Market Awaits US Data and Leadership
<div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMfTieNI9AI4OX52_aYB0d7hCIyK3KWZCu2jfBFpuW77sd-H4ZQc1gw-Z1rYim5IP0wtLgmf3p_yJzgKcpbMpW3GguNaCbhVo-OO9ys9C5sgnaf1zzKGkl-Yx94Z-tQNm4_jd8weVzkdptzUCzsgRe7sxDN3cGtMhj_5q1ZK-Lo11FXLY1kA5yNwcwniIm/s725/trac%20tom.jpg"><img alt="" border="0" data-original-height="565" data-original-width="725" height="339" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMfTieNI9AI4OX52_aYB0d7hCIyK3KWZCu2jfBFpuW77sd-H4ZQc1gw-Z1rYim5IP0wtLgmf3p_yJzgKcpbMpW3GguNaCbhVo-OO9ys9C5sgnaf1zzKGkl-Yx94Z-tQNm4_jd8weVzkdptzUCzsgRe7sxDN3cGtMhj_5q1ZK-Lo11FXLY1kA5yNwcwniIm/w400-h339/trac%20tom.jpg" width="400" /></a></div><p><b><span>Overview: </span></b><span> The dollar staged a major technical
reversal yesterday, in a dramatic reaction to a considerably weaker JOLTs
report than expected, spurring a large drop in US interest rates. And this is
despite press reports that the participation rate in the survey is half of what
was three years ago. We suspect the price action said as much about market
positioning as it did about the data. The path to the US jobs data on Friday
goes through tomorrow's personal consumption figures, which will speak to
robust demand. Follow-through selling of the dollar has been limited in Asia
and the European morning. US leadership (and data) are awaited. The euro and
sterling are firm, but the other G10 currencies are mostly softer. German
states CPI may point to smaller than expected slippage in the national figure
(median forecast in Bloomberg's survey is for a 0.3% month-over-month increase,
which would allow the year-over-year rate to ease to 6.3% from 6.5%). This and
the small rise in Spain's CPI (2.4% vs. 2.1%) have increased the perceived odds
of an ECB hike next month. Emerging market currencies are mixed. Hungary and
Mexico lead the advancers, while the Turkish lira and South African rand pace
the declining EM currencies. <o:p></o:p></span></p>
<p><b><span>Most of the large Asia Pacific bourses
advanced. </span></b><span>Reports that
Chinese mortgage and deposit rates could be cut today initially helped lift
Chinese stocks both on the mainland and in Hong Kong, but the buying dried up
and the CSI 300 and Hang Seng finished slightly lower. Europe's Stoxx 600 is
falling for the first time this week, giving back about 0.3% after rallying
around 1.8% in the past two sessions. US index futures are trading with a bit
softer after yesterday's strong advance. European bonds are selling up and
benchmark 10-year yield are mostly 6-7 bp higher. Gilts are holding in a bit
better, and the 10-year yield is up two basis points, in line with 10-year US
Treasuries, which now yield about 4.14%. Despite the rise in rates and the lack
of much follow-through dollar selling, gold is consolidating yesterday's $17
rally. It is in an exceptionally narrow $3 range near yesterday's high slightly
above $1938. October WTI is firm, extending yesterday's gains toward $81.75. Another
sharp drop in oil inventories was reported by API. If the 11.5 mln barrel drop
is confirmed, US private oil stocks would be the lowest in a year. <o:p></o:p></span></p>
<p><b><span>Asia Pacific</span></b><span></span><o:p></o:p></p>
<o:p>
<p><b><span>Australia's CPI slowed more than expected
in July. </span></b><span>Price pressures
eased to 4.9% year-over-year from 5.4% in June. The median forecast in
Bloomberg's survey was for dip to 5.2%. Recall that Australia traditionally
reports inflation on a quarterly basis, and only recently has made a monthly
report. In Q2, Australia's quarterly CPI was at 6.2% down from 7.0% in Q1. The
monthly calculation peaked last December at 8.4%. The monthly CPI was at 7.2%
last July. Bullock takes over from Lowe toward the middle of September, after
the next RBA meeting (September 5).<o:p></o:p></span></p>
<p><b><span>First thing tomorrow, China releases the
August PMI. </span></b><span>It would
hardly be a surprise to see softer data. Chinese officials continue to drip new
measures into the market but still are relying on soft-power guidance, like
encouraging funds to buy for shares than they sell or refrain or reduce dollar
purchases. More monetary and fiscal policy efforts are likely. Japan reports
July retail sales. Recall that retail sales in June fell by 0.4%, but
subsequently were revised to -0.6%. Retail sales fell by an average of 0.1% in
Q2, the first quarterly decline since Q2 21. The Q2 GDP figures showed a 2.1%
contraction in consumption, nearly offsetting the lion's share of the first
quarter's 2.5% gain. With the help of increased inbound tourism, retail sales
are expected (median forecast in Bloomberg's survey) rise by 0.8%.<o:p></o:p></span></p>
<p><b><span>There has been no follow-through selling
of the US dollar against the yen, yuan, or Australian dollar today after
yesterday's JOLTS-led sell-off.</span></b><span> The dollar posted a key reversal against the yen, making a
new high for the year and then reversing and settling well below Monday's low. It
reached about JPY145.65 yesterday but rebounded to JPY146.55 today. It
effectively has retraced about half of yesterday's decline. Initial resistance
now is seen closer to JPY146.70-75. <b>The Australian dollar rallied from
$0.6400 to almost $0.6490 yesterday, slightly above last week's highs and
settled above the 20-day moving average for the first time since July 27. </b>It
too has retraced nearly half of yesterday's gains (~$0.6445). Even though the
softer CPI reinforces the idea that the RBA remains on hold next week, the
Aussie looks poised to rechallenge yesterday's highs in North America. <b>The
cut in mortgage rates and deposit rates initially helped Chinese stocks, though
the buying dried up, the yuan remains soft. </b>The US dollar has largely been
confined to yesterday's range (~CNY7.28-CNY7.2955). The PBOC set the dollar's
reference rate at CNY7.1816, slightly weaker than yesterday's fix (CNY7.1851),
but well below average projections in Bloomberg's survey (CNY7.2741). <o:p></o:p></span></p>
<p><b><span>Europe</span></b><span></span><o:p></o:p></p>
<o:p>
<p><b><span>The focus turns to eurozone inflation. </span></b><span>Ahead of tomorrow's aggregate figure,
Spain and German states have reported their August CPI. Spain's harmonized
measure rose by 0.5%. At an annualized rate, Spain's CPI has risen by 4% in the
three months through August. The year-over-year rate stands at 2.4%, up from
2.1% in July. The year's high was set in February at 6.0% and last year's high
was 10.7% (July 2022). <o:p></o:p></span></p>
<p><b><span>Germany states' CPI is a different
story. </span></b><span>They are
mixed. Six states have reported, and four saw an increase in the year-over-year
rate and two fell. The EU harmonized measure stood at 6.5% in July. The states'
reports seem consistent with the national rate rising by 0.4%, which, given the
base effect, would allow the year-over-year rate to ease to 6.4%. A 0.4%
increase in August means that at an annualized rate, German CPI rose by about
5.2% in the past three months, down from 6% in the previous three months. The
odds of an ECB rate hike have edged up to the highest in a week, around 53%. At
the start of the week, the swaps market has slightly more than a 40% chance
discounted. <o:p></o:p></span></p>
<p><b><span>Yesterday's euro price action was the most
impressive in more than a month. </span></b><span>It staged an outside up day and settled above the high recorded
while Fed Chair Powell was speaking at Jackson Hole at the end of last week
(~$1.0840) to record a six-day closing high. There are options for about 1.3 bln
euros at $1.09 that expire today. That is also where the 20-day moving average
is found, and the euro has not closed above in a month. The euro found support
near $1.0855. <b>Sterling also posted a bullish outside up day yesterday. </b>It
did not close above the Powell-inspired high (~$1.2655) but did settle firmly,
nonetheless. Sterling has edged a little higher today to reached $1.2670, after
support ahead of $1.2600 held. Today's low is about $1.2620. Nearby resistance
is seen in the $1.2675-$1.2700 area.<o:p></o:p></span></p>
<p><b><span>America</span></b><span></span><o:p></o:p></p>
<o:p>
<p><b><span>The unexpectedly weak JOLTS report saw the
dollar and US rates reverse lower. </span></b><span>Not only did the July reading come in well below expectation
(8.827 mln vs. median forecast in Bloomberg's survey for 9.50 mln), but the
June estimate of 9.582 mln was revised to 9.165 mln. The number of job openings
is now the lowest since March 2021. Job openings have fallen every month this
year but April. The "quits rate", the percentage of voluntary job
leavers of total employment fell to 2.3%, the lowest since the start of 2021,
which also speaks to the easing of labor market conditions and the sense that
jobs are less ample. The US labor market remains in focus. The ADP private sector
employment estimate is not a particularly reliable guide to the official data,
the market still has responded dramatically to surprises. The ADP has
consistently exaggerated the private sector jobs growth this year. The
difference over the past three months has averaged 165k. <o:p></o:p></span></p>
<p><b><span>The US also reports the advanced
merchandise trade figures for July. </span></b><span>It is expected to have widened for the first time in three
months. In fact, given the strength of the dollar, and, especially, the growth
differentials, that there has not been greater deterioration is surprising. In
the H1 23, the advance merchandise trade deficit averaged $90.3 bln. In H1 22,
the average was about $106.3 bln. With Q3 two-thirds over, revisions to Q2 GDP
are more for economists than businesses or investors. Indeed, for thinking
about Q3 GDP, the wholesale and retail inventories are more important. The
former has been trending lower, only rising in February during H1 22. Retail
inventories have been trending higher. Tomorrow's report on July consumer
expenditures will be more important. At the same time, it illustrates why the
GDP trackers need to be taken with the proverbial grain of salt this early in
the data cycle.<o:p></o:p></span></p>
</o:p></o:p></o:p><p><b><span>The Canadian dollar was the worst
performing G10 currency yesterday, gaining 0.3% against the US dollar. </span></b><span>Still, the greenback recorded a bearish
outside down day against the Canadian dollar. There has been no follow-through
US dollar selling. It has recovered from about CAD1.3550, yesterday's low to
almost CAD1.3580 today. Initial resistance is seen in the CAD1.3585-CAD1.3600. If
the greenback put in a double top (last Friday and yesterday near CAD1.3640,
the neckline is Monday's low around CAD1.3570. The measuring objective would
also be around CAD1.3500. <b>The US dollar was resilient against the
Mexican peso yesterday, and rose to MXN16.8880, extending its recovery off Monday's August
low (~MXN16.6950).</b> The dollar's broadly heavy tone proved too much,
and it returned to the MXN16.78 area. One might have expected the peso to react
stronger to the drop in US rates and a sharp equity market rally. Nevertheless,
the US dollar slipped slightly through yesterday's low to near MXN16.75 where
bids were emerging in the European morning. Initial support is seen near Monday's low, while a move above MXN16.80 would suggest
continued consolidation.</span><span> </span></p><p>
</p><p><br /></p><p><a href="http://www.marctomarket.com/p/disclaimer_28.html" target="_blank"><span>Disclaimer</span></a></p><p></p><div><br /></div><p></p>
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