Markets Daily
US yields rose as markets prepared for Fed Chair Powell’s speech at Jackson Hole. The US dollar rebounded, knocking AUD back down to 0.6415. Today’s calendar includes Tokyo August CPI and August Germany IFO business sentiment, ahead of plenty of central banker comments, not just Powell.
Yesterday
There was little to no follow-through of the USD selling in Wednesday’s NY session, the greenback either higher or near flat against G10 FX. Asian currencies held up a little better. Regional equities were a sea of green, US tech earnings helping Taiwan and Korea in particular. The ASX 200 closed up 0.5%.
Currencies/Macro
The US dollar made substantial gains against all G10 currencies on the day. EUR/USD fell from 1.0865 to 1.0810, GBP/USD from 1.2720 to 1.2605, sterling underperforming most with a -1.0% decline. USD/JPY rallied from 144.80 to 145.80, with some help from higher Treasury yields. AUD/USD fell steadily from 0.6480 late Sydney trade to 0.6415 around the New York close. NZD/USD fell 55 pips or -0.9% to 0.5925. AUD/NZD tested higher for a while, then returned to 1.0835, roughly flat on the day.
US durable goods orders fell -5.2%m/m in July (est. -4.0%m/m) offsetting the large +4.6% lift in June. Ex-transport orders lifted +0.5%m/m (est. +0.2%m/m, prior +0.5%m/m) with capital orders non-defence ex-air rose +0.1%m/m (as expected), albeit with June revised down to -0.4%m/m.
US weekly initial jobless claims held steady as expected at 230k (est. 240k) and continuing claims of 1.702mn (est. 1.705mn) continue to reflect a robust labour market.
US Kansas Fed manufacturing index for August lifted back to zero (est. -10) from -11 with improved production while a decline in new orders.
Regional Fed presidents Harker (Philadelphia) and Collins (Boston) both spoke of potential for further hikes and said it was too early to call a peak, stating that there were promising signs that Fed’s work is having the desired effect. However, they also need to see more softening in the labour market (noting services) and that there could still be further hikes if needed even if appropriate to pause at present.
Interest rates
US 2yr treasury yields rose from 4.98% to 5.02%, while the 10yr yield rose from 4.19% to 4.24%. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be 6bp higher at the next meeting on 20 September.
Australian 3yr government bond yields (futures) ranged between 3.80% and 3.84% while the 10yr yield ranged between 4.09% and 4.14%. Markets are pricing the RBA cash rate, currently at 4.10%, to be 1bp higher in September, and to peak at 4.19% in March.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be 4bp higher at the next meeting on 4 October and to peak at 5.65% in February.
Credit spreads were mixed with Main unchanged at 74.5 while CDX gave back some of yesterday’s outsized gains ahead of Jackson Hole to be 2.5bp wider at 68 (so 1.5 tighter over 48 hours), while IG cash remained firm (flat to a bp better). Primary activity was limited to 3 EUR covered deals.
Commodities
Crude markets saw modest gains into the close though only after some sharp swings as traders priced in the biggest daily outflow from the USO ETF since 2020, with more than $100m pulled by investors. The October WTI contract is up 16c at $79.05 while the October Brent contract is unchanged at $83.21. Potential supply news remains an important cap on the markets with the US administration confirming it is in talks with Venezuela to explore a temporary lifting of sanctions in exchange for allowing fair elections next year. Talks between the Turkish Energy Minister and the Iraqi Oil Minister on Tuesday led to a joint statement which highlighted “the importance of resuming crude oil flows through the Iraq-Turkey crude oil pipeline system as soon as possible following the completion of necessary inspection activities”. The Iranian oil minister also said earlier in the week that the country has boosted crude production by 50% over the last two years and it is set to increase further. Current production is at 3.2mbpd and capacity is 3.8mbpd with production headed for 3.4mbpd by the ‘end of the summer’.
In LNG markets, all the focus was on Woodside and talks with the unions which ended with an agreement in principle averting near term strike risks. The European September TTF gas contract has had a 35% high to low correction in the last 2 trading sessions as a result of the news. The Woodside offer was being put to a full union vote at 7:30pm last night. Talks between Chevron and workers continue though a ballot conducted yesterday endorsed strike action if the company fails to provide an appropriate offer during negotiations. Another ballot is scheduled to be completed for Chevron workers at the Wheatstone project on August 28th.
Metals gave back the previous day’s gains with copper down 1% to $8,361 and aluminium down 1.15% to $2,154. Higher yields and a stronger US$ weighed on sentiment ahead of Fed Chair Powell’s speech at Jackson Hole. Nickel was down 0.7% to $20,810 with news that another trading house has been impacted by fraud after buying a nickel cargo that turned out to be “waste steel briquettes”.
Iron ore saw its first correction in a week with signs of weak steel demand weighing on sentiment. The Sep SGX contract is down $1.65 from the same time yesterday to $112.25 while the 62% Mysteel index is down $1.30 to $114.65. There was little fresh news beyond the point we noted earlier in the week that CISA reported that steel inventory at mills rose 3.6% to 16.6mt in mid-August, the highest since May and we calculate that is more than 1 standard deviation above the seasonal average at a time when inventory is normally falling heavily. Cofco Futures noted that “there is little room for upside in iron ore given mills are suffering losses”.
Day ahead
At 9:30am Syd, the Tokyo CPI provides a good indication of the national data due 22 September. Consensus is for a slight easing in the annual rate for overall CPI, 3.0%yr, and CPI ex-fresh food, to 2.9%yr, but no change in CPI ex-fresh food and energy, at 4.0%yr. Base effects should start to lower these well-above target inflation rates in the next few months.
The IFO’s Germany business climate survey should continue to reflect a gloomy outlook for activity in August (market f/c: 86.8 overall, with the current assessment 90.0, the expectations index 83.6).
Federal Reserve Chair Powell is due to deliver a speech (usually short) to kick off the Kansas City Fed’s two-day economic symposium at Jackson Hole, Wyoming. The full schedule of speakers will be released at 10am Syd but some speakers are already confirmed, such as ECB President Lagarde.
Also in the US, the final estimate of August’s University of Michigan consumer sentiment survey is due (market f/c: 71.2).
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