Markets Daily
The US dollar’s slide against JPY and CNY extended to other major currencies, AUD up to 0.6430. Today’s crowded calendar includes Australia Sep Westpac consumer sentiment and Aug NAB business confidence, NZ’s pre-election fiscal update, Germany Sep ZEW investor sentiment and UK July unemployment and wages.
Yesterday
After last week’s 16-year lows for the yuan, Chinese authorities took several steps seemingly aimed at bolstering the currency. A Chinese financial paper cited analysts predicting yuan stability ahead. Then the daily USD/CNY fixing was set at a record distance from the Bloomberg consensus estimate, sparking CNH gains before CNY opened. Scaling up the pressure, the PBoC then released a statement committing to yuan stability and to fight against speculation. Finally we saw August loans and financing data, confirming a sharp rebound in lending. This report is normally released after the stock market is closed but on this occasion came out in the lunch break. The Shanghai Composite bounded on the reopening and closed up 0.8%. The yuan rallied 0.9%, second only to the Japanese yen’s +1.3% after BoJ Governor Ueda’s weekend interview. The Australian calendar was quiet. AUD followed the broad anti-USD trend, up 1% or 65 pips to 0.6440. The ASX 200 closed up 0.5%.
Currencies/Macro
The US dollar fell against all majors on the day, led by USD/JPY’s fall post-BoJ comments and China’s action to boost the yuan (+0.9%). EUR/USD rose from 1.0710 to 1.0750, GBP/USD up 0.4% to 1.2510. USD/JPY, which fell as much as -1.2% following the BoJ’s weekend hawkish comments, consolidated around 146.50, net -0.9% or 130 pips. AUD/USD extended the day’s gains to 0.6449 then steadied around 0.6430, net 55 pips or 0.9%. NZD/USD rose 0.6% to 0.5920, leaving AUD/NZD up 25 pips at 1.0860.
The NY Fed’s household expectations survey for August saw 1yr and 5yr-ahead inflation expectations rise slightly (1yr to 3.6% from 3.5%, 5yr to 3.0% from 2.9%), while the 3yr slipped to 2.8% from 2.9%. Income expectations and perceptions of job security declined, as did economic and financial situation expectations.
The European Commission downgraded EU growth forecasts for 2023 to 0.8% from 1.0% and for 2024 to 1.4% from 1.6%. Eurozone GDP forecasts are 0.8% for 2023 (from 1.1%) and 1.3% for 2024 (from 1.6%). EU inflation for 2023 was revised down to 6.5% from 6.7%, while 2024 was revised up to 3.2% from 3.1%.
Interest rates
US 2yr treasury yields traded a 4.97%-5.00% range, while the 10yr yield ranged between 4.27% and 4.30%, having closed Friday at 4.26%. Markets currently price the Fed funds rate, currently 5.375% (mid), to be 3bp higher at the next meeting on 20 September, with a 55% chance of a hike in December.
Australian 3yr government bond yields (futures) ranged between 3.82% and 3.84%, while the 10yr yield ranged between 4.15% and 4.17%. Markets currently price the RBA cash rate, currently at 4.10%, to be 2bp higher in October, with a 40% chance of a hike in December.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be only 1bp higher at the next meeting on 4 October, with a 40% chance of a hike in February.
Credit indices saw a solid open to the week with both Main and CDX a bp tighter to 70 and 63.5 respectively, while US IG cash was little changed as primary dominated activity again. Europe saw 9 issuers price EUR6.2bn (ex-SSA) while in the US, 11 issuers priced USD10.95bn.
Commodities
Brent crude oil was virtually unchanged on the day, at $90.67/bbl, while West Texas Intermediate crude ticked down -0.25% to $87.29. Canada’s planned oil pipeline from Alberta to the Pacific coast reportedly faces a further 9-month delay in a dispute over its route. The US agreed to the release of $6bn in revenue from oil sales by Iran to South Korea that has been frozen under sanctions. The US government says that the funds will be “available only for humanitarian trade,” and in return Iran will release a number of jailed Americans.
Gas prices were also little changed. Chevron Corp applied to Australia’s Fair Work Commission to arbitrate on the industrial dispute affecting Gorgon and Wheatstone LNG facilities.
Comex copper prices snapped a 4-day losing streak, closing up 2.4% as Chinese authorities took various steps to shore up the yuan and China August loans and financing data printed on the strong side of consensus. Tellingly, the data was released during local trade rather than the usual post-close window. It appeared to stoke post-lunch gains in Chinese equities, the Shanghai Composite closing up 0.8%. Nickel, aluminium, zinc, lead and tin also closed higher on LME.
Fitting the broad mood, China spot iron ore jumped 3.4% to $120.25/tonne, a high since April. Singapore futures rose 3.6% to $117.35.
Day ahead
At 10:30am Syd we see Westpac-MI Australia September consumer sentiment. Confidence is yet to show a material response to the apparent end of the tightening cycle, with cost-of-living concerns still acting as a major drag. The August index was a gloomy 81.0.
At 11:30am Syd we see the August NAB business confidence survey. This has shown fragility in confidence (+2 in July) amid a gradual softening in the economy, but the business conditions index is still above long-term averages at +10. Meanwhile, August’s overseas arrivals and departures will provide further confirmation of the mid-year bounce in holiday travel.
New Zealand’s Pre-Election Economic and Fiscal Update will likely show a deterioration in economic conditions since May, with the operating balance expected to return to surplus a year later than previously forecast, in 2026/27.
The ZEW survey of Germany investor/analyst expectations is expected to remain downbeat in August, the current situation index at -75, having not been above zero since 2021, the expectations index at -15.
The UK’s ILO unemployment rate is expected to rise again in the three months to July, driven by a recovery in labour supply (market f/c: 4.3%); but of more concern for monetary policy, average weekly earnings are anticipated to remain near its current high (market f/c: 8.2%yr).
US: The August NFIB small business survey will provide timely insight around current economic trends, particularly around labour demand and wage pressures (market f/c: 91.5).
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