday's 1.3%drop, while US index futures are slightly higher. Yesterday's 1.6% drop in theS&P was the largest drop in six months and it was unable to recover fromthe gap lower opening. That gap (~4375-4401) has technical significance.European bond yields are narrowly mixed, but UK Gilts continue to rally. The US10-year Treasury yield is slightly softer near 4.48%. Gold has come back firmerafter falling more than 0.5% yesterday (its largest loss in around three weeks)and is near the 200-day moving average ($1925). November WTI has steadied andlooks to snap a three-day decline. It is back above $90 a barrel and lookspoised to settled higher for the fourth consecutive week.
The Bank of Japan did notchange its stance, and Governor Ueda gave little hint that a change in rates ispossible before the end of the year, as he did earlier this month. Indeed, he suggested those remarks wereintended simply to keep the BOJ options open. The dollar, which had fallen toaround JPY147.30 yesterday recovered to back toward the recent highs nearJPY148.40. Japanese officials underscored they are prepared to counterexcessive fx moves.
Before the BOJ's meetingconcluded, Japan reported August CPI figures, which were largely anticipated bythe Tokyo CPI previously reported came in a little firmer. The headline rate slipped to 3.2% from3.3%. The core rates were unchanged. Excluding fresh food, Japan's CPI remainedat 3.1% and the measure excluding both fresh food and energy stayed at thecyclical high of 4.3%. Separately, the flash PMI came in softer. Themanufacturing PMI eased to 48.6 from 49.6 and the services PMI stands at 53.3,down from 54.3. This saw the composite fall to 51.8 from 52.6. Lastly afterbuying the most foreign bonds since 2020 in the week ending September 8(~JPY3.6 trillion or ~$24.5 bln), Japanese investors bought another JPY885.5bln. Meanwhile, while foreign investors bought JPY438 bln of Japanese bonds,they dumped JPY1.58 trillion of Japanese stocks, most in four years.
Australia's flash PMI showedthe service sector grew (50.5 vs. 47.8), while the manufacturing sector slumpdeepened (48.2 vs. 49.6). Manufacturingnew orders were the weakest since May 2020. The composite rose above 50 (to50.2 from 48.0) for the first time in three months. The central bank meets onOctober 3 and the market sees practically no chance of a change in rates.
Yesterday, the dollar tradedon both sides of Wednesday's range but the close was within the range, whichremoved much of the technical significance of the outside day. The broad range may be best explained by shortcovering of the yen ahead of the BOJ meeting. The dollar is trading back aboveJPY148.00 as the market continues to test the official resolve. The dollarsettled near JPY147.85 last week and has only falling in one week since the endof July. The Australian dollar peaked before the FOMC meeting outcomenear $0.6510 and found some bids near $0.6385 yesterday. It settled at$0.6415. It is trading with a firmer bias today and is knocking around $0.6440.To help stabilize the technical tone, the Aussie needs to get back above the$0.6465 area. However, the intraday momentum indicators are stretched in theEuropean morning, suggesting some back and filling in early North Americanactivity. Reports suggesting China is considering lifting some capital controlshelped the yuan steady today. The greenback has been in about a 35-pip range oneither side of CNY7.30. The dollar's reference rate was set at CNY7.1729. Theaverage in Bloomberg's survey was CNY7.3028 and the gap with the fix was thewidest yet. Offshore liquidity is being squeezed.
Following the flurry ofEuropean central bank meetings yesterday, the preliminary September PMI lostsome of its luster. Norway,where we thought there was scope for surprise, turned out to be the leastsurprising. Sweden hiked but was more cagey about another hike, lifting itspolicy path by 10 bp. Milquetoast. It announced it would liquidate a quarter ofits currency reserves, which was unexpected. The Swiss National Bank stood pat,surprising economists. But the swaps market did not think a hike was the mostlikely scenario, but the franc sold off hard anyway. The market went into theBOE meeting with an almost 50/50 outlook after the soft August CPI. In a 5-4vote, where Governor Bailey cast the deciding vote, the BOE stood pat. It cutQ3 GDP forecast to 0.1% from 0.4%. However, it increased the pace of thebalance sheet unwind to GBP100 bln in the fiscal year beginning next month fromGBP80 bln this fiscal year.
The eurozone flash SeptemberPMI was mixed. Themanufacturing PMI slipped to 43.4 from 43.5 and the services PMI edged up to48.4 from 47.9. The composite stands at 47.1, up from 46.7. New orders softenedto 44.5 from 44.6, which is the lowest since November 2020. Germany'spreliminary readings were poor but better than August. The manufacturing PMI isat 39.8 (from 39.1). The services PMI is at 49.8 (47.3). The composite rose to46.2 from 44.6, the first uptick since April. France moved in the oppositedirection. Its PMI fell. The manufacturing tumbled to 43.6 from 46.0. Theservices PMI is at 43.6, down from 46.0. The composite now stands at 43.5compared with 46.0 in August, a new low since late 2020.
The UK reported Augustretail sales. Afterfalling a revised 1.1% in July (initially -1.2%), UK retail sales rose 0.4% inAugust, slightly less than the median projection in Bloomberg's survey. Theflash PMI was disappointing. While the contraction in manufacturing eased (44.2from 43.0), the contraction in services deepened (47.2 from 49.5). Thecomposite PMI fell to 46.8 from 48.6, a new three-year low.
After posting an outsidedown day on Wednesday, the euro extended its decline to almost $1.0615yesterday, a six-month low, and retested it today. Since the low was recorded, the euro'shigh has been about $1.0650. The price action, however, is uninspiring and animportant low does not seem in place. Sterling was punished for theBOE's failure to deliver a hike, which was roughly 50% discounted. Yesterday'ssix-month low was near $1.2240 has been taken out today, and a marginal new lowcloser to $1.2230 has been recorded. Like the euro and yen, sterling recoveredinto the close of the European session to trade a little above $1.2300. Itspent the North American afternoon in about a 10-tick range and settled acouple of hundredths of a cent below $1.23, and today, was sold when it brieflypoked above it. Nearby support is seen near $1.22, but the next importanttarget is the $1.2000-$1.2075 area.
US data was mixed yesterday.The Q2 current accountdeficit was slightly smaller than expected but it was inconsequential. Weeklyjobless claims were lower than expected and the four-week average (217k) is thelowest since February. Continuing claims fell to their lowest since January. TheSeptember Philadelphia Fed survey was showed a sharp deterioration (to -13.5from 12.0) and existing home sales fell for the third consecutive month,defying expectations for a small gain, after falling nearly 5.5% in theprevious two months. The August index of Leading Economic Indicators continuedit uninterrupted decline that goes back to Q1 22. Attention today turns to thepreliminary September PMI, where economists expect slightly firmer readings. Still,the market is trying to adjust to the signal by the FOMC sees an economygrowing faster than its non-inflationary speed limit, requiring policy to berestrictive for longer. The Fed funds futures strip does not have the firstfully discounted in late Q3 24. By comparison, the swaps market has the firstECB cut fully discounted by early Q3.
Canada reports July retailsales today. Somewhatbetter numbers than June are expected when retail sales rose 0.1%, driven byautos. With them, retail sales fell by 0.8%. The swaps market has almost an 80%chance of another Bank of Canada rate hike by the end of the year. No cut itspriced through Q3 24. Inflation for the first half of September will bereported by Mexico today. The bi-weekly reading may accelerate slightly,but the downtrend in the year-over-year rate should continue. The central bankmeets next week, but policy is expected to be steady well into next year. Theswaps market seems to be pushing the first cut into Q2 24.
The US dollar popped up toalmost CAD1.3525 yesterday. Theweek and month's low were set on Tuesday near CAD1.3380. The greenback'smomentum stalled, and it settled slightly below CAD1.3485. It is trading with aheavier bias but is holding above yesterday's low near CAD1.3450. Support nowis seen around CAD1.3440, but the US dollar looks set to trade higher in NorthAmerica today. After briefly dipping below MXN17.00 before the outcomeof the FOMC meeting, the dollar reached MXN17.25 yesterday. That is alittle shy of the (38.2%) retracement of the leg down from the nearlyfour-month high set on September 7 around MXN17.7080. The next retracement(50%) is slightly above MXN17.35. It is consolidating in the European morningmostly MXN17.16.
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