Marc to Market

New Month, Same Market Dynamics

noreply@blogger.com (Marc Chandler) — Thu, 1 Oct 2026 06:48:07 -0400

A new month begins, but the market dynamics are familiar. Rising oil prices and rising yields have lifted the greenback broadly. The euro and Canadian dollar have been sold to new lows for the year. Interest rate premiums over Germany within the eurozone widen as the focus is on the French and Italian budgets. The combination of the uninspiring Tankan Survey in Japan and record of the recent BOJ meeting saw the market downgrade the chances of a hike this month in Japan. The dollar is above JPY158 for the first time this week.

The dollar’s strength comes despite the futures market reducing the chances of a Fed hike later this month to about 40% from 70% at the beginning of the week. In yesterday’s update the Atlanta Fed GDP tracker estimate for Q3 GDP was cut to 3.7% to 5.0%. Still, the US is seen best able to cope with the shocks. At least seven Federal Reserve officials are expected to speak today. Tomorrow sees Tokyo’s CPI and the US employment report.

Prices

G10

• The euro reached the session high yesterday, near $1.1380, around the time of the US data were reported. As US interest rates recovered from their early decline, the euro eased back to the session low of almost $1.1320 late in the session. It has broken below $1.13 today for a new low for the year (~$1.1265). There may be some support near $1.12, but the $1.11 area represents the next important retracement (50% of the rally from last year’s low ~$1.0140).

• Poor Japanese data yesterday and the recovery of US rates helped the greenback trade higher against the yen after it reached an eight-day low near JPY156.40. The dollar’s high in the North American session was a little above JPY157.50 late in the session. It has soared to almost JPY158.50 today after the Tankan saw slightly lower inflation than previously, a slight reduction in companies planning to raise prices, and the summary of opinions from last month’s BOJ meeting did not seem sufficiently hawkish as to signal back-to-back rate hikes. The odds of a hike late this month were scaled back. The next nearby target for the dollar is the last week’s high (JPY158.95-JPY159.05). Options for almost $1.60 bln at JPY158.25 expire today.

• Sterling traded above $1.33 in the North American session yesterday for the first time in five sessions. However, it faltered there and retreated to almost $1.3250. Still, it settled above Tuesday’s high (~$1.3260) and posted its highest close since September 22. Yet, it has come back offered today and briefly slipped below $1.3200, where options for GBP840 mln expire today. The year’s low was recorded in late June, near $1.3140.

• The recovery of US rates yesterday saw the greenback recorded an outside up day against the Canadian dollar. It traded on both sides of Tuesday range and settled above its high. In fact, the US dollar rose slightly above CAD1.4235, its highest level since July 6. It was the eighth consecutive gain for the US dollar. It reached a marginal new high for the year today, near CAD1.4260. The CAD1.4290-CAD1.4300 area holds the (61.8%) retracement of the US dollar’s losses from last year’s high (~CAD1.4795). Still, given the move, implied volatility is restrained. Benchmark three-month implied vol is slightly above 4.65%. It was at 4.2% early last week, which was near the year’s low. It was 4.5% at the end of the week. The month’s high was near 4.75%.

• The Australian dollar traded below $0.6950 yesterday for the first time in two months. It continues to trade heavy today, and the smaller than expected trade surplus did not help its cause. The Australian dollar has been sold to almost $0.6930 in European turnover. Options for A$475 mln at $0.6940 expire today. The next technical area of support may be in the $0.6900-15 band. A break could target the $0.6830-50 area.

• The Mexican peso could not sustain upticks for the third consecutive session yesterday. The dollar made a marginal new high for the move (~MXN18.1530 yesterday), and the forward momentum stalled. It settled within the upper Bollinger Band (found ~MXN18.2360 today) for the first time in six sessions. Pressure continues today and the greenback reached almost MXN18.28 today. Colombia unexpectedly hiked rates this afternoon to 12.25% from 12%. CPI is running around 6.2%-6.3%. In Bloomberg survey only 2 of 29 economists expected a hike. COP trading for the day was over before the announcement. This would seem to be positive for the COP today, yet the dollar is firmer against most emerging market currencies today. The swaps market has another hike discounted in the next six months.

• The offshore yuan market turned quiet after the mainland markets closed for a weeklong holiday yesterday. The broad dollar gains have seen it reached CNH6.7220 today. The week’s high was set Monday, around CNH6.7265. The PBOC set the dollar’s reference rate at new multiyear lows yesterday, seemingly signaling acceptance for further yuan strength. Its recent statement seemed to warn the market against taking it to excess. Ahead of the holiday, Beijing announced some targeted fiscal support, including mortgage subsidies, and the PBOC cut the rate on its supplementary lending facility for policy banks to fund investment by 25 bp to 1.5%.

• The dollar jumped to INR96.32 today, its best level since July 24. Firmer oil prices, and a broadly stronger US dollar weighed on the rupee, despite the intervention. Some reports suggest importer demand ahead of tomorrow’s holiday.

Other Markets

• US equity indices finished poorly yesterday. Still, the resilience of the S&P 500 and Nasdaq Composite in the face of the jump in US yields in September was remarkable. The S&P held its own and was slightly better than flat. The Nasdaq rose almost 2.5%. In contrast, Europe’s Stoxx 600 was off about 2.5% in September, and the MSCI Asia Pacific equity index lost a little more than 0.5%. Most of the large bourses in the Asia Pacific region rose today, lift by a 3.3% rally in the Nikkei, and a nearly 2% rally in South Korea. Australia’s ASX 200 was among the hardest hit in the region, it dropped 1%. Europe’s Stoxx 600 is off for the third consecutive session. It is down a little more than 1% today. While the Nasdaq futures are firmer, the Dow and S&P 500 are weaker.

• Benchmark 10-year yields are mostly higher today after the six-basis point jump in the yield of the 10-year Treasury yesterday. The 10-year JGB yield rose 6 bp (to nearly 3.10%). European yields are mostly 2-4 bp higher. The French premium over Germany has widened to around 130 bp, though Italian bonds are under more pressure today than French bonds. The 10-year Treasury yield is up couple of basis points to poke above 5.30%. The US Treasury says it will buy back as much as $6 bln of long-dated Treasury bonds today. Its actual operations have been closer to a third of the maximum as many offers have been rejected. At the same time, the market reassesses the odds of a rate hike late this month. The odds of a 25 bp hike have been reduced to a little less 40% from about 70% on Monday.

• Gold’s push above $4200 was rejected and it was sent back to a little below $4150. This week’s lows were around $4111-13. It is practically flat today. Silver traded on both sides of Tuesday’s range but settled barely inside its range. Indeed, silver recorded its lowest close since August 4. It frayed $60 today for the first time in two months. A convincing break of $60 could signal the next leg down, which could be in the $56.50-$57 area.

• November WTI recovered yesterday after slipping marginally through last week’s lows (~$88.65-70) and reached the session high near midday in NY of almost $92, before settling near $90.40. It has come back bid today and reached almost $93. If the lows seen are the lower end of the range, then the upper end of the range may be around $96.50.

Data

• In today’s slate of US data, the markets will be most sensitive to the ISM manufacturing. The initial manufacturing PMI jumped to 57.0 from 53.9, the best since 2022. The ISM runs a little lower and it is expected to edge up to 54.9 from 54.6 in October. It peaked in July at 55.6. August construction spending is due, and after a 0.5% decline in July, it is expected to be flat. The AI datacenter build-out is not quite enough to offset the weakness elsewhere. Through July, construction spending has fallen by an average of 0.4% a month this year, compared with an average decline of 0.1% a month in the Jan-July 2025 period. September auto sales will trickle in over the course of the session. On a seasonally adjusted annual basis, US vehicle sales averaged 16.07 mln a month through August. In the first eight months of 2025, US vehicles sales averaged 16.26 mln.

• Canada sees the September manufacturing PMI today. It stood at 53.0 in August. It peaked in July at 53.5.

• The eurozone September final manufacturing PMI was revised to 52.9 from 52.7 preliminary reading where it also was August. It is the strongest since before Russia’s invasion of Ukraine. August unemployment for the euro area was stead at 6.4%. It has been mostly at 6.4% this year after spending 2025 at 6.3% and Q4 24 at an EMU-era low of 6.2%. Tomorrow, the September aggregate eurozone CPI is due. It is seen rising 0.5% for a 3.7% year-over-year rise (from 3.2%). The core rate is expected to edge up to 2.5% from 2.4%.

• The UK’s final September manufacturing PMI is at 51.9. The flash estimate was 52.0. Still, it was the first increase since May, when it peaked at 53.9. It was at 46.2 in September 2025.

• The Reserve Bank of Australia delivered its fourth hike of the year earlier this week, while the manufacturing PMI stand at 49.6 (49.3 preliminary estimate and 52.0 in July and August). It is the weakest since the end of 2024. Meanwhile, Australia’s trade balance deteriorated. It fell to A$495 mln in August from a revised A$1.35 bln in July (from A$1.92 bln initially) and well below the median forecast in Bloomberg’s survey for A$2 bln. The average monthly surplus through August this year is about A$990 mln compared with an average of a little over A$4 bln in the first eight months of 2025.

• Japan’s Tankan survey showed small to modest improvement in most categories, but the capex plans were reduced to 11.3% from 11.5%. The pullback was led by smaller businesses. Inflation expectations eased to 2.5% on a five-year view from 2.6% in Q2. Among large non-manufacturers, the percentage planning to lift prices exceeded those planning on cutting prices by 38%, down from 40% previously. The final September manufacturing PMI was confirmed at 54.1. It peaked in August at 54.9 and was at 48.5 in September 2025. More importantly, tomorrow the Tokyo CPI is due. It is expected to jump as last year’s childcare-fee waiver creates an important base-effect. The median forecast in Bloomberg’s survey sees a rise to 2.5% from 1.9%. The core rate is expected to rise to 2.3% from 1.8%.

Disclaimer

The Lack of Urgency Expressed by NY Fed President Williams Pushes Rates Lower and Weighs on the Greenback

noreply@blogger.com (Marc Chandler) — Wed, 30 Sep 2026 06:47:16 -0400

The combination of lower oil prices yesterday and less hawkish comments by NY Fed President Williams helped steady US interest rates yesterday. Williams, who has a permanent vote on the FOMC as its vice chair, open speaks as part of the Fed’s leadership, and downplayed the sense of urgency. The Fed funds were discounting about a 70% chance of a hike at the October FOMC meeting, a few days before the midterm election. The implied odds of a 25 bp cut are now nearer 40%.

The dollar is trading with a heavier bias today against nearly all the G10 currencies. A less than hawkish statement following yesterday hike by the Reserve Bank of Australia, and today’s slightly softer than expected August CPI has weighed on the Aussie today. Ahead of the week-long holiday beginning tomorrow in China, the PBOC unexpectedly set the dollar’s reference rate relatively sharply lower today (CNY6.7351), a new low since January 2023. New monetary and fiscal measures to support the economy have been unveiled over the last couple of days.

Prices

G10

• The euro was sold to new lows since mid-2025 yesterday. It reached nearly $1.1310 in the North American session. It was the sixth decline in the past seven sessions. It settled a little below the middle of the session’s range. The euro is consolidating with a slightly firmer bias today and reached almost $1.1365 in early European turnover. It must settle above $1.14 to be anything notable. There is little on the charts until closer to $1.12, and the (50%) retracement of the euro’s rally from 2025 low (~$1.0140) is near $1.11.

• The yen traded in the lower half of Monday’s range yesterday. After recording the session low in early North American turnover yesterday, near JPY157, the greenback bounced back toward the session high (~JPY157.70) before drifting back to the lower end of the session’s range in North American afternoon. The fiscal half-year end in Japan related flows drove the dollar to about JPY156.40 in Tokyo, an eight-day low and it quickly recovered to around JPY157.20. It has been trading between roughly JPY156.70 and JPY157.10 in Europe. Options for $1.4 bln at JPY157 expire today.

• Sterling slipped couple of hundredths of a cent yesterday to draw a little closer to $1.32. It has not traded below there since late June, and it recorded the year’s low (so far) around $1.3140. It recovered to settle near the middle of the day’s range and reached nearly $1.3280 today, which is almost Monday’s high. A close above $1.33 would lift the tone.

• Canada’s local markets are closed today. The Canadian dollar’s losses were extended yesterday. The last time it rose was on September 18. The greenback frayed CAD1.42 yesterday for the first time since early July. The year’s high was recorded on June 24, near CAD1.4250. We argue the exchange rate is particularly sensitive (robust correlation) to the US two-year premium over Canada, which has shot up from 122 bp in early September to almost 158 bp yesterday. However, late in the day, as the US two-year yield pulled back the premium narrowed for the first time in more than two weeks, and the greenback drifted back toward the session low (~CAD1.4170-75). It is trading inside yesterday’s range today.

• As has been the case with the other G10 central banks that have lifted rates recently, the Australian dollar was sold yesterday. The RBA’s hiked but Governor Bullock might be satisfied pending the evolution of the data. Still, even when the RBNZ, BOJ, and ECB signaled they would likely raise rates again, their currencies declined. The sole exception in this latest round was the Federal Reserve and US dollar. The Aussie was sold to about $0.6965. Slightly softer inflation and a larger than expected drop in building approvals seemed to weigh on the Aussie, which slipped slightly below $0.6960. Nearby chart support is seen around $0.6950, where options for A$340 mln expire today. If that yields, the $0.6900 area comes into view.

• The Mexican peso continued to be walloped yesterday. Its headlong plunge has seen it dive nearly 5.5% over the past six sessions. Not to put too fine of a point on it but consider that at the end of August one-month implied volatility was slightly below 6.5%. It was one of the characteristics that made it a favorite for carry trades. One-month implied vol reached almost 12% yesterday. The dollar approached the high for the year, recorded six-months ago, near MXN18.1650. A move above it may target the MXN18.25 area next. The greenback is trading firmly but inside yesterday’s range. The momentum indicators are overextended, but respecting the price action, means waiting and looking for some sign the surge is over. Taking out the previous session’s low would be the bare minimum necessary. It has not happened for seven sessions. Yesterday’s low was about MXN17.8730.

• The greenback recovered after approaching CNH6.7035. The dollar returned to approach the session high against the offshore yuan in the North American afternoon. It reached CNH6.7115. The dollar is recording an inside day, However, ahead of the extended holiday, starting tomorrow, the PBOC set the dollar’s reference rate unexpectedly lower. The CNY6.7351 fix today is a new cyclical low. It was set at CNY6.7411 yesterday and CNY6.7828 at the end of August.

• The Indian rupee edged higher today for the first time this week. The pullback in oil prices and broadly softer US dollar helped. The dollar reached a high near INR96.1540 yesterday and eased to INR95.7475 today, its lowest level since the middle of last week.

Other Markets

• US equities continued to wilt under the deluge of raising yields. Since early August, the S&P 500 has fallen for three sessions each week. It has a two-day slide coming into today. US index futures are narrowly mixed. The MSCI Asia Pacific Index snapped its two-day slide today, led by a nearly 2% rally in the Nikkei. South Korea, India and Singapore did not participate in today’s regional rally. Europe’s Stoxx 600 is flattish and has settled pennies above 638 for the past three sessions and it is still there now.

• The 10-year Treasury yield rose four basis points yesterday to a little above 5.28% before pulling back Comments by NY Fed President Williams sounded dovish compared with many of his colleagues who have spoken recently. He played down the sense of urgency and US rates softened. Benchmark yields are off mostly 2-5 bp today. Still, it has been a terrible month for bonds. The US 10-yield yield is up almost 50 bp, France 60 bp, Italy 40 bp, Germany 25 bp, the UK 30 bp, and Japan 12 bp.

• Gold steadied yesterday after plunging $169 (~4%) on Monday. It held above Monday’s low (~$4111) and made new session highs late in the session near $4180. Follow-through buying today lifted it above $4200 but it is consolidating ahead of the US open. Silver initially traded below Monday’s low to draw a little closer to $60. It recovered and settled near $61.50, the help of late buying. It reached about $61.65 today before stalling and is now below $61. Gold is off almost 5.6% this month and silver has lost about 8.6%.

• November WTI broke down late in North America and fell to almost $89, a new four-day low. It briefly slipped through last week’s lows (~$88.65-$88.70) but is now back above $90. The next technical target could be the around $84.50 next if last week’s lows are convincingly violated. Saudi pipeline figures reported, the further draw down of US Strategic Petroleum Reserves, added pressure on other countries to at least make good on their early commitments on tapping strategic supplies weighed on prices.

Data

• The US reports personal income and consumption and deflators. It will include annual revisions for GDP and personal income. There is also a methodological change in the calculations of the deflators. The changes focus on portfolio management and investment advice, legal services, and computer and software accessories. The changes are expected to show slightly less price pressures. After slowing in June and July, personal consumption is expected to have jumped back strongly in August. The median forecast in Bloomberg’s survey is for a 0.9% increase, which would match the largest this year, which was the most since December 2024. Adjusted for inflation, the 0.5% increase that is anticipated, would match the strongest since March 2025. The ADP private sector employment estimate for September is due. The median forecast in Bloomberg’s survey is for 74k after 38k in August. Through August, ADP estimated the US private sector added an average of 68k jobs a month. The BLS estimate says the US private sector added an average of 84k jobs a month. Last year, ADP estimated an average of almost 64k jobs a month and the BLS, 68k.

• Germany reported a 1.3% jump in August retail sales, which cut the year-over-year decline to 0.4% from -2.2% in July. September unemployment was steady at 6.4%. The German states reported September CPI figures, and the national reading is due shortly. The EU harmonized measure is seen rising by 0.5%, which will lift the year-over-year rate to 3.2% from 2.9%. Separately, France reported a 0.4% decline in the EU-harmonized CPI, but due to the base effect (-1.1% in September 2025), the year-over-year pace accelerated to 3.4% (from 2.6%). Tomorrow, the September aggregate eurozone CPI is due. It is seen rising 0.5% for a 3.7% year-over-year rise (from 3.2%). The core rate is seen edging up to 2.5% from 2.4%. France also reported consumer spending fell by 0.5% in August after revised 0.4% (initially 0.5%) increase in July. France unveils next year’s budget tomorrow and the French 10-year premium over Germany is a little more than 120 bp.

• The UK revised Q2 GDP estimate to 0.5% from 0.4%. Better net exports seemed to be the driver. The swaps market remains confident that the Bank of England will hike the base rate at its next meeting in early November. The market has nearly 100 bp discounted through the first half of next year.

• A day after the Reserve Bank of Australia’s fourth rate hike of the year, August CPI was released. It rose 0.4% after a 1% jump in July. The year-over-year rate rose to 4.0% from 3.5%. The trimmed mean rose 0.2%, leaving the year-over-year rate steady at 3.6%. Separately, it reported a dramatic 6.1% decline in building approvals and a 0.6% increase in private sector credit extension (the year-over-year pace was unchanged at a lofty 8.4%).

• Japan reported a 1.2% decline in August retail sales after a 2.1% rise in July. August industrial output unexpectedly fell 1.7% following the 0.2% decline in July. The median forecast in Bloomberg’s survey was for a 1.3% increase. The Japanese economy grew by about 1.6% annualized in H1 26 and is seen slowing to 1% in H2. The swaps market had about a 40% chance of a hike at the next BOJ meeting in late October discounted on Monday and it has been halved now.

• China’s PMI was ticked up and this coupled with the new modest stimulus efforts may help boost sentiment after the holiday with closes mainland market starting tomorrow and re-opening next Thursday, October 8. The manufacturing PMI did poke above 50 (50.1 vs. 49.8). It is the first reading above the 50 boom/bust level since June. The slowing of the non-manufacturing sector PMI rose to 50.2 from 49.0, which matches the highest reading since June 2025. The composite edged up to 50.7 from 49.5. It had not been above 50 since June and finished last year at 50.7. The RatingDog version runs a little firmer and was narrowly mixed. The composite stands at 52.4 from 52.1. It was at 51.3 at the end of 2025.

Disclaimer

The Dollar Remains Firm and the RBA Delivered its Fourth Hike of the Year, though Sounded Less Hawkish

noreply@blogger.com (Marc Chandler) — Tue, 29 Sep 2026 06:49:51 -0400

The US dollar continues to trade with a firmer bias. We are still struck by the over-bought technical momentum indicators, arguably encouraged by the aggressive pricing of the trajectory of Fed policy. In the Fed funds futures, the odds of an October hike six days ahead of the midterm election. In recent years, there is some precedent for a move six days before a national election (e.g., 2008, 2018, and 2022). The market is pricing in almost 100 bp of hikes over the next 12 months. Sentiment seems vulnerable to any disappointment with the economic data in the coming days.

Throughout the North American session today, no fewer than six Fed officials speak today. Most has spoken recently and it seems clear, as the dot plot indicated, many are prepared to hike rates again this year. The question is when. However, also recall that the dot plot less than two weeks old showed the median projection was for no hikes next year. That said, it is possible the under new management, the Summary of Economic Projections are dropped next year.

Prices

G10

• The euro slipped below $1.1355 yesterday to match the late July low. It remains under pressure today, having been sold below $1.1335. The low for the year was recorded in late June, near $1.1325. A convincing break of $1.1300 could warn of scope for another two-cent decline.

• More verbal intervention by Japanese officials to support the yen saw the dollar drop yesterday from about JPY157.50 to JPY156.50. It recovered to trade near JPY157.60 toward the end of the European session and spent the North American afternoon mostly chopping mostly between JPY157.00 and JPY157.50. It is trading quietly today between about JPY157.20 and JPY157.70. Options for almost $500 mln at JPY157.50 expire today.

• Sterling did reasonably well yesterday. Its low (~$1.3220) was higher than the low of the past two sessions. It recorded a three-day high (~$1.3280) near midday in New York but settled below last Friday’s high (~$1.3265). It is trading with a heavier bias inside yesterday’s range. A break of $1.3200 signals a test on the late June lows near $1.3140.

• The Canadian dollar’s drop continues. It fell for the sixth consecutive session yesterday and 13 of the past 14 sessions. It is a little softer today. The US two-year premium over Canada also continued to widen. It has risen for the past ten sessions. At 154 bp, it has not been wider since mid-February 2025, when peaked near 160 bp. The greenback peaked in early March 2025 and fell by nearly 7% through mid-June 2025. The US dollar reached nearly CAD1.4180 yesterday and settled above last week’s highs. It is probing the CAD1.4200 area late in the European morning. The high for the year was recorded in late June, near CAD1.4250.

• The Australian dollar traded inside last Friday’s range yesterday (~$0.7005-$0.7045). The central bank’s rate hike was seen less than hawkish, and the Aussie has taken another leg down today. It has been sold slightly through $0.6980. The next chart area is around $0.6950.

• After falling by more than 4% over the past two weeks, the Mexican peso continued to be pulled lower yesterday by rising US rates and a broadly stronger dollar. The greenback breached the MXN18.00 level for the first time since that end of March. It settled for the fourth consecutive session above its upper Bollinger Band (found near MXN17.9350 today). It reached a little above MXN18.02 today. The MXN18.04 area corresponds to the (61.8%) retracement of the US dollar’s decline from last November (~MXN18.77) to the two-year low set earlier this month (~MXN16.8575). Above there is little until the late March/early April highs (~MXN18.1650). We suspect the unwinding of the yen carry trade was not as disruptive because the trade was switched into dollar-funded, but now with the surge in US rates and dollar, a large unwind is taking place. The JP Morgan Emerging Market Currency Index is off about 1.5% in the past month. It is off a little more than 1.8% this year.

• The dollar posted a potential key reversal against the offshore yuan yesterday. It first traded above the recent highs to reach almost CNH6.7265 before reversing and settlings slightly below the pre-weekend low (~CNH6.7135). The dollar has fallen to a four-day low near CNH6.7045 today. The cyclical low was set on September 21 around CNH6.6910. After seemingly cautioning the market against thinking the yuan is a one-way market, the PBOC confusingly lowered the dollar’s fix yesterday by the most since April. Today’s fix was at CNY6.7411 (CNY6.7399 yesterday).

• The Indian rupee fell to two-month lows today despite reports that the Reserve Bank of India sold dollars in the onshore market. The dollar reached almost INR96.1540 today but settled slightly below INR96.00.

Other Markets

• US equity indices opened lower yesterday and extended their sell-off. However, with the pullback in yields, equities stabilized, though the major US indices settled below opening levels. US index futures are narrowly mixed. Most Asia Pacific bourses were weaker today. China and Australia were notable exceptions. Europe’s Stoxx 600 was flat yesterday but is up around 0.45% today.

• Benchmark 10-year yields have steadied today after yesterday’s surge in the US and Europe. The 10-year JGB yield was slightly softer, while most yields are around a basis point lower in Europe. The US 10-year yield reached 5.27% before settling near 5.23%. It is slightly firmer today. The two-year yield reached 4.95% and settled near 4.92%. It is nearly 4.94% now. Given the context of the Atlanta Fed’s GDPNow tracker pointing to 5% growth, US CPI at 3.4%, the Fed funds futures implying an end of 2027 overnight rate of about 4.80%, and no serious progress to rein in the deficit (supply), a 5.25% 10-year yield does not seem extreme.

• Gold was nearly 3.8% less precious at the close yesterday than it was before the weekend. Yesterday’s loss was the largest since June 10. It had traded to around $4510 earlier this month, and yesterday’s losses took it to $4111. It settled well below the lower Bollinger Band and has been unable to re-enter it today (~$4157 today), though it is trading with a firmer bias. Silver was tarnished by yesterday’s slide that took it to nearly $60.75. It also settled below its lower Bollinger Band (~$61 today) and is struggling to re-enter it. A break of $60 brings the year’s low (~$54.80) into view.

• Conflicting signals about the outlook of the war, US-Iran talks, and the extent oil is making its way of the Middle East saw the November WTI contract swing within the range established last Thursday (~$91.25-$96.80). It is little changed in the European morning and has been confined to yesterday’s range.

Data

• With the PCE deflator tomorrow and US jobs data on Friday, July US house prices and the Conference Board’s consumer confidence survey are unlikely to have much impact. While consumer confidence is weak, consumers continue to demonstrate resiliency. The August JOLTS is seen pointing to a steady labor market.

• Canada is expected to report a flat July GDP after a 0.3% increase in activity in June. StatCan is also expected to provide an advance estimate for August GDP. The Canadian economy grew by 3.3% (annualized) in Q2 and is expected to have slowed to about half that pace in Q3. Still, the swaps market has a little better than a 50% chance of a hike at next month’s Bank of Canada meeting.

• The EC’s September confidence surveys were released today. They were mixed, but the market impact seemed negligible. Separately, Spain reported firm September inflation. The EU harmonized measure rose 0.6% for a 5.0% year-over-year rate, up from 4.6% in August. It also reported a 1.1% year-over-year drop in August retail sales (-0.3% in July). Germany reports its September CPI tomorrow. The EU harmonized measure is expected to rise by about 0.5%, which would lift the year-over-year rate to 3.2% from 2.9%. Separately, civil servants are striking in France ahead of the government’s budget bill later this week.

• The UK reported August consumer credit figures. Consumer credit was a little stronger than expected and it has risen 9.6% year-over-year (9.3% in July). Mortgage approvals slowed a little but net lending increased.

• The Reserve Bank of Australia hiked its overnight cash rate target for the fourth time this year. The key rate now stands at 4.60%, the top in the G10. It is the highest in about 15 years. Australia also reported that household spending was flat in August, which defied expectations for a modest increase. Australia reports August CPI tomorrow. The median forecast in Bloomberg’s survey is for a 0.5% increase, which would raise the year-over-year rate to 4.1% from 3.5%. Yesterday, the futures market was discounting almost a 65% chance of another hike before the end of the year and after less than hawkish comments by Governor Bullock, the odds have been pared to a little less than 60%.

• China revised slightly lower its estimate of the Q2 current account surplus to $193.7 bln from $195.1 bln. That follows the $184.3 bln surplus in Q1. The Q2 25 current account surplus was $128.7 bln. China’s trade surplus is larger, but it reports a $37.6 bln deficit on primary income. Primary income includes interest on bonds and loans, dividends on shares, and profits from businesses owned abroad. It also includes pay earned when a worker is resident in one country but works and is paid by an employer from a different country. Separately, the Beijing indicated that it will move “with greater urgency” to provide support for the economy, promising to introduce a package of “practical and effective additional policies”. In yesterday’s statement, the State Council (~China’s cabinet) recognized that “emerging issues” in the economy required the government to “step up counter-cyclical adjustments”. China’s September PMIs will be released first thing tomorrow.

Disclaimer

War in Middle East Sends Oil Prices and Yields Higher, Underpins the Dollar

noreply@blogger.com (Marc Chandler) — Mon, 28 Sep 2026 06:46:48 -0400

The US has rejected Iran’s latest offer and appears to be moving more force into the region. Oil prices have jumped, which is also serving to push up yields. The dollar is firmer against most of the G10 currencies. New verbal intervention by Japanese officials, clinging on to the cooperation of the US, to warn against yen weakness.

Yet, with rising US yields, it will be difficult to suppress the greenback. Perhaps, one of the most interesting developments today has been the PBOC’s sharply lower dollar fix. Last week, the PBOC had cautioned against one-way moves in the yuan. The dollar’s fix was lowered by the most since April. Ironically, it does not appear that the currency was discussed by Trump and Xi, but the yen was reportedly discussed during Trump-Takaichi talks. Trump and Xi will meet two more times this year (November APEC ins Shenzhen and December G20 at Trump’s golf club in Florida). The US and China agreed to reduce tariffs on $60 bln of goods imported from each other.

Prices

G10

• We suspect the euro is trying to bottom with oversold momentum indicators after it approached the low from late July, it is consolidating quietly within the pre-weekend range and has been confined to about a third-of-a cent above $1.1365. Last week’s low was about $1.1360, and the July low was slightly below $1.1355. Options for about 1.75 bln euros at $1.1350 expire today. Large options remain struck at $1.14 that expire today and tomorrow.

• After the yen declined for five consecutive sessions, Japanese officials returned to the intervention escalation ladder ahead of the weekend to play up the ongoing coordination with the US Treasury. This coupled with the pullback in US rates sent the yen nearly 1% higher, its largest gain in nearly three weeks. As the dollar recovered today toward JPY158, Japan’s finance official Mimura, who is responsible for fx policy, underscoring that US and Japanese officials have sent a “vey clear message” about the yen’s depreciation. The verbal intervention sent the dollar to JPY156.50 in early European activity, a six-day low. It has steadied and returned to around JPY157.15. Options for $1.2 bln at JPY156.75 expire today.

• After testing $1.34 last Monday, sterling fell to nearly $1.32 last week before it steadied ahead of the weekend. Sterling is a little firmer today. It reached a four-day high in early European turnover, near $1.3275. $1.3280-$1.3300 must be overcome to lift the tone. Options for GBP840 mln at $1.33 expire today. The euro reached above GBP0.8630, its best level since late June, but has subsequently reversed sharply lows and a reached a four-day low near GBP0.8570, setting up a potential key reversal. Initial support is seen near GBP0.8550.

• The US dollar reached CAD1.4155 before the weekend and CAD1.4165 today. It is the highest it has been against the Canadian dollar since mid-July. Options for nearly $530 mln at CAD1.4180 expire today. The US two-year premium over Canada crept up to almost 154 bp before the weekend, a new high since February 2025. A narrowing of the premium would seem needed to fuel a recovery in the Canadian dollar. Initial US dollar support is seen near CAD1.41.

• The market is convinced that the Reserve Bank of Australia will hike rates early on September 29. It will be the fourth hike this year. Another hike is fully discounted by the end of February 2027. The Aussie remains pinned near $0.7000, which it has not traded below since early August. On the other hand, it has been capped in recent sessions in front of $0.7050.

• Last week, the Mexican peso fell by almost 3%. It was the largest decline in six months. Latam currencies accounted for the three weakest emerging market currencies last week. The unwinding of dollar-funded carry trades seemed like the main culprit. The greenback approached MXN17.78 before the weekend, its strongest level since April. It has been bid to almost MXN17.82 today. The momentum indicators are stretched by the dramatic peso liquidation but the firmer US rates and drop in equities maintain the pressure on the peso.

• China’s markets were closed before the weekend for the mid-Autumn holiday. The market reopened today but starting Thursday and running through next Wednesday, another holiday will shut the mainland markets. The dollar rose to nearly CNH6.7265 against the offshore yuan today, marginally taking out the pre-weekend high, before reversing lower and falling to about CNH6.7125. The PBOC appeared to have signaled the desire for some consolidation in the exchange rate. The dollar fix continues to be an important way the PBOC signals its desires. The PBOC set the dollar’s reference rate lower for ten consecutive sessions through last Tuesday. Yet, today, the PBOC set the dollar’s fix sharply lower. It was set at CNY6.7399 today, a new cyclical low (CNY6.7489 last Thursday). It is the biggest decline in the dollar’s fix since April.

• Rising oil prices and the broadly stronger greenback was no match for the Indian rupee today. The dollar rose to a seven-day high (INR95.99). This month’s high was recorded on September 17 near INR96.10.

Other Markets

• The combination of lower US rates and oil prices seemed to help US equity indices extend last week’s gains ahead of the weekend. However, stocks are mixed today. Most of the large bourses in the Asia Pacific region fell but Hong Kong, Australia, and Singapore. South Korea’s Kospi was the weakest with a 2.7% drop. Europe’s Stoxx 600 is marginally higher, while US index futures are off 0.4% (Dow Industrials) to -1.0% (Nasdaq Composite).

• Benchmark 10-year yields rose sharply last week with the JGB yield rising almost 10 bp, Germany near 15 bp, and the US a little more than 22 bp. Higher oil prices have sent yields higher today. The JGB yield edged up a little more than one basis point, while European yields are 4-7 bp higher. The 10-year US Treasury yields are up nearly seven basis points to 5.23%.

• For a little more than two weeks, gold has chopped in $4200-$4400 range. It has been sold to almost $4140 today, its lowest level since August 5. Nearby support may be around $4120. Recall that silver was turned back from $70 in late August and has been confined to roughly $62.30-$68.30 this month. It was sold slightly through $61 today. Initial support now may be near $60.

• November WTI pulled back from the first time in three days ahead of the weekend, though the market remains tight. A record premium was paid late last week to secure prompt barrels at the main crude storage hub in Cushing, Oklahoma. The US rejected Iran’s cease-fire proposal and is moving more forces into the region. Nov WTI is near session highs before the US open, around $96. Last week’s high was a little above $97.20.

Data

• The week that features the August US PCE deflator and September jobs report begins slowly. On tap today is the Dallas Fed’s September manufacturing survey, which typically does not spur much of a market reaction. Tomorrow sees house prices, the Conference Board’s measure of consumer confidence, the JOLTS report, and the Dallas Fed’s service activity survey.

• Mexico reports August trade figures today. Its trade surplus has widened to $9.25 bln through July this year compared with $1.18 bln in the first seven months of 2025. US-Mexican trade talks continue, and both sides have expressed optimism, though details have not been revealed. At the start of the week, President Sheinbaum revealed that the US has expanded the list of concerns it wants Mexico to address from an initial 54 items to almost 90. The only one she revealed was the US wanted to lower its bilateral deficit, and Sheinbaum say that Mexico would look to buy more goods from the US and less from other countries.

• Japan reported that August producer services prices accelerated to a new two-year high of 3.7% year-over-year (from 3.6%). Producer service prices have not risen faster since H1 1990.

• China reported August industrial profits rose 4.2% year-over-year from 11.2% in July. Last August, Beijing reported that industrial profits rose 20.4% year-over-year. For the first eight months of the year, profits rose 15.7%. The electronics sector appears to have contributed about 2/3 of the overall profit growth so far this year.

Disclaimer

Week Ahead: Dollar Bulls may be Challenged

noreply@blogger.com (Marc Chandler) — Sat, 26 Sep 2026 06:58:26 -0400

Our assessment of the dollar's technical condition and the upcoming economic data appear to be aligning in a way that warns of the downside risks. The greenback has climbed on the sharp rise in interest rates. With the market discounting nearly 100 bp of tightening over the next 12 months, including a nearly 2/3 chance of a hike late next month, a few days ahead of the midterm election, we suspect the pendulum is unlikely to swing much further.

Our suspicion is partly a based on the methodological changes in the PCE deflator that may dampen, on the margins, price pressures, and US job and auto sales look to have slowed in September. The dollar's recent surge has left momentum indicators stretched, and the greenback approached some important technical levels. Below, we offer some levels that if taken out would boost confidence that a dollar high is in place.

Drivers: The Dollar Index recorded a low this month on September 9, nearly 95.60. It reached almost 101.40 on September 24, its highest level since late July. Since September 9, the US two-year yield rose almost 40 bp. The Fed funds futures are pricing in almost four more Fed hikes over the next 12 months. This is more aggressive than any Fed official, according to the latest Summary of Economic Projections. The pendulum of market expectations has swung dramatically, and there may be little more room based on the current and anticipated information set. The Fed funds futures market is pricing in nearly a 65% chance of a rate hike late next month. That seems unusually high given the little precedent for a change in policy a few days ahead of the midterm election.

Data: The labor market is front and center with the JOLTS report and ADP private sectors jobs estimate, culminating with the September employment report on October 2. The early estimates suggest hiring slowed to a little less than 110k from 162k in August. Through August, nonfarm payrolls have rinse by 80k a month compared with 20k average in the first eight months of 2025. The median forecast in Bloomberg's survey anticipates the unemployment rate to tick up to 4.2% from 4.1%, and small decline in the average work week. US economic growth in Q3 if the Atlanta Fed's GDP Tracker is accurate with exceed China's. Part of the reason is the continued resilience of the consumer despite weak consumer confidence. This will likely be evident in the August personal consumption expenditures, which are expected to have around twice as much as income (0.8% vs. 0.4%). The PCE deflator, which the Fed targets, can be largely extrapolated from the CPI and PPI. However, a methodological change (involving: 1. portfolio management and investment advice services; 2. computer software and accessories; 3. legal services) could shave the measure by an estimated 0.1%-0.3%. The revisions go back five years and will impact the estimates of other macroeconomic data, including GDP.

Prices: The momentum indicators for the Dollar Index are stretched. The Dollar Index met the measuring objective of the double bottom forged in August and September. It projected toward around 101.20. DXY stalled in front of the late July highs near 101.50. In June and July, it traded above 101.50 several times but managed to settle above it twice. It may take a break of the 100.50 area to suggest a top is in place.

EMU

Drivers: The euro continues to be sensitive to changes in US short-term interest rates. That is intuitive. Less intuitive is the inverse correlation of the changes in the euro and German two-year yields, which is to say that rising short-term German rates is correlated with a weaker euro. The inverse correlation is around -0.55 and -0.20, respectively, with changes in US and German two-year rates, respectively. In addition, for the first time since early February, the 30-day correlation of changes in the euro and the Stoxx 600 has become inverted this month.

Data: The final manufacturing PMI on October 1 is not going to capture the market's attention for long. Nor does the unemployment report draw much attention, though for the record, it has been 6.3%-6.4% since the start of last year. The most important data point is the preliminary September CPI on October 2. Headline CPI stood at 3.2% in August, and the core rate 2.4%. The ECB staff's latest forecast is for CPI to be at 3.0% at the end of the year and 2.5% next year. The swaps market has a little less than 50% chance of another hike at the October 29 ECB meeting. Nearly 70 bp of tightening is priced in through the end of Q1 27.

Prices: The nearly 3.75-cent euro loss in the past two weeks has stretched the momentum indicators as the euro approached its lowest level in two months around $1.1360. We anticipate a bottom and are looking for some kind of technical signal that a low is in place. A move above the $1.1450 area would be encouraging.

PRC

Drivers: The PBOC had set the dollar's reference rate lower for 10 consecutive sessions through Tuesday last week. Some suspect it was a cosmetic ahead of the summit. Beijing's willingness to accept a gradual appreciation of the yuan seemed to have increased recently, but the broad move is months long. Consider that on a weekly basis, the dollar's fix rose once in Q1 26, three times in Q2 and only twice so far here in Q3. This seemed to fuel expectations in some quarters of further yuan appreciation, but the PBOC seemed to check such expectations by warning that it would "prevent the 'herd effect' and self-reinforcement of irrational expectations."

Data: Industrial profits and the September PMI are the main features. However, high-frequency Chinese data does not explain the yuan's appreciation this year. The economic data has generally disappointed expectations, except for the trade surplus. The appreciation of the yuan does not sound impressive relative to its cost-of-production advantages and trade surplus. However, it has risen by about 4.5% this year, which is roughly twice the implied one-month volatility and one-year historic volatility of a little more than 2%.

Prices: The dollar made a new high for the month against the offshore yuan ahead of the weekend (~CNH6.7250), while the mainland markets were closed for the autumn holiday. Given the signal from the PBOC, and the five-day moving average poised to cross above the 20-day moving average for the first time since mid-July, the greenback may have potential toward CNH6.7500.

Japan

Drivers: The rolling 30-day dollar-yen correlation with US rates bottomed in early August near zero. However, link has been re-established. However, now the correlation of changes in the exchange rate and US rates is higher for the US two-year yield (~0.55) than changes in the 10-year yield (~0.45). The exchange rate is slightly inversely correlated with changes in Japan's two-year yield. The correlation with Japan's 10-year yield is around 0.30, the upper end of where it has been in four months, which is to say the dollar tends to rise against the yen as Japanese bond yields rise.

Data: The data early in the week, like retail sales, industrial production, and housing starts, will help economists tune their Q3 GDP forecasts. Economic growth is seen slower for the second consecutive quarter (1.9% in Q1 26, 1.4% in Q2 26, and 1.0% in Q3, annualized pace). The BOJ's Tankan Survey is expected to show a small improvement in sentiment and capex plans. Tokyo's September CPI, though, at the end of the week may be the most impactful. The swaps market has less than a 1-in-5 chance of a BOJ rate hike at its next meeting in late October and slightly more than a 50% chance of a hike before the end of the year, which seems low.

Prices: With the help of a particular type of verbal intervention, the yen snapped a five-day decline ahead of the weekend. The press reported that President Trump and Prime Minister Takaichi discussed the exchange rate and Finance Minister Katayama spoke of continued coordination with the US Treasury. The dollar fell by around 0.75%, its largest single day loss in nearly three weeks. The greenback finished the week below the trend line connecting the late July and early September highs, which had been violated on a closing basis on September 24.

Drivers: The broad direction of the dollar, and especially against the euro, may be the best explanatory factor in sterling's movement. The inverse 30-day correlation between changes in sterling and the Dollar Index is near -0.82. The correlation with the euro is around 0.88. The correlation is much greater than with US or UK rates, or the differentials.

Data: The UK reports consumer credit and mortgage lending figures on September 29 and the final reading of Q2 GDP the following day. The final manufacturing PMI (October 1) typically does not elicit much of a market reaction. The swaps market is confident that the Bank of England will hike the base rate at its next meeting in early November (~85%) The market is pricing in nearly 100 bp of tightening between now and the end of H1 27.

Prices: Sterling began September near $1.3550 and was sold to almost $1.32 on September 24, its lowest level since late June. The momentum indicators are oversold. We are looking for some sign of a bottom. A move above $1.3280-$1.3300 may be persuasive.

Canada

Drivers: The 30-day correlation between changes in the US dollar against the Canadian dollar and the two-year rate differential is steady around 0.72. There was an inverse correlation as recently as mid-June. The US premium reached almost 155 bp from a low last month near 117 bp. Last year's peak was near 160 bp, the most since May 1997.

Data: July GDP will be reported on September 29. After expanding by 0.3% in May and June (0.6% in April), the risk is for a slight moderation in activity. The August manufacturing PMI is due October 1. Recall that Canada's manufacturing PMI was below the 50 boom/bust level last year starting in February. However, this year it held above 50 and averaged 53.1 in Q2 and about 53.2 July and August. The swaps market has about a 60% chance of a Bank of Canada rate hike at the next meeting on October 28.

Prices: The greenback reached CAD1.4155 ahead of the weekend, a marginal new high for the move, which could mark a top. The momentum indicators are stretched after rallying for the past three weeks. A push back below the CAD1.4085 area would likely confirm a corrective phase has begun.

Australia

Drivers: As one would expect, the changes in the Australian dollar are correlated with changes in two-year Australian interest rates. However, the 30-day correlation was inverse from early March through mid-May. The correlation now is a little below 0.25. What is striking is that the inverse correlation of changes in the exchange rate and changes in the US two-year yield is more than twice as large (~-0.63).

Data: The futures market is confident (~90%) that the Reserve Bank of Australia will deliver its fourth hike of the year on September 29. Another hike in Q1 27 is fully discounted, as well. The rate hike will steal the thunder from the August CPI due the following day. The July CPI was 3.5%, and the trimmed mean was at 3.6%. The August private sector credit is due at the same time. It rose a robust 8.4% year-over-year in July. Australia sees the final September manufacturing PMI and August trade figures on October 1. Australia's trade balance has deteriorated this year. In the first seven months of the year, the good trade surplus averaged A$1.27 bln a month. In Jan-July 2025, the average monthly goods surplus was A$4.52 bln. Despite reduction in the trade surplus, the Australian dollar is the second strongest G10 currency this year, up around 6.5% (trailing the Norwegian krone's 7.2% gain), On the face of it, the aggressively tighter monetary policy offers a better explanation than goods trade in lifting the Aussie this year.

Prices: The Australian dollar made a marginal new low ahead of the weekend but held above $0.7200. The nearly 3.25% decline since peaking on September 9 left the momentum indicators over-extended. It may take a move above $0.7055 to suggest a low is in place.

Mexico

Drivers: The peso was a beneficiary of carry trades. There are other currencies that offer higher yields, of course, but Mexico offers lower volatility and greater liquidity. The surge in US rates and firmer US dollar appeared to force an unwinding of such positions in a way that intervention-inspired short squeeze of the yen, did not. The dollar-peso remains a good proxy for the JP Morgan Emerging Market Currency Index, with a 30-day inverse correlation about -0.85.

Data: Mexico's data in the coming days are unlikely to have much impact on expectations for the central bank after last week's hike. While the domestic economy is fragile, the external account is solid. The August trade report is due September 28. In the first seven months, the average monthly trade surplus averaged $1.32 bln a month compared with $168 mln a month in Jan-July 2025. Worker remittances averaged about $5.17 bln a month through July this year, slightly more than the average in the first seven months of last year (~$4.97 bln). The August report is out on October 1. The IMEF surveys, also reported on October 1, are similar to PMI, though the market impact is often negligible.

Prices: The dollar surged nearly 3% against the Mexican peso last week. It was the largest gain since early March. The greenback reached almost MXN17.77 on September 24. The dollar consolidated ahead of the weekend, but the tone remained constructive though the momentum indicators are overbought and it remained above its upper Bollinger Band. Near-term risk may extend toward MXN17.85. Here, a break of MXN17.50-MXN17.53 area is needed to suggest a top is in place.

Disclaimer

Softer US Interest Rates Help the Greenback Steady and Talk of US-Japan Coordination Snaps the Yen's Five-Day Slide

noreply@blogger.com (Marc Chandler) — Fri, 25 Sep 2026 06:50:52 -0400

Oil and US rates are softer today and these developments have helped steady the US dollar after this week’s surge. Even with a firmer tone today, four of the G10 currencies are off more than 1% this week. The yen would have been among them, but comments earlier today from Japan’s Finance Minister Katayama played up the ongoing coordination with the US and has seen the yen rise for the first time in six sessions.

The market is pricing in a “normal” Fed tightening cycle, in contrast to the Summary of Economic Projections, where the median dot implied a mini-cycle. We suspect the pendulum of sentiment has swung nearly as far as it might, especially given the prospect of a relatively tame PCE deflator (helped by methodological changes), softer September auto sales and slower jobs growth that will likely be reported next week. We are looking for some sign of a reversal in the price action in the foreign exchange market.

Prices

G10

• The euro dipped briefly below $1.1360 in the North American morning and recovered slightly above $1.1390 near midday in NY amid a wave of optimism over a potential interim agreement of phased de-escalation in the Middle East war. It drifted lower and slipped below $1.1370 in quiet afternoon dealings. However, it is steadied today and is mostly trading within yesterday’s range. It has frayed the $1.14 level, where nearly 1.8 bln euros of options expire today and another 3.1 bln euros expire there on Monday and 2.4 bln euros on Tuesday.

• Our argument has been that higher US rates are driving the dollar higher broadly, including against the Japanese yen. The US 10-year yield has risen by about 20 bp since Monday and the dollar rose about three yen since last Thursday, the last day the greenback declined. The dollar poked above JPY159 yesterday for the first time since September 2. The risk/reward for short-term participants changes as the JPY160 level draws near. The media reports that Japanese Prime Minister Takaichi and President Trump spoke about weakness of the yen yesterday and Finance Minister Katayama indicated she would continue to coordinate with US Treasury Secretary Bessent. This saw the dollar retreat to almost JPY157.65, slightly below yesterday’s low (~JPY157.80). The dollar rose for the past five consecutive sessions.

• Sterling is having a tough week. It could be the worst week since mid-June, with more than a 1.1% loss. It reached about $1.3205 yesterday, its lowest level since late June. It was unable to re-enter the Bollinger Band yesterday, but it is back inside it today (lower band is ~$1.3220 today). Sterling, like the yen, has fallen in eight of the past ten sessions. Yesterday’s high was about $1.3255. Today’s high is near $1.3250.

• The Canadian dollar has trended lower. It has fallen each session this week coming into today and has fallen for the 11 of the past 12 sessions. It finished above the upper Bollinger Band (~CAD1.4160 today) each day this week. The US interest rate premium over Canada continues to widen. The US dollar settled firmly and above the late July high (~CAD1.4130) for the first time. It has extended the gains today to CAD1.4155. The CAD1.4175-CAD1.4200 is the next target.

• The futures market remains confident that the Reserve Bank of Australia will hike rates next week. Yet, it was insufficient to prevent the Aussie from falling for the fourth consecutive session yesterday, the longest losing streak in three months and settling below the 200-day moving average since last November. It settled for the second consecutive session below its lower Bollinger Band (~$0.7020 today). It drew slightly closer to $0.7000, but it held and the Aussie recovered to around $0.7030. Yesterday’s high was near $0.7050, where options for about A$565 mln expire today.

• The Mexican peso’s drubbing continued yesterday. It is off nearly 2.6% this week with today’s 0.3% bounce. Without further recovery in North American, it will be the peso’s worst week in six months. The unwinding of dollar-funded carry trades seems to be the most significant driver. This also seems to account for the Colombian peso’s poor performance as well. It was taken for about 5.3% this week after surrendering a little more than 3% last week.

• The dollar bottomed this week on September 21 against the offshore yuan (~CNH6.6912) and reached CNH6.7200 yesterday and CNH6.7250 today. The PBOC seems to have signaled a period of consolidation for the yuan. In a statement following its quarterly meeting yesterday, it said it would “prevent the ‘herd effect’ and self-reinforcement of irrational expectations”. The mainland markets are closed today for the national holiday.

• The Indian rupee traded with a firmer bias. Net-net the rupee was essentially flat this week. The dollar settled below yesterday’s low (~INR95.83). Recall that the dollar settled near INR95.3850 at the end of August.

Other Markets

• China, Taiwan, and South Korean markets were closed today. Many of the other equity markets, including Japan and India rose. The Hang Seng’s 1% loss was among the largest in the region. Europe’s Stoxx 600 is snapping a two-day slide and is up about 0.65% in late morning turnover. US index futures are up ~0.25%-0.50%.

• Benchmark 10-year yields extended their gains yesterday. Another tailed-coupon sale in the US adds to angst as the 10-year Treasury yield rose above 5.15% yesterday. Yields are narrowly mixed today. The 10-year JGB slipped about a basis point to 3.05%. It is up almost 10- bp this week. European yields are mixed, with the 10-year Gilt off a couple basis points but is still up nearly 15 bp this week. The French 10-year yield is flat but up nearly 22 bp this week. The 10-year Treasury yield is off around 2.5 bp to near 5.17%, leaving it up 22 bp on the week.

• Gold continues to struggle in this rising interest rate environment. It is in the lower end of a two-month trading range. It enjoys a firmer today and is poking above $4300 late in the European morning. It settled near $4379 last week. Silver also has approached the lower end of its recent range (~$62.30). It also enjoys a firmer today and has neared $65 in Europe. Last week, it settled near $66.25.

• November WTI met the (61.8%) retracement target of its recent decline at its high yesterday, a little below $96.80 and approached the week’s high, recorded on Monday (~$97.20). It pulled back amid reports of US-Iran talks. Still, it finished with around a 2.65% gain. It is trading lower today but within yesterday’s range, when the low was near $91.25. It is off nearly 3.4% this week, its first weekly decline in four weeks.

Data

• The US reports August durable goods orders today, and the first decline since May is anticipated. The headline may be dragged down by a decline in Boeing orders (15 vs. 38 in July). However, excluding aircraft and defense, the median forecast in Bloomberg’s survey is for a 0.5% increase after a flat July report. Shipments of capital goods (excluding aircraft and defense are projected to rise by 0.7%, which, if accurate, would match the strongest three-month performance since August 2020. The Atlanta Fed’s GDP Now tracker will be updated after the data. The last estimate stood at 5.1%. The final September University of Michigan consumer confidence reading may be revised lower, but American consumers “reveal preferences” showed shopping continued through August, when retail sales jumped 1.2%, the most since March.

• As expected, Mexico’s central bank stood pat yesterday, leaving the overnight rate at 6.5%, where it has been since the 25 bp rate cut in May. Mexico will report August unemployment today. It has been creeping up this year after finishing last year near 2.4%. It stood at 2.9% in June and July, and may have risen to 3.0% in August, which would be the highest in three years.

• The eurozone’s M3 money supply growth rose to 3.5% from 3.4% in July. Even as the ECB hiked rates this year, M3 has accelerated from 2.8% in the last four months of 2025. At 3.5% the year-over-year pace is the fasted since May 2025. Lending to households rose 3.1% year-over-year, the same pace as in July. Lending to non-financial businesses slows to 4.2% year-over-year from 4.4%.

• The Bank of Japan released its measure of CPI that excludes the effect of subsidies and “special factors”. It rose 2.6% year-over-year. Special factors included changes in the consumption tax, education (free-of-charge policies, like free lunches, which started in April 2026), other relief measures for gasoline, gas, and electricity, and the 2021 reduction in cellphone fees. The swaps market is pricing in around a 30% chance of a hike next month and a nearly 90% chance of a hike in December.

Disclaimer

No Kings but King Dollar

noreply@blogger.com (Marc Chandler) — Thu, 24 Sep 2026 06:44:48 -0400

The surge in US rates continues to underpin the greenback. The market anticipates a more aggressive tightening cycle than the Federal Reserve’s recent Summary of Economic Projections suggested. The Atlanta Fed’s GDP tracker points to 5.1% growth this quarter, which would surely surpass China’s. Treasury Secretary Bessent announced a two-month tariff truce extension with China, which is a little shorter than had been floated. Hopes of a settlement in the Middle East were dashed by Iranian comments threatening new escalation if the US or Israel strike again. Speculation that the US will impose a ban on diesel exports continues to unsettle the market.

Three G10 central banks met today. Norway’s Norges Bank increased the deposit rate by 25 bp to 4.5% and kept the door open to additional moves. The swaps market is pricing in another hike late this year or early next year. Sweden’s Riksbank kept its policy rate at 1.75% but indicated a hike this year was likely. The swaps market has around a 90% chance discounted for the next meeting in early November. The Swiss National Bank maintained its zero-policy rate, dropped the language in its statement that threatened “increased willingness” to intervene to sell the franc, and tweaked up its inflation forecasts.

Prices

G10

• US rates jumped after the stronger than expected preliminary September PMI and that succeeded in pushing the euro to $1.1370, a new low since July 28. The losses were extended to almost $1.1360 in Europe. It consolidates below $1.14, where options for 1.2 bln euros expires today. Indeed, the last session that the euro did not trade above $1.14 was on June 25, the day after it recorded the low for the year (~$1.1325). The July low was set slightly below $1.1355.

• Japanese markets opened for the first time this week and were greeted with the strongest dollar against the yen since September 3. The greenback reached JPY158.80, slightly above the 200-day moving average (~JPY158.45) in Europe today after mostly consolidated in the Asia Pacific session.

• Sterling was driven through the late July low (~$1.3275) and dropped to $1.3225 in the NY afternoon. It recorded a marginal new low today (~$1.3215) and still does not appear to have exhausted the selling pressure. Sterling settled well below the lower Bollinger Band (found near $1.3255 today) and has been capped there today. The next notable chart area is around $1.3200, where options for almost GBP660 mln of options expire today, though the low for the year was recorded on June 24, around $1.3140.

• The Canadian dollar fell by about 0.25% yesterday. It was the 10th decline in the past 11 sessions. The greenback traded above CAD1.4100 for the first time since late July. For the fifth time in the past six sessions, the US dollar settled above the upper Bollinger Band (found ~CAD1.4120 today). Options for almost $1.7 bln at CAD1.4100 expire today. The US dollar has held above CAD1.4095 today. The next chart point is around CAD1.4125-30.

• The Australian dollar fell by more than 1%, the most among the G10 currencies yesterday. Despite the disappointing flash PMI, the futures market marginally increased the likelihood of an RBA hike next week. It was sold through the $0.7040-50 area, which held various technical retracement targets. The Australian dollar settled well below the lower Bollinger Band (~$0.7040 today). Follow-through selling today scratched the 200-day moving average, which the Aussie had not traded below this year (~$0.7022 today). The $0.7000 area holds the (61.8%) retracement of the rally the late June low (~$0.6865) and options for about A$440 mln struck there, roll off today.

• The Mexican peso lurched lower yesterday. It dropped about 1.15%, the largest single day drop since January. The greenback reached MXN17.6055 and took out the highs from the second half of July. The US dollar settled above the upper Bollinger Band (~MXN17.49 today). The highs from late June/early July were around MXN17.6450-MXN17.6765. For the part of the past two weeks, the dollar has mostly been rangebound against the Brazilian real (~BRL5.10-BRL5.18). It approached the upper end of the range yesterday and the 200-day moving average (~BRL5.1760). Maybe the proximity of the tight presidential election is dampening the movement. Still, near-term risk may extend to the BRL5.20-BRL5.22 area. On the other hand, the greenback has jumped to its highest level against the Colombian peso since July 23. The dollar reached almost COP3309 yesterday. The next important chart area is around COP3325-COP3330.

• The dollar moved above its 20-day moving average (~CNH6.7110) against the offshore yuan yesterday for the first time since July 9. The greenback briefly traded above CNH6.7140, stalling slightly in front of last week’s high (~CNH6.7160). Follow-through buying today, lifted the dollar to CNH6.72. The month’s high is about CNH6.7265. The PBOC set the dollar’s reference rate higher for the second consecutive session (CNY6.7489 vs. CNY6.7468 yesterday).

• The dollar gapped higher against the Indian rupee today, and despite reports of onshore intervention, the dollar settled near its highs. It reached INR95.9660, its best level in five sessions. Higher oil prices and the greenback’s broad gains weighed on the rupee. This month’s high is near INR96.0965.

Other Markets

• Yesterday’s decline in US equity indices lent a sour tone to today’s activity. The Nikkei 225 gained, but the other Japanese equity indices fell as the markets re-opened. Outside the South Korea and New Zealand, most of the bourses in the region fell. India and China fell by more than 1.5%. Europe’s Stoxx 600 is off a little less than 0.5%, the same as yesterday. US index futures are heavy and underscore the risk of gap lower openings.

• Benchmark 10-year yields jumped 9-15 bp in Europe and North America yesterday, mostly after the stronger than expected preliminary US PMI. Asia Pacific markets played catch up today, with the 10-year JGB surging almost 11 bp as domestic markets re-opened from the extended holiday weekend. European yields are mostly 2-4 bp higher. The 10-year US Treasury yield is up around 2.5 bp to 5.14%. The US will buy up to $6 bln of longer-dated US Treasuries today. In the previous operation, when it also said it would buy up to $6 bln of 10-to-20-year bonds, it ended up accepting the offers for $5.2 bln. Yesterday’s $70 bln five-year note sale was poorly received, and it produced a large tail (higher auction yields than in the when-issued market). The bid-to-cover was weaker though the yield was around 64 bp higher than the last five-year sale. The US sells $44 bln of seven-year notes today.

• The rise in yields and the dollar did the precious metals no favor. Gold, which had approached resistance around $4400 before the weekend, was sold to almost $4275 yesterday and $4250 today, a five-day low. Silver’s ostensibly bullish outside up day on Tuesday went for nought yesterday. Silver was sold through Tuesday’s low and recorded the session low near $64.25 in the NY afternoon. It has been sold slightly below $63.50 today. Last week’s low was around $62.30.

• November WTI snapped a five-day decline yesterday and rose by about 2.4% and peaked slightly north of $93. It extended the gains to almost $94.70 today as bellicose rhetoric from Iran suggests a deal is not at hand. The $95.20 area is around the halfway mark of the sell-off since the September 15 high (~$101.70). President Trump reportedly indicated he was pushing for a 90-day ban on diesel exports saw prices for the fuel surge. US diesel exports reached a record near 2 million barrels a day in August.

Data

• US weekly jobless claims are likely to have bounced back last week after dipping below 200k during the Labor Day holiday week. August new home sales are expected to have edged up after dropping 10.5% in July. August building permits, initially estimated to have fallen by 2.7%, are subject to revision. The Q2 current account deficit will also be reported. It is expected to have widened from almost $227 bln in Q1 to around $257 bln. In the first quarter, the TIC data showed foreign investors bought about $275.5 bln of US financial assets. In Q2, the TIC data showed foreign investors accumulated another $344 bln of US stocks and bonds. Several Fed officials speak as well but we have already heard from Williams and Barkin. Hammock and Paulson are new, post-FOMC rate hike decision, and Summary of Economic Projections.

• Canada reports the establishment employment survey for July today. It follows a 4.8k increase in June. The markets tend to respond more to the household survey, but even that is often overshadowed by the US report. More importantly, July retail sales are due, and the median forecast in Bloomberg’s survey is for a 0.8% decline. It would be the first decline of the year and the largest since last September. Excluding autos, retail sales may have fallen by 0.5%, which would also be the first decline this year.

• Mexico reports its IGAE activity report for July, which functions like a monthly GDP. It fell in May and June, the first back-to-back monthly decline since March-April 2025. Separately, the CPI for the first half of September is due, and both the headline and core measures are likely to slip marginally. The session highlight is the central bank meeting. The overnight target rate is expected to be held steady at 6.50%.

• Australia grew 39.5 jobs in August. It lost almost 16k jobs in July. However, it lost full-time positions (6.3k) for the first time since April. The unemployment rate rose to 4.6% from 4.5%. It is the third consecutive monthly increase, and it is the highest since late 2021. The participation rate rose to 67.1 from 66.9%. It is the first reading above 67% since April 2025. The futures market is undeterred and is discounting around a 90% chance of a hike next week.

• Japanese markets re-opened for first time since last week. Japan’s preliminary September PMI, which typically does not spur much of a market reaction, was reported. For the record, the manufacturing PMI stands at 54.1 from 54.9, and the services PMI fell to 51.6 from 52.5. The composite PMI eased to 52.5 from 53.5.

Disclaimer

Greenback is Bid

noreply@blogger.com (Marc Chandler) — Wed, 23 Sep 2026 06:46:46 -0400

The US dollar is stronger against all the G10 currencies and most emerging market currencies today. The euro has approached $1.14, despite firmer than expected preliminary September PMI. Japan’s markets re-open tomorrow for the first time this week, and the market has taken the dollar to almost JPY158, around where it peaked before last weekend. Optimism about supply and talks has kept November WTI mostly consolidating today below $90 a barrel. Yet, interest rates are little changed.

The Trump-Xi summit is drawing much attention, but expectations seem relatively low. At most a short extension of the tariff truce may be seen but the current agreement doesn’t end until early November, so there is ostensibly no urgency. The central banks of Switzerland, Norway, and Sweden meet tomorrow. There has been a shift in recent days toward a Norges Bank hike tomorrow. A week ago, the swaps market had a little less than a 50% chance of a hike discounted, and now it is a little more than a 50% chance.

Prices

G10

• The euro’s losses were extended to $1.1430 yesterday and to slightly above $1.1405 today, a new low since late July. Options for 1.8 bln euros struck at $1.14 expire today. The $1.1400 area also holds the trend line drawn off the late June and late July lows. A break could signal a test on the $1.1350 area next.

• The dollar traded in about a yen range yesterday below JPY157.80. The high last Friday before claims that the BOJ checked rates circulated and spooked the market, the greenback briefly traded slightly above JPY158. The dollar has edged a little higher today to approach JPY158. Above there, resistance is seen in the JPY158.20 area and the 200-day moving average is near JPY158.45.

• Sterling was sold to almost $1.3320 yesterday and took another step down today and has slipped through $1.3280. which, like the euro, is the lowest since July 29. Options for almost GBP500 mln at $1.3315 expire today and may have contributed to some of the selling pressure. The sell-off does not appear exhausted, and the $1.3265-75 area is the next technical target.

• The Canadian dollar’s slump continues. It is at its lowest level since late July. The greenback rose slightly above the early August high (~CAD1.4080) yesterday and reached slightly above CAD1.4090 today. The US two-year premium over Canada rose by nearly four basis points approach 150 bp, the widest since March 2025, which itself was the most mid-1997. The next chart area of note is in the CAD1.4100-30 area.

• The Australian dollar traded below $0.7100 in local markets yesterday, and again in Europe, and then in North America. The dip was bought each time, but the Aussie recorded lower highs in each rebound. Today, the Australian dollar has fallen to $0.7080. Last week’s low was about $0.7075. A convincing break targets the $0.7045 area. Options for A$715 mln at $0.7050 expire today. The futures market has a little more than an 85% chance of an RBA hike next week and a 50% chance of another one before the end of the year. That seems a bit rich and the market may be forced to re-consider on any disappointment with tomorrow’s employment report.

• Long Mexican peso positions continue to get squeezed out. The greenback reached MXN17.3165 yesterday. Follow-through dollar buying today has seen the greenback rise to almost MXN17.40, its best level since late July. The US dollar has not traded above the 200-day moving average since April 2025. It is found near MXN17.42 today. The momentum indicators are getting stretched but they do not preclude a a move toward MXN17.55 on a break above MXN17.42.

• The dollar rose for the first time in four sessions against the offshore yuan yesterday. It was the first time in five sessions that the greenback did not trade below the previous session’s low. It reached a four-day high in Europe, near CNH6.7090. The 20-day moving average is a little above CNH6.71. The dollar has not settled above it since July 9. The PBOC fixed the dollar higher today for the first time in 11 sessions (CNY6.7468 vs. CNY6.7459 yesterday).

• The Indian rupee fell for the first time in six sessions today. The dollar opened lower (~INR95.5675) but recovered as the session progressed and settled near its highs. S&P and Fitch lifted FY27 growth to 7.0% and 6.9%, respectively, and anticipate at least one hike in the current fiscal year. The Asian Development Bank also lift its growth forecast (7% vs. 6.6% projection in July).

Other Markets

• Equities are mixed today. In the Asia Pacific regions, China, Hong Kong, and Singapore fell, while Taiwan, South Korea, Australia, and India rose, though the bourses finished well off their highs. Europe’s Stoxx 600 is off by around 0.2%, in what could be the first loss of the week. US index futures are narrowly mixed.

• Benchmark 10-year yields are narrowly mixed in Europe. The 10-year Gilt yield is off a little more than a basis point. The 10-year US Treasury yield is nearly flat, slightly below 4.96%.

• Gold recovered from a three-day low, a little below $4295 yesterday and returned to the $4360 area in the North American afternoon. It is trading inside yesterday’s range with a heavier bias today. Silver similarly was sold to a three-day low (slightly below $64.60) and recovered to settle above Monday’s high (~$67.05). The outside up day has seen no follow through buying, and silver is languishing in the lower end of yesterday’s range.

• November WTI fell for the fifth consecutive session yesterday. It settled at $100.75 on September 15 and closed near $90.50 yesterday. It settled below the 20-day moving average (~$90.55) for the first time since August 7. It is trading quietly unable to trade much above yesterday’s close but also holding above yesterday’s low (~$88.65).

Data

• US preliminary PMI may soften a little. The manufacturing PMI has been steady at 53.9 for the past three months. The services PMI rose for the past three months—from 50.7 in May to 56.5 in August. The composite also has increased for three months through August. It stands at 56.0 compared with 52.7 at the end of last year.

• The eurozone flash September PMI was firmer than expected. The manufacturing PMI was steady at 52.7. It has not declined since June. The services PMI rose to 53.0 from 51.6. It is a new high since last November. The services PMI finished last year at 52.4. The composite PMI reached 53.1 from 52.0, where it was in July and August. It ended last year at 51.5.

• The UK’s preliminary PMI was mixed. The manufacturing rose to 52.0 from 51.7. The services PMI slipped to 51.7 from 52.5, as did the composite PMI. The composite was at 51.4 at the end of last year.

• Australia’s PMI disappointed. The manufacturing PMI fell to 49.3 from 52.0. It was the first sub-50 reading since March. The services PMI eased for the second consecutive month. It stands at 51.4, down from 53.2 in August and 53.6 in July. The composite also slipped for the second consecutive month. It is at 50.8, down from 52.7 in August and 53.2 in July. It was at 51.0 at the end of 2025.

Disclaimer

Plaza Agreement, R.I.P.

noreply@blogger.com (Marc Chandler) — Tue, 22 Sep 2026 09:18:15 -0400

The Plaza Agreement turns 41 today. The anniversary is worth remembering not simply because it was one of the great episodes of coordinated foreign-exchange policy, but because it is increasingly being invoked as a template for a new agreement to force the Chinese yuan higher.

That analogy is appealing. It is also misleading.

The Plaza Agreement was struck by the US, Japan, West Germany, France and the United Kingdom at New York's Plaza Hotel on September 22, 1985. The goal was clear. The dollar had become too strong, and a more orderly alignment of currencies was desirable to arrest the protectionist push in the US.

The Reagan-Volcker policy mix was a powerful part of the explanation of the extreme dollar over-valuation at the time. Expansionary fiscal policy combined with tight monetary policy produced high US interest rates and attracted foreign capital into dollar assets. The federal deficit approached 6% of GDP while the federal funds rate had been around 20% in 1981.

There is an important wrinkle to the popular version of the story. The dollar had already begun to decline before the agreement. Indeed, central banks had been intervening against it for months. The dollar fell sharply immediately after Plaza, but the agreement reinforced a trend that was already underway.

That history matters today.

The case for a new Plaza rests on a superficial similarity. China has a huge trade surplus, the yuan is widely viewed as undervalued, and the United States and Europe would like China to rely less on exports and more on domestic demand. Some have proposed coordinated pressure to force the yuan higher.

But Japan in 1985 and China in 2026 are not remotely in comparable bargaining positions.

Tomomitsu Oba, Japan's vice finance minister for international affairs and one of the principal Japanese negotiators, later offered an unusually candid explanation of why Tokyo yielded. Japan's economic rise had occurred under the protection of the U.S.-Japan security alliance. Oba understood that strategic dependence constrained Japan's freedom of action. In his later recollection, Japan felt it had to accommodate Washington.

China has no comparable dependency.

Quite the opposite. Beijing has acquired leverage over supply chains that Washington and Europe cannot easily replicate. Consider rare earths. China accounted for about 60% of global mined magnet rare earths in 2024, roughly 91% of refining and an extraordinary 94% of sintered permanent-magnet production. These are not commodities sitting at the beginning of a supply chain. They are embedded in the technologies of automobiles, wind turbines, industrial machinery, data centers and defense systems.

Rare earths are only the most obvious example. China occupies important positions across a broad range of manufacturing supply chains, from low-value-added goods to increasingly sophisticated machinery, electronics, batteries and clean-energy equipment. Its leverage is therefore not merely financial. It is industrial.

That makes the threat of coordinated pressure very different from 1985. Push too hard on the yuan and Beijing can push back somewhere else. The blowback would not necessarily be a stronger yuan and a smaller trade imbalance. It could be higher input prices, disrupted production and weaker growth in the United States and Europe.

There is another problem. The G7 does not command the global economy the way the G5 did in 1985. Developing countries have their own interests. Many have benefited from access to inexpensive Chinese manufactured goods and Chinese capital. They are unlikely to automatically join a Western campaign designed to constrain China's competitiveness.

If the US and its allies cannot force China to appreciate the yuan is there nothing that can be done? The political realist solution is to find a way to make appreciation serve China's interests.

There is a historical precedent. In the 1950s and 1960s, the US gradually shifted from an export-oriented economy toward one in which American companies increasingly invested in points of production capacity abroad. Japan eventually followed a similar path. As the yen appreciated and trade friction intensified, Japanese companies increasingly moved production offshore. Foreign direct investment became an alternative to exporting from Japan.

Today Japan runs a trade deficit.

That is the more interesting lesson from Plaza. Currency appreciation was not, by itself, the solution. The deeper adjustment came from changing where production occurred and how national companies served foreign markets.

China should be allowed to pursue the same course. Encourage Chinese companies to invest abroad. Allow excess industrial capacity to become foreign direct investment rather than ever-larger export volumes. Give Chinese capital a path from exports to ownership.

That would also begin to align Beijing's interests with a stronger yuan. A Chinese company building a factory in Mexico, Europe or the US has a different relationship with the exchange rate than a Chinese exporter shipping another container from Shenzhen.

A new Plaza based on compulsion is likely to produce resistance. A quid pro quo based on an accommodation that produces more jobs and economic activity in the US and Europe has a better chance of success. The objective should not be to make China surrender. It should be to make a stronger yuan compatible with China's own economic evolution.

(with the assistance of Adam Farhat, a graduate student at Sussex)

Disclaimer

Lower Oil Prices Could Help Snap the Nearly Two-Week Rise in the US Two-Year Rate

noreply@blogger.com (Marc Chandler) — Tue, 22 Sep 2026 06:46:52 -0400

Ahead of the North American session, the US dollar is mostly a little softer. It has initially extended its gains in the Asia Pacific session, where Japan is still on holiday, but has retreated in the European morning. Optimism about the amount of oil making its way through the Strait of Hormuz and pipelines has seen November WTI extend the pullback that began last week after the foray above $100. It approached $89.25 today, its lowest level in two weeks. It is weighing on yields, and the US two-year note yield is threatening to fall for the first time since September 3.

Neither of the US two new initiatives have impacted the broader markets. First, the deal struck with Denmark/Greenland do not appear to give the US anything it did not have under the earlier agreement. That foreign countries cannot have bases there seems to affirm what is already taking place on the ground. Second, the idea that the US-China have a framework for an AI dialogue seemed to have been agreed upon in May. Both sides seem to be slow walking it. Notifying each other about AI incidents that threaten national security seems to be a minimal step.

Prices

G10

• The euro approached $1.15 in early North American turnover but was quickly beaten back. There are almost 4.4 bln euros in options that expire at $1.15 between today and Thursday. New session lows were recorded midafternoon in NY, near $1.1460 and follow-through selling today took out last week’s low, recorded before the weekend, was slightly above $1.1450. It fell to about $1.1435 in early European turnover before it bounced back to almost $1.1470. .

• Japanese markets are closed today and tomorrow for national holidays. The dollar firmed to almost JPY157.55 yesterday and reached the session high in the North American session. The greenback reached almost JPY157.80 before being sold in the European morning to the session low near JPY156.85. Options for about $925 mln at JPY157 expire today. Yesterday’s low was slightly below JPY156.60. A move below that would weaken the dollar’s technical tone.

• Sterling sellers lurked around $1.34 yesterday and turned sterling back in early North American activity. It was squeezed to around $1.3365. It took it out today and fell to almost $1.3325 before catching a bid in early European turnover that lifted sterling back to around $1.3370. Options for about GBP325 mln struck at $1.3380 expire today.

• The Canadian dollar weakened by about 0.25% against the US dollar yesterday and fell to its lowest level since August 6. The greenback reached nearly CAD1.4040 and edged up to CAD1.4050 today, the (61.8%) retracement of the US dollar’s losses since the test on CAD1.4250 in late June and early July. The US two-year premium over Canada rose to a new high since May 2025 (~146 bp). A move above CAD1.4050 targets the CAD1.4080-CAD1.4100 area next.

• The Australian dollar traded sideways yesterday. The session high was recorded in early North American turnover, near $0.7140. It pulled back and found support around $0.7120. It traded below $0.7100 today for the first time in three days and approached $0.7090. Options for almost A$500 mln at $0.7100 expire today. The Aussie recovered in the European morning to around $0.7120.

• The dollar traded in a narrow range against the Mexican peso. It was confined to about MXN17.1850 to almost MXN17.24. It rose above last week’s high (~MXN17.2750) today and reached MXN17.2915 before steadying. Options for about $600 mln at MXN17.30 expire today. The next chart area of note is around MXN17.40. None of the 17 economists surveyed by Bloomberg expect the central bank to change its 6.5% overnight rate target at Thursday’s meeting.

• The dollar was sold to a new low since mid-July 2022 yesterday, near CNH6.6910. It has held slightly above there today and recovered to about CNH6.7035. The offshore yuan has risen in only two weeks here in Q3. It rose in five weeks in Q2. The signal from the PBOC is clear: Beijing is accepting a mild appreciation of the yuan. The PBOC set the dollar’s reference rate lower for 10th consecutive session today (CNY6.7459 vs. CNY6.7487 yesterday). The IMF estimates that the yuan is around 16-21% undervalued. Some economists estimate it is 20-30% undervalued. Over the past 12 months, the yuan has appreciated nearly 6.25%.

• The decline in oil prices appeared to help strengthen the Indian rupee today. It reached a six-day high. The dollar has drifted lower for the fifth consecutive session today. It settled below INR95.60 for the first time since September 11. Nearby support is seen in the INR95.34-INR95.37 area.

Other Markets

• The US major equity indices traded firmly yesterday and settled above opening levels. The Nasdaq Composite (~2.3%) and the S&P 500 (~1.5%) rose by the most since early August. Asia Pacific equities were narrowly mixed, while Europe’s Stoxx 600 is about 0.35% better and a higher close today would be the fourth in five sessions. US index futures are slightly firmer.

• Benchmark 10-year yields tumbled in the Europe and North America yesterday, but Asian bonds were narrowly mixed today. European 10-year rates are mostly 2-3 bp lower but the 10-year Gilt is off three basis points, and the French benchmark is flat. With the effective Fed funds rate (weighted average) of 3.88% and expectations priced into the Fed funds futures of three more hikes in the cycle, a 4.70% two-year Treasury yield does not seem particularly high.

• Gold was unable to find much traction yesterday, despite the pullback in rates. At the low, it had retreated by about $55. It managed to pare its losses in late turnover but was sold today below $4300 in early European turnover before it bounced back to almost $4340. It needs to reestablish a foothold above $4400 to improve the technical tone. Silver stalled slightly above $67 and a little below the last week’s high recorded before the weekend (~$67.35). It was sold slightly through $64.60 today before steadying. It reached the $65.50 area near midday in Europe.

• Optimism dragged November WTI down to around $91.20 yesterday, its lowest level since September 9. Follow-through selling pushed the contract to $89.30 today and below the 20-day moving average (~$90.50) for the first time in nearly a month. If, technically, the rally from the late August low is being retraced, the $90.10 area was the halfway mark, and $87.40 is the (61.8%) retracement objective.

Data

• In a fairly light data week ahead of next week’s US employment report, the Philadelphia Fed’s non-manufacturing survey and the Richmond Fed’s survey are unlikely to capture the market’s imagination today. The Fed reports are unlikely to have a material impact on expectations for next month’s Fed meeting. Several Fed officials speak today (Williams, Jefferson, and Barkin). The futures market has slightly more than a 50% chance of another quarter point hike. The Atlanta Fed’s GDP tracker sees 5.1% growth this quarter, which would likely exceed China’s. It will be updated at the end of the week.

• Mexico reports July retail sales today. While we have noted the strength of Mexico’s external account, the domestic economy continues to struggle sustaining forward momentum. Retail sales have been flat in H1 26 after they increased by about 1.8% in H1 25. They fell by 0.6% in May and slipped another 0.2% in June. The median forecast in Bloomberg’s survey for July anticipates a flat report.

• The UK reported August government finances. The UK borrowed more than anticipated in the first five months of the fiscal year. The GBP77.3 bln shortfall is a little more than GBP8 bln more than projected by the Office for Budget Responsibility in March. The deterioration was the result of the increase in the cost of goods and services, as revenue was solid. The next important development is the fall budget at the end of next month. Ahead of the budget, sterling has tended to weaken in September. Sterling has declined in five of the past six Septembers and is off a little more than 1.3% so far this month. The 10-year Gilt yield has risen by about 12 bp this month.

Disclaimer

PBOC Lifts Yuan Further While Greenback Consolidates and Oil Tumbles

noreply@blogger.com (Marc Chandler) — Mon, 21 Sep 2026 06:47:35 -0400

The US dollar is mostly consolidating in narrow ranges against the G10 currencies. Japanese markets are closed until Thursday, and despite the softer rates the yen is off about 0.20% through the European morning to rival the Canadian dollar as the weakest among the major currencies. The economic diary is light today and tomorrow, ahead of Wednesday’s flash September PMI. Meanwhile, the preliminary talks ahead of this week’s Trump-Xi meeting seemed to reach a framework agreement for AI talks, but no agreement was reached, according to reports, on the extension of the tariff truce that expires in November. Still, the PBOC campaign of strengthening the yuan via the fix continued today for the ninth consecutive session.

October WTI is lower for the fourth consecutive session, the longest pullback since June. US Central Command reports that crude oil and liquified natural gas flows through the Strait of Hormuz are running at six-month highs. The drop in oil prices appears to be helping bonds in Europe and the USD recover from last week’s slide and buoying equity markets.

Prices

G10

• The euro consolidated in choppy trading within the previous day’s range before the weekend. It is confined to an exceptionally narrow range so far today of less than a fifth of a cent range above $1.1470, where options for 1.16 bln euros expire today. Nearby support is seen around $1.1450 and a break could spur a move to $1.1400. A convincing move above $1.1500 could help stabilize the tone after last week’s1% loss, the largest in a little more than three months. German state election results saw the CDU fail to secure parliament representation in Mecklenburg-Vorpommern, which saw the AfD apparently win their second state election. In Berlin, the Left Party saw its support nearly doubled to secure the most votes. Still, forming local governments will take some time, and Chancellor Merz has pledged to stay on

• Seemingly much to the surprise of the US Treasury, the yen was sold after the BOJ hiked rates ahead of the weekend. Rising US rates, arguably trumped the well telegraphed BOJ move. Moreover, as we noted, the New Zealand dollar and euro were sold following their respective rate hikes. The dollar’s response to the FOMC hike was the exception. The dollar peaked a little above JPY158 in the Europe before the weekend, and talk that the BOJ checked rates, saw it pullback to around JPY156.50 in the North American afternoon. Japanese domestic markets are closed until Thursday, and the market is wary of intervention given the nearly 3.5%-dollar rally in the past nine sessions. The greenback is consolidating between about JPY156.60 and JPY157.30. Options for nearly $2.3 bln at JPY157 expire today.

• Sterling snapped a four-day slide ahead of the weekend. Its 1% decline last week was still the largest since mid-June. Sterling recovered from $1.3335, its lowest level since late July to reach new session highs in the North American afternoon. Still, was unable to take out the previous session high ($1.3405). It is trading between ~$1.3370 and $1.3395 so far today.

• The Canadian dollar stabilized ahead of the weekend but only after falling to its lowest level since early August. The greenback reached CAD1.4015, and the gains were extended to almost CAD1.4025 today. The next technical target is around CAD1.4050. The US two-year premium over Canada ended last week above 142 bp, the most in about two months.

• The Australian dollar remained within last Wednesday’s range (~$0.7075-$0.7150) for the second consecutive session ahead of the weekend. Still, it settled firmly—its highest settlement in three sessions and above the five-day moving average (~$0.7115 today) for the first time since September 9. Yet, it is little changed within the pre-weekend range today.

• The Mexican peso entered a new a lower trading range last week. The greenback rose to almost MXN17.19 at the start of last week. After the Fed hike, the dollar reached almost MXN17.2750 before consolidating with firmer bias ahead of the weekend. It is trading quietly today between about MXN17.19 and MXN17.24.

• Ahead of the weekend and encouraged by the PBOC dollar’s fix, the offshore yuan settled at its best level since early July 2022. The greenback has edged a little lower today to reach almost CNH6.6930. Officials have lowered the dollar’s fix for nineth consecutive today. The nearly two-week campaign has barely elicited a comment from the China First camp. The dollars’ reference rate was set at CNY6.7487 today (CNY6.7521 at the end of last week and CNY6.7828 at the end of August).

• The continued pullback in oil prices and firmer stock prices failed to do more than steady the Indian rupee today. The dollar consolidated within the pre-weekend range (~INR95.7135-INR95.9050).

Other Markets

• US equities were narrowly mixed ahead of the weekend. The S&P 500 fell for the second consecutive week, while the Nasdaq composite eked out a small gain. The MSCI Asia Pacific Index also fell for the second consecutive week, while Europe’s Stoxx 600 fell for the third consecutive week. Japan’s markets are closed until Thursday, but the other large bourses in the region rose today, with Hong Kong, Shenzhen, Taiwan, and South Korea rising more than 1%. Europe’s Stoxx 600 is up nearly 1% in late morning turnover. The Nasdaq Composite future is up a little more than 1%, while the S&P 500 is up nearly 2/3 of 1%.

• Benchmark 10-year yields jumped in Europe at the end of last week. The 10-year French yield jumped 12 bp and appeared to drag peripheral premiums over Germany wider. The US 10-year yield rose a little more than six basis points hovered near 5%, while the two-year yield rose almost 8 bp to a new high since July 2024 (~4.75%). DBRS, the fourth major rating agency tracked by the ECB cut the French outlook to negative ahead of the weekend and Moody’s cut Poland’s rating to A3, which is equivalent to the A- rating of S&P and Fitch. The new week has begun with a sharp pullback in European yields. French and Italian benchmark yields are off 10-12 bp, while most other yields are 6-8 bp lower. The yield on the US 10-year Treasury is off a little more than four basis points to 4.95%, and the two-year yield is off about 2.5 bp to 4.72%.

• Despite the rising yields, gold posted its highest close in a week-and-a-half (~$4383). It stalled in front of $4400 and pulled back to about $4340 today. Silver also posted its best settlement in a week-and-a-half ($66.50). It has also pulled back today to about $65.75.

• October WTI peaked early last week, near $106.75, and settled below $100 before the weekend. The 2.2% drop before the weekend was sufficient for the contract to snap a two-week 19% rally. The heavier tone has carried into today’s activity. October WTI has been sold to a seven-day low slightly below $97.70. The $96.40 area corresponds to the (38.2%) retracement of the leg up that began in late August.

Data

• With last week’s FOMC decision behind us, public speeches by Fed officials resumed. Governor Bowman spoke on bank stress tests last week and KC Fed President Schmid (non-voter this year) addressed payments and banking ahead of the weekend. Chicago Fed’s Goolsbee, who also does not vote this year, speaks today on monetary policy. NY Fed President Williams (NY Fed President always has a vote) delivers the keynote address at the Treasury Market Conference tomorrow. As the vice chairman of the FOMC, the NY Fed’s views are often aligned with the Fed’s leadership. Richmond Fed President Barkin (non-voter this year) speaks tomorrow at the CFA Society in Baltimore.

• As widely anticipated, Chinese banks kept the loan prime rates steady at 3.0% and 3.50% for the one-year and five-year tenors, respectively.

Disclaimer

Week Ahead: Trump-Xi Meeting Highlight

noreply@blogger.com (Marc Chandler) — Sat, 19 Sep 2026 07:10:00 -0400

The near-term dollar movement continues to be sensitive to changes in US rates. The Federal Reserve delivered the quarter-point hike that was widely anticipated by a unanimous decision, and still the two-year yield rose a little more than eight basis points on the week, with the bulk coming ahead of the weekend, even though the US reported an unexpected decline in August industrial output and manufacturing production. The yield increase was also more than the other high-income countries. The US 10-year yield was more restrained. It was off about six basis points coming into Friday's session, when it rose around seven basis points. The Bank of Japan hiked, as well and the two-year yield rose a little less than a single basis point last week, while the 10-year JGB yield fell by two basis points. The dollar rose by about 2% against the yen last week, its largest advance since October 2025.

With major central bank meeting over (the Swiss National Bank, Sweden and Norway's central banks meet, on September 24, all three are expected to stand pat) and a quieter week of high-frequency data, political events may become more salient. Germany has two state elections on September 20, and another strong showing by the AfD could weigh on the euro as pressure on French finances have seen the French premium over Germany widen beyond 100 bp for the first time since 2012. The Trump-Xi meeting at the end of the week is unlikely to focus on the exchange rate. The clear signal Beijing has sent through the daily fix has allowed the yuan to be among the strongest currencies this year, despite the US 10-year premium over China widening to a record of more than 330 basis points. Trade, rare earths, and Iran seem more salient.

USA

Drivers: The US continues to seem to be among the best positioned to deal with the shocks of higher oil prices and higher yields. The above 5% growth the Atlanta Fed projects for Q3 gives more cushion than others enjoy. The US dollar continues to track US rates. The rolling correlation of changes in the Dollar Index and the US two-year yield is a little above 0.55. It has rarely been above 0.60 over the past three months. With three more rate hikes discounted over the next year, the pendulum of sentiment has swung quite far and without more significant data (e.g., employment and inflation), there may be little scope to swing further.

Data: US data will help solidify expectations for Q3 US GDP. There is a wide divergence between the Atlanta Fed's GDP tracker, which sees growth accelerating to 5.1%, and the Bloomberg survey of economists, where the median forecast is for 2.5%, after the disappointing 1.5% annualized Q2 pace. The preliminary September PMI is the most important of the survey data out, which includes several regional Fed surveys. In August, the composite PMI was at its best level in four years. The manufacturing PMI has been steady at 53.9 for the past three months, and May's 55.1 reading was the best in four years. The services PMI, at 56.4 is at its best level since the end of 2024. The US also reports the Q2 current account deficit. Recall that in first quarter, the US current account deficit was almost $227 bln. Despite talk of "sell America”, the TIC data showed foreign investors bought $275.5 bln worth of US bonds and stocks. The TIC data for Q2 showed foreign investors accumulated another $342.2 bln of US paper assets.

Prices: The Dollar Index reached slightly above 100.55 ahead of the weekend, its best level since late July and the (61.8%) retracement of the decline from the year's high (~101.80 on June 24). It has risen in seven of the last eight sessions. The momentum indicators are constructive; however, the Dollar Index settled above the upper Bollinger Band (~100.35) for the third consecutive session ahead of the weekend. With initial support around 100.00, the next resistance area may be around 101.00.

EMU

Drivers: The derivatives markets are pricing in slightly more aggressive Fed tightening compared with the ECB through the middle of next year. Germany holds two more state elections on September 20. In Berlin, the Left Party and the CDU are in virtual tie, but the Afd is giving the SPD a run for its money in Mecklenburg-Western Pomerania. It may take a while, as we see in Saxony-Anhalt, to cobble together a coalition that will be necessary, though by early October, it will be clearer. Still, the rise of the AfD will affect national politics. The CDU "firewall" strategy appears to have failed, and Chancellor Merz may bear the price.

Data: The preliminary PMI on September 24 is the highlight. The August composite was flat at 52.0. It finished last year at 51.5 and in April and May eased below the 50 boom/bust level before it ended H1 at 50.0. There seemed to be little clue that the eurozone economy would grow 0.6% quarter-over-quarter in Q2, the strongest since Q2 22. Despite paying a premium for energy over the US, the eurozone manufacturing PMI rose to 52.7 in August, a four-year high. It was at 48.8 at the end of 2025. The August services PMI was at 51.6, after it reached a five-month high of 51.7 in July. It ended last year at 52.4 and has not been above 51.9 this year. At the end of the week, the eurozone reports August money supply growth. Previously, the market seemed more sensitive to this report than now. For the record, M3 grew 3.4% year-over-year in July, matching its strongest pace since May 2025.

Prices: The euro was sold through $1.15 in the middle of last week and was unable to reclaim it. A break below $1.1450 targets the $1.1400 area when the trendline connecting the June and July lows can be found. Resistance is seen in the $1.1500-20 area, but it may require a move above $1.1555 to boost confidence that a low is in place.

PRC

Drivers: Even during the recent bout of dollar strength, the PBOC, through the daily dollar fix, signaled willingness to accept a gradually appreciating yuan. The rolling 30-day correlation between changes in the Dollar Index and changes in the dollar against the offshore yuan has eased to about 0.55 from a two-and-a-half month high in early September near 0.75. Some observers claim this is being done purposely ahead of the Trump-Xi meeting on September 24.

Data: Chinese banks set the one- and five-year loan prime rates. Without fresh signals from the PBOC, they are likely to remain at 3.0% and 3.5%, respectively.

Prices: After the high-yielding, Colombian peso (~+18.5%), Brazilian real (~+6.3%), and the Mexican peso (~+4.8%), the Chinese yuan is the strongest emerging market currency (~+4.3%). This still seems like small change given the magnitude of the cost advantage China enjoys and the magnitude of the under-valuation (on various models). The idea that state-owned banks are intervening on behalf of the central bank distracts from the real signal generated by the daily setting of the dollar's reference rate. The dollar was sold through CNH6.70 at the end of last week. It took nearly two months to do so after falling below CNH6.80. The next psychological and technical area of note is CNH6.60, and the dollar has not traded below it since April 2022.

Japan

Drivers: Changes in US rates continue to be more correlated with the changes in the dollar against the yen than Japanese interest rates. That said, the swaps market is discounting a strong chance (~85%) of another hike before the end of the year and another by end of April 2027. Despite rising rates at home, and talk of repatriation, Japanese investors have been buyers of foreign bonds since the intervention in late July. Indeed, in the six weeks of Ministry of Finance data since the end of July, Japanese investors bought JPY2.3 trillion (~$14.6 bln) of foreign bonds compared with net sales of almost JPY1.2 trillion of foreign bonds in the previous six weeks. The rolling 30-day correlation of changes in the dollar-yen and the US two-year yield is near 0.50, the highest since early July. The rolling 30-day correlation of changes in the exchange rate and Japan's two-year yield is around -0.10. The correlation (30-day) between changes in the exchange rate and the two-year interest rate differential is a little above 0.45.

Data: In aftermath of the BOJ rate hike, things turn quiet with Japanese markets closed for the next three sessions. Japanese officials may have put the markets on notice by checking rates before the weekend. Still, the yen was the weakest G10 currency before the weekend and for last week as a whole. The main data point, the preliminary September PMI, does not typically capture the market's attention. Still, the August composite PMI was at 53.5, a six-month high. Yet, the Japanese economy does not appear to be accelerating. In fact, Q1 GDP of 1.9% annualized may be the peak for some time. Growth ticked down to 1.4% in Q2 and is expected to be around 1.1% in H2 26 before slipping below 1% in H1 27. Seemingly helped by demand for AI-related products, Japanese manufacturing PMI has been strong. After finishing last year at 50.0, it rose to 55.1 in April and was at 54.9 in August. New orders, however, rose and were at their highest level since January 2018. Services have not fared as well. The PMI stood at 52.5 in August, its best level since March, and it peaked at 53.8 in February.

Prices: The dollar jumped over 2% against the yen ahead of the weekend and after the Bank of Japan delivered the widely anticipated rate hike before pulling back and settled about 0.50% better. The greenback briefly traded above JPY158 for the first time since September 2 but finished below JPY157, amid heightened anxiety about potential intervention next week. Initial support may be in the JPY156 area.

Drivers: As expected, the Bank of England delivered a hawkish hold. The swaps market as a hike nearly fully discounted (~88%) for the next meeting in early November. Yet, as we have noted before, changes in sterling are inversely correlated with higher UK rates. The rolling 30-day correlation is around -0.07. It has not been positive since early April. The 30-day correlation between the exchange rate and the US two-year yield is near -0.40. Talk about Wales and Scotland seeking independence seems a bit exaggerated, though the cost to England would be great. It would seem to make sense only if they could join the EU, and that requires a unanimous decision. Given the separatist movement in Spain, for example, a Spanish veto would seem highly likely.

Data: The main reports in the coming days are the government finances (August) and the preliminary September PMI. The rise in interest rates boosts debt servicing costs and eats up more of the government's fiscal cushion, which in turn puts more pressure on next month's Fall budget. The UK economy is off to a solid start in Q3. July monthly GDP rose by 0.4% (median forecast in Bloomberg's survey was for no growth). AI-related activity seemed to be an important catalyst. The composite PMI averaged 52.3 in July and August compared with the 50.5 average in Q2. The manufacturing PMI has slowed since peaking at 53.9 in May. It stood at 51.7 in August, a five-month low. Smaller companies reported weaker output, while medium and larger manufacturers were benefiting from the expansion. The services PMI stood at 52.5 in August, though down from the preliminary reading of 52.8, is still the best since April, though new business slipped.

Prices: Sterling looked weak before the recovery in North America ahead of the weekend. It reached new a new session high slightly below $1.34 and stalled in front of Thursday's high (~$1.3405).Initial resistance may be encountered in the $1.3400-10 area. The key breakdown took place in the middle of last week when sterling was sold through the June-July and mid-September trendline. It also settled below the 200-day moving average for the first time since late July. A possible head and shoulders topping pattern may have been completed with sterling sold through the neckline (~$1.3475). The minimum objective is around $1.3275. Sterling's losses have begun stretching the momentum indicators, and for the third consecutive session ahead of the weekend, sterling settled below its lower Bollinger Band (~$1.3360).

Canada

Drivers: President Trump said a trade deal with Canada could be struck "fairly soon", and while trade talks continue, Canada does not seem to be waiting. Prime Minister Carney has a two-prong strategy. One is integrate more with the EU. Canada and the EU struck an agreement in 2017 (Comprehensive Economic and Trade Agreement), but only 17 EU members have ratified it. Second, is a neoliberal domestic agenda (reduce net immigration, a 10% reduction in federal civil service, cuts in capital gains and corporate taxes, and expanding the major investment tax write-off for targeted sectors, including oil and gas pipelines, oil production equipment, mining property, aircraft, fiber optics, computer equipment and infrastructure). Changes in the US dollar against the Canadian dollar remain strongly correlated with changes in the US two-year interest rate difference with Canada (~0.72 for the past 30 sessions, the highest since the end of 2017) compared with ~0.45 correlation with changes in the US two-year yield and around -0.15 correlation between the exchange rate and Canada's two-year yield.

Data: Unlike the US, which reports the establishment and household labor market survey at the same time, Canada separates the two reports. Yet, like the US, the two surveys are not always sending the same signal. In June, the household survey showed a loss of about 18k jobs, while the establishment survey reported a gain of 4.8k jobs. In July, the household survey showed a gain of 75.1k jobs. The establishment survey for July will be reported September 24. In the first six months of the year, the household survey showed a loss of about 6.3k jobs, while the establishment survey showed a 120.6k increase. Canada also reports July retail sales. Retail sales were robust in Q1 (average monthly gain of 0.9%) and in Q2 (average monthly gain of 0.7%). That is the strongest since the H2 24. Consumption rose 3.3% at an annualized rate in Q2 after a 2.4% increase in Q1. However, the risk is that consumption slows over the next several quarters.

Prices: The US dollar has risen against Canadian dollar for eight consecutive sessions, during which time the greenback has appreciated by almost 1.7%. Over the run, the US two-year premium over Canada has widened by about 16 bp. Some of the momentum indicators are getting extended, and the greenback has been trading on both sides of the upper Bollinger Band (~CAD1.40). The next technical target may be around CAD1.4050. Initial support is seen in the CAD1.3965-75 area.

Australia

Drivers: Australia's overnight cash rate target of 4.35% sits atop the G10. The futures market is discounting a 90% chance that the fourth rate hike of the year will be delivered at the end of this month, and another one is priced in for Q1 27. The rolling 30-day correlation of changes in the Australian dollar and the Dollar Index is around -0.68. It has been fairly stable since late June.

Data: Australia reports on August labor market and S&P provides the preliminary estimate of September PMI. Australia's composite PMI warns the economy may be strengthening here in Q3. The average composite reading was 53.0 in July and August. It averaged 49.6 in Q2 and 49.5 in Q1. Despite the three rate hikes in H1 26, Australia's job creation has accelerated this year compared with 2025. In the first eight months of the year, Australia grew an average of 25.4k jobs a month, of which 21.8k were full-time positions. Australia created an average of 11.3 jobs a month in the Jan-Aug 2025, and 7.6k were full-time posts. Yet, the job growth has not kept pace with the increase in the labor force. The unemployment rate was 4.5% in July (4.1% at the end of 2025). The participation rate was 66.9% in July compared with 66.7% at the end of last year.

Prices: The Australian dollar fell last week, and it is the first back-to-back weekly decline in the end of Q2. It fell to about $0.7075 in the middle of last week. The attempt to rally at the end of the week was blocked near $0.7135, which marks the (38.2%) retracement of the decline since the September 9 high (~$0.7240). The momentum indicators are falling but with plenty of room to run. A convincing break of the $0.7075 area targets $0.7045 next, with risk extending toward $0.7000.

Mexico

Drivers: The US dollar tends to rise against the Mexican peso when Mexico's short-term rates rise. The 30-day correlation is around 0.25. The 30-day correlation of change in the dollar against the peso and changes in the US two-year yield is slightly more than twice as much. Still, as we have noted, the peso acts a better proxy for emerging market currencies (e.g., the JP Morgan Emerging Market Currency Index) than the Dollar Index (~-0.80 vs. 0.63)

Data: The highlight of the week is Mexico's central bank meeting on September 24. The central bank has signaled an extended pause, but the swaps market has around a 50% chance of a hike discounted. The Fed’s rate hike may make it a closer call. A few hours before the central bank announces its decision, Mexico will report the IGAE Activity for July, which serves the function of a monthly GDP report. It contracted in May and June, the first back-to-back decline since March-April 2025. Recall that the Mexican economy contracted by 0.3% in Q1 (quarter-over-quarter) but recovered smartly in Q2 (1.4% quarter-over-quarter). At the same time, Mexico's CPI for the first half of September is due. Headline inflation has gradually fallen from above the upper end of the 2-4% target range to near 3% (3.26% in the second half of August). The core rate is stickier. It stood at 3.83% at the end of August, its lowest level since the second half of March 2025. On September 22, Mexico reports July retail sales. They fell in both May and June, for a small net decline over the quarter. Retail sales rose slightly in Q1.

Prices: The dollar's upside correction against the Mexican peso does not look complete. The nearly 1.7% rally last week was the largest dollar advance since early March. The greenback reached almost MXN17.2750. The positioning of the momentum indicators gives it more scope, though the dollar settled above the upper Bollinger Band ahead of the weekend (~MXN17.2350). A move above MXN17.28 targets MXN17.37-MXN17.40 next.

Disclaimer

Bank of Japan Hikes and Yen Tumbles

noreply@blogger.com (Marc Chandler) — Fri, 18 Sep 2026 06:54:53 -0400

The US dollar is narrowly mixed against most of the G10 currencies. The notable exception is the Japanese yen, which is around 1.25% lower today. To be sure, the Bank of Japan lifted its overnight rate, as widely expected, and Governor Ueda seemed to signal a faster pace on policy adjustment. Still, the decision was made on a 7-2 vote, and the odds of a December move were trimmed, though still above 80%. Meanwhile, the PBOC continued to signal acceptance of a stronger yuan and fixed the dollar lower for the eighth consecutive session, and to a new three-year low. President Trump and Xi meet next week but other issues than foreign exchange, like trade, AI, and the war in Iran are arguably more salient.

Two German states hold elections this weekend and the AfD is running strong in one. Coalitions take time to work out and the election a couple of weeks ago in Saxony-Anhalt has not yet resulted in a new government, which could take another week.

Prices

G10

• The euro consolidated yesterday in about a half-of-a-cent range below $1.15. Although it rose for the first time in six sessions, the gains were subdued. It is trading quietly today in less than a quarter-cent range below $1.15, where options for nearly 2.2 bln euros expire today.

• After the widely expected BOJ rate hike the dollar jumped to JPY158 after it settled below JPY156 yesterday. The dollar fell against the Japanese yen yesterday for the first time this week. The 10-year US Treasury yield snapped a seven-session advance yesterday, falling eight basis points. That was its largest decline in nearly three months. The 200-day moving average is near JPY158.40, which is also around the (50%) retracement of the dollar’s losses since the late July highs. The rolling 30-day correlation between the change in Japanese two-year rates and the dollar-yen exchange rate has been mostly positive since the end of Q1 but is now slightly inverse (~-0.05). This suggests that even having “asymmetrical information” on the outcome of today’s BOJ meeting, say at the end of July, would not be particularly helpful in forecasting the exchange rate.

• Sterling was independently weak yesterday. It slipped on the BOE announcement but recovered to almost $1.34 before sellers took it to almost $1.3335, its lowest level since late July. The (61.8%) retracement of sterling’s rally from the year’s low (~$1.3140) seen in late June was around $1.3345. Sterling stabilized today and is consolidating in about a quarter-of-a-cent range above $1.3350, drawing mild support from the stronger than expected retail sales report.

• The Canadian dollar was sold to a marginal new low since early August yesterday. The US dollar initially extended its six-day rally to slightly above CAD1.40. It settled below the figure, and little changed on the day. The greenback is still firm and continues to probe the CAD1.40 level. The next technical target is around CAD1.4050. The US two-year premium over Canda widened yesterday for the fourth time in five sessions and frayed 140 bp for the first time since late July.

• The Australian dollar rose yesterday for the first time this week. However, it held below Wednesday’s high (~$0.7140) and remains below there today. A move above there could spur a move toward $0.7165.

• The Mexican peso bottomed yesterday at its lowest level since August 4. It recovered and rose for the first time this week. The gains seemed muted, but it was the strongest in the region yesterday. The dollar is trading quietly between about MXN17.1350 and MXN17.1745 today. The Brazilian real fell for the fifth consecutive session. The Colombian peso was the weakest in the region yesterday, losing a little more than 1%. The four-day losing streak coming into today follows a nine-day rally, which itself followed a six-day slide.

• The dollar has fallen to a four-year low against the offshore yuan today to CNH6.6935. It settled at CNH6.7080 last week. The PBOC has been aggressively setting the dollar’s reference rate lower. On September 8, the dollar’s fix was a little above CNY6.78. At the start of this week, it was set slightly below CNY6.77 and today’s fix was CNY6.7521 (from CNY6.7580 yesterday). It is the fifth consecutive weekly decline in the fix, which has risen in only two weeks since the end of H1.

• The dollar gapped lower against the Indian rupee (~INR95.72) but gradually recovered to INR95.9050. It settled slightly above INR95.87. The dollar rose by about 0.35% this week, its second weekly advance after slipping the previous two weeks.

Other Markets

• Equities in the Asia Pacific region mostly extended yesterday’s gains, encouraged by the firm showing of the major US benchmarks. Japanese stocks were mixed and Australia’s index slipped, but most of the other large markets in the region advanced. Europe’s Stoxx 600 is giving back about half of yesterday’s 0.85% gain, and US index futures are slightly firmer.

• Benchmark 10-year yields fell yesterday, arguably helped by the decline in oil prices and the recovery in US Treasuries after Wednesday’s slide. Most European yields are off 2-3 bp, but the UK 10-year Gilt fell by nearly 7.5 bp and the 10-year US Treasury yield fell seven basis points to 4.95%. It settled slightly below 4.97% last week. The US two-year yield fell yesterday for the first time since September 3. The two-year yield is still up about five basis points this week. Asia Pacific rates benchmark 10-year yields softened today, including the JGB yield, which slipped by a basis point. European yields are 3-6 bp higher. The 10-year US Treasury yield is up nearly 3 bp to almost 4.96%. The two-year yield is up almost five basis points to slightly above 4.71%.

• Gold rose by about 1.8% yesterday, its biggest advance in a couple of weeks. It was the first gain of the week. Follow-through buying lifted it to almost $4400 today. A move above the $4432-$4445 area lifts the technical tone. Silver rose by about 3.6% yesterday. It frayed the 20-day moving average (~$66 today). Buying today has lifted silver above the trendline connecting the late August and early September highs (~$66.10 today) and reached nearly $67.35.

• October WTI traded below $100 a barrel yesterday for the first time this week on news that Saudi Arabia was re-opening and key pipelines and Reuters reported that Beijing asked Iran for help to curb the Houthis, who appear to have established control of the Bab el-Mandeb Strait. However, the price trended higher through the North American afternoon and reached almost $102.50 before it settled slightly below $102. It is consolidating quietly today between about $99.40 and $101.65. A close today above $100.05 would be the third consecutive weekly gain.

Data

• The Bloomberg US economic data surprise index reached a six-month low at the end of August and has gradually recovered this month. Economists are taking on board what appears to be a surge in economic activity, to wit, yesterday, after the stronger-than expected August retail sales, the Atlanta Fed’s GDP tracker rose to 5.1% for Q3. It appears to be growing faster than China. The US reports August industrial output and manufacturing production. Both are seen rising by about 0.3% after 0.2% gains in July.

• The eurozone’s July current account surplus stood at 27.6 bln euros compared with 22.3 bln euros in July 2025. In the first seven months of the year, the eurozone’s current account surplus averaged about 26.3 bln euros compared with 24.61 bln euros in the January-July period last year. The ECB projects the current account surplus will be about 1.5% of GDP this year, down from 1.7% in 2025, which is near its five-year average. The 10-year average is around 2.1%. The eurozone current account surplus peaked near 3.5% of GDP in mid-2018, well before what some have dubbed as China Shock 2.0. Separately, the ECB survey found inflation expectations crept up in August to 3.0% (from 2.9%) for the one-year outlook and 2.9% (from 2.7%) for the three-year outlook. Germany’s Merz, whose CDU has seen its support wane, is taking a harder line against China, but as is the case in the US, it seems, at least partly, to deflect from the homegrown problems. There are two German state elections this weekend (Berlin and Mecklenburg-Western Pomerania. In the former, the CDU is running neck-to-neck with the Left Party and in the latter the SPD is in a tight race with the AfD.

• The UK reported an unexpected 0.5% rise in August retail sales. The median forecast in Bloomberg’s survey anticipated the second consecutive monthly decline in retail sales. Recall that the UK reports retail sales in volume terms. UK retail sales have risen by an average of 0.3% a month through August this year compared with 0.2% in the first eight months of 2025.

• As widely expected, the Bank of Japan raised its overnight rate target to 1.25% (7-2 vote), and Governor Ueda’s comments did little to dissuade the market from expecting another one before the end of the year. He warned that with inflation near target, the central bank would have to act preemptively. A few hours before the decision was announced, the August CPI was released. At 1.9%, the year-over-year headline rate was unchanged and may be the envy of most high-income countries, and its core rate, which is targeted, was slipped to 1.7% from 1.8%. It has not been above the 2% target this year. The Bank of Japan forecast this year’s growth at 0.6%, half of last year’s pace. Nor does the performance of the 10-year JGB indicate a strong sense that the BOJ is behind the curve. In the past month, as US, Germany, and UK 10-year yields rose by nearly 25 bp, Japan’s has risen by less than three basis points.

Disclaimer

US Rates Steady after Yesterday's Surge and the Greenback Consolidates

noreply@blogger.com (Marc Chandler) — Thu, 17 Sep 2026 07:02:27 -0400

The initial reaction to the Federal Reserve rate hike was to take US rates and the dollar higher, even though the hike was well anticipated. In addition to the dots, which showed 16 officials see another hike as likely being appropriate this year compared with six in June, Chair Warsh’s characterization of the hike as “removing a dose of accommodation” was understood as a hawkish assessment, i.e., policy is still accommodative. However, the market still seems more hawkish than the Fed and has three more hikes discounted over the next 12 months. Still, US rates are a little softer today and the dollar is consolidating. A few weeks away from the presidential election, Brazil’s central bank cut the Selic rate by 25 bp to 13.75%, but there is little precedent for the US to change policy so close to its election, which seems to rule out another hike next month, though the Fed funds futures have slightly more than a 50% chance of it.

As expected, the Bank of England held steady (6-3 vote), but indicated a rate hike is coming. The swaps market expects a move at the next meeting in November and the possibly (~2/3 chance) of another hike before year-end. Attention shifts to tomorrow’s Bank of Japan meeting, where a hike is widely anticipated, and the door kept open to another move in Q4.

Prices

G10

• The euro approached $1.1460 yesterday after the Fed hiked rates. This met the (61.8%) retracement of the rally since late June’s low (~$1.1325). It edged down to almost $1.1455 today before recovering to about $1.1485. A break of $1.1450 could target $1.1400 next, which looks significant with 3.1 bln euros of options expiring there today and another 4.1 bln euros expiring there tomorrow.

• The dollar rose to about JPY156.40, a seven-day high against the yen post-Fed yesterday. It met the (38.2%) retracement of the decline from this month’s high (~JPY160.40). Softer US yields today ahead of the BOJ meeting tomorrow has seen the greenback ease to around JPY155.55 today. The JPY155 may offer support again. And there are ~$1.65 bln in options expiring there today and $3.5 bln expiring there tomorrow.

• Sterling was driven through the trendline from late June and late July. It settled below the 200-day moving average for the first time since late July after reaching almost $1.3370. It also overshot the (50%) retracement of the rally since late June low (~$1.3140). Follow-through selling was limited to a few hundredths of a cent today and sterling recovered to $1.3400 before the Bank of England rate decision.

• The greenback rose for the sixth consecutive session against the Canadian dollar and reached CAD1.3995 and edged a little closer to CAD1.40 today. This is about the halfway mark of the US dollar’s decline from late June high, which was near CAD1.4250. The next retracement (61.8%) is near CAD1.4050.

• The Australian dollar was sold through $0.7100 for the first time in nearly a month yesterday. It approached the (50%) retracement of the rally from the late July low (~$0.6920) that was found near $0.7090. It has recovered to about $0.7120 today. Nearby resistance is seen in the $0.7130-40 area.

• The US dollar traded above MXN19.20 against the Mexican peso for the first time in a little more than a month. The greenback barely took out Tuesday’s low before the surge. It posted an ostensibly bullish outside up day. It reached MXN17.2670 yesterday and extended to almost MXN17.2745 today before stabilizing. It is holding above MXN17.20 but a break would target the MXN17.13-MXN17.15 area.

• The dollar edged higher against the offshore yuan yesterday, but the move was muted, arguably in part because of the PBOC’s signal via the fix. It has been lowering the dollar’s reference rate even as the greenback traded firmer in recent days. Many observers think that yuan must appreciate faster and the fundamental consideration is of course the external account. Some cite the inflation differential. Yet, it seems that there are sometimes conflicting forces that need to be brought into equilibrium. Sure, trade and relative inflation (though consumer prices are measured differently which makes comparisons a bit more complicated than often presented), but what about capital flows? Low-interest rate currencies have generally done poorly this year among the G10 currencies. I consider the yen an exception and beg extenuating circumstance. The dollar remains trapped in its recent trough against the offshore yuan, while the PBOC lowered the dollar’s fix for seventh consecutive session (CNY6.7580 vs. CNY6.7628 yesterday).

• The dollar traded quietly against the Indian rupee today, though it traded above INR96 for the first time since late July. Intervention helped steady it, and the dollar settled a little below INR95.94.

Other Markets

• US equities were sold in the wake of the Fed’s decision. The S&P 500 and Nasdaq Composite fell by about 1.5%-1.6% before stabilizing slightly into the close yesterday. Outside of China, Hong Kong, and South Korea, most of the other Asia Pacific bourses advanced today. Europe’s Stoxx 600 is up about 0.5% near midday after rising slightly less yesterday. US index futures are up 0.7%-1.0%.

• US rates rose following the Fed’s decision. The two-year yield rose nearly seven basis points to almost 4.74%. The 10-year yield rose by a little more than a basis point and closed above 5%. Asia Pacific yields fell today, while European benchmark yields are mostly 2-3 bp higher. The 10-year US Treasury yield is off 3-4 bp and is back below 5.0%. The two-year yield is a couple of basis points lower near 4.71%.

• Gold’s attempt to rally faltered yesterday after reaching a three-day high (~$4366.50). It was sold to almost $4235, its lowest level since August 7. It is consolidating today between about $4257.60 and $4335.40. A convincing break of $4200 would damage the technical outlook. Silver also traded on both sides of Tuesday’s range yesterday, but managed to settle within its range, after falling to its lowest level since August 7. It is trading inside yesterday’s range in quiet turnover between around $62.85-$64.45.

• October WTI fell by about 3.7% yesterday, yet it was mostly confined to Tuesday’s range. This reflected the recent volatility. On Tuesday, the contract rallied by almost 4.4%. It is subdued today but reached a four-day low near $100.40. The tone is consolidative.

Data

• Yesterday’s Fed hike saps some of the interest in today’s US data, which includes the Philadelphia Fed’s September business outlook survey, weekly jobs claims, August housing starts/permits and pending home sales. Tomorrow sees August industrial output, which is expected to have risen by around 0.3%, which is what it averaged in Q2, the best since Q1 23. Manufacturing output has risen by an average of 0.3% a month through July. Manufacturing employment rose by about 42k in the first seven months of the year, after falling 70k in Jan-July 2025 period.

• Canada reports July portfolio flows today. Canadian bonds and stocks did not appeal to foreign investors in the first part of 2025. In the first seven months of last year, foreign investors bought about C$3.5 bln of Canada’s financial assets. In the first seven months of this year, they have bought nearly C$152 bln of Canada’s stocks and bonds. Moreover, Canada’s external balance has improved. The merchandise trade deficit of C$21.7 bln in the first seven months of 2025 has swung into a surplus of almost C$50 bln in Jan-July this year. The IMF expects the current account deficit to fall to 0.2% of GDP this year from 0.9% last year.

• As widely expected, the Bank of England left policy on hold by a 6-3 vote, but the statement suggests a hike coming. And the swaps market has it fully discounted for the next meeting in November and about an 80% chance of a hike at the following meeting in December.

• Japan’s weekly portfolio flows showed Japanese investors bought JPY1.25 trillion (~$8 bln) of foreign bonds and stocks last week, after selling almost JPY370 bln in foreign assets the previous week. Japanese investors have been net buyers of foreign bonds since the intervention in late July. Ahead of the outcome of tomorrow’s Bank of Japan meeting, where a quarter point hike is fully discounted and a nearly 90% chance of a follow-up hike in December is priced into the swaps market, Japan will report September CPI. The Tokyo CPI a few weeks ago provided important input. The headline rate is seen edging up to 2.0% from 1.9% and the core rate, which excludes fresh food, looks flat at 1.8%. The core rate has not been above the 2% target this year.

Disclaimer

The Greenback Remains Firm but Mostly Inside Yesterday's Ranges

noreply@blogger.com (Marc Chandler) — Tue, 15 Sep 2026 06:51:15 -0400

(Due to travel schedule, no commentary tomorrow. Normal schedule resumes Thursday, September 17. Thank you for your patience).

The rise in oil prices and yields is helping underpin the greenback ahead of tomorrow’s conclusion of the FOMC meeting. The Fed funds futures are discounting almost a 95% chance of a hike, and a second hike is fully priced in before the end of the year. While there was some suggestion by some administration officials that a “tapping on the brakes” may be acceptable, the market is now pricing in the likelihood of a more normal tightening cycle and has nearly discounted four hikes over the next 12 months.

While the dollar is higher against all the G10 currencies, through the Asia Pacific session and the European morning, yesterday’s ranges are mostly holding. The Japanese yen is the notable exception among the major currencies. It is the weakest. The dollar rose above JPY155 for the first time September 7 when it fell below it for the first time since February. The other currency that stands out is the Chinese yuan. While the offshore yuan is trading a little softer, the PBOC set the dollar’s reference rate at a new low since February 2023. In the face of the greenback’s broader gains, Beijing continues, through the fix to signal its acceptance of a gradually appreciating yuan.

Prices

G10

• Follow-through euro selling in the North American morning yesterday extended the single currency’s loss to slightly below $1.1525, its lowest level in a month. It overshot the (50%) retracement of its gains from the late July low (~$1.1350). The next retracement objective is around $1.1490. It has not traded below $1.15 since the end of July. It is consolidating in a about a quarter-cent range below $1.1555 so far today. Options for almost 1.75 bln euros at $1.1550 expire today.

• The dollar rose to a six-day high against the yen today near JPY155.25. Recall that was the low after the spring and summer intervention. Rising US rates help underpin the greenback against the yen, despite Japanese rates also rising. The JPY155.75 area corresponds to the (38.2%) retracement of the losses from this month’s high (~JPY160.40).

• Sterling was sold to about $1.3465 yesterday, its lowest level since August 7 and it is holding today, despite the soft employment report. Like the euro, it overshot the (50%) retracement objective of the rally from the late July low (~$1.3275). It held above the 200-day moving average, (~$1.3455) and last traded below it on July 30.

• The US dollar rose for the fourth consecutive session against the Canadian dollar yesterday. It stalled in front of the month’s high (~CAD1.3940). A move above here targets the CAD1.3990-CAD1.4000 area. It is straddling CAD1.39 today as it consolidates in the upper end of yesterday’s range. With some optimism creeping in that the ongoing trade talks can lead to a resolution may make the market more cautious.

• The Australian dollar’s losses were extended to nearly $0.7100 yesterday. It has not traded below $0.7100 for nearly a month. It overshot the (38.2%) retracement of the rally from the last July low (~$0.6920). The Aussie recovered but could not quite re-enter the range from before the weekend, when it recorded a low near $0.7150. It has held mostly below $0.7140 today but above $0.7115.

• Broad gains in the dollar and the risk-off mood saw the Mexican peso slump to its weakest level since August 7. There has been a little follow-through today and the greenback reached MXN17.1920. This was a little shy of the (50%) retracement of the dollar’s lump from the late July high (~MXN17.54) which is found near MXN17.1980. A push above there could target the MXN17.28 area.

• The offshore yuan was little changed against the US dollar yesterday, making it the best performing emerging market currency. The weaker dollar fix today by the PBOC appears to help limit the offshore yuan’s weakness in the face of the firm dollar. The PBOC set the dollar’s reference rate below CNY6.70 yesterday for the first time in a few years and lowered it further today (CNY6.7670 from CNY6.7698 yesterday) in an independent move. Still, the dollar is holding above CNH6.70. The 20-day moving average is near CNH6.7170 and the dollar is not traded above it in two months.

• The Indian rupee played a little catch-up today after yesterday’s holiday. Despite intervention in the onshore and offshore markets, the dollar rose to INR95.96, its highest level since late July. Higher oil price represents a challenge for India, but the central bank’s reserves have been replenished by the overseas capital raising measures. A move above INR96.00 could target the July high near INR96.67 area.

Other Markets

• US equities pared initial losses, and the S&P 500 and Nasdaq Composite settled above opening levels. However, Asia Pacific bourses were nearly all fell today, and Europe’s Stoxx 600 is off a little more than a third of one percent. US index futures are nursing losses of a similar magnitude.

• Benchmark 10-year yields are slightly firmer today, and the US 10-year yield is pushing above 5%. The yield of the 10-year JGB rose five basis points and is now above 3%. Australia’s 10-year yield jumped 8 bp today to rise above 5.40%. European yields are mostly a couple of basis points firmer.

• Gold recovered from a one-month low yesterday (~$4254) and reclaimed the $4300-handle. However, it has come back offered today, though it is holding above yesterday’s low, so far. Similarly, silver recovered from a push below $62.35, its lowest level since early August. It reached about $63.80 before stalling. It is consolidating today between about $62.55 and $63.60.

• October WTI set a new contract high yesterday, slightly shy of $105 in early North American turnover, and spent most of the session consolidating above $102. It was the third consecutive session that it settled above $100. It is trading firmly inside yesterday’s range today.

Data

• The US Empire State manufacturing survey is not typically a market-mover, and ahead of the outcome of the FOMC meeting tomorrow, it is likely doubly true. It is expected to have softened a little after reaching 20.6 in August, its best level since the end of 2021.

• Canada reports July wholesales and August existing home sales. The data will not distract from the trade conflict with the US or what the economists expect to be a dramatic slowing of the Canadian economy this quarter (1.6% annualized from 3.3% in Q2). Nor will the data impact expectations for next month’s Bank of Canada meeting, which the swaps market is pricing in a little more than a 70% chance of a hike.

• The eurozone recorded a 5.0 bln euro trade surplus in July. In July 2025, it was 4.92 bln euros. Through July, this year’s average is about 2.2 bln euros compared with a 12.62 bln euro average in the January-July 2025 period and 14.83 bln euros in the same period in 2024. Tomorrow, the aggregate July industrial output is expected to have fallen for the first time since January.

• Germany’s September ZEW continued to gradually improve. The assessment of the current situation rose to -47.1 from -61.1. It is the third consecutive improvement and is the least negative reading since May 2023. The expectations component edged up to 34.7 from 34.2. It is the fifth consecutive monthly increase and is the highest since the war on Iran began.

• The Bank of England meets Thursday. Today’s disappointing UK employment data, however, did not change the probability that the central bank will stand pat or that the next move will be a hike. Overall, average weekly earnings slowed to 3.9% from 4.1% on the three-month year-over-year measure. The ILO measure of unemployment was steady at 4.9%. At 66k job growth over the past three months is the slowest since February. Still, the number of payrolled employees fell by 26k, the seventh consecutive month decline and the fastest rate in nine months. The claimant count accelerated to 4.4% from 4.3% and rose to 27.8k after falling 11.8k in July. Tomorrow the UK reports August CPI. The headline is projected to rise by 0.5%, which will see the year-over-year rate tick up to 3.1% from 2.9%. The core rate is expected to be flat at 2.6%.

• The 0.4% rise in Japan’s tertiary industry index (services) helps offset the impact of the 0.2% decline in July industrial production. The Japanese economy grew 1.9% annualized in Q1, 1.4% in Q2 and is expected to slow to 1.1% here in H2 26. Core CPI has been below the 2% target this year. Yet, the market is not only convinced the BOJ hikes later this week but the swaps market has about an 85% chance of a December hike as well.

Disclaimer

US Dollar Jumps on Fed Expectations

noreply@blogger.com (Marc Chandler) — Mon, 14 Sep 2026 06:41:45 -0400

The combination of heightened expectations for the Federal Reserve to lift rates late this week coupled with the high oil prices have helped lift the US dollar broadly today. Yet, the PBOC set the dollar's reference rate at a new 3 1/2-year low today. Among the G10 currencies, the Swedish krona has been the hardest hit. It is off around 0.8% as the weekend election is too close to call and the late vote and ballots from overseas means the results may not be known for a couple more days. Meanwhile, President Trump says the war with Iran may end around the midterm elections. He also says that a trade deal with Canada may be struck “fairly soon”.

Often the market participants seem to be fascinated with trilemmas. We suggest one has unfolded. There cannot be the continued war in the Middle East, a cap on 10-year yields, and floor under the yen at the same time. Saudi oil production has plunged, and at the same time, China has reportedly re-entered the market and ostensibly is rebuilding inventories. The Trump administration calls on Ukraine to stop attacking Russian refinery capacity, which has been a factor driving up diesel prices, critical for long-haul trucking, freight trains, and farm equipment.

Prices

G10

• Although the euro made a new low for the week before the weekend, it recovered from about $1.1570 to hover around $1.1600 after European market closed. Between the US PPI and CPI, the odds of a Fed hike later this week rose to almost 87% from about 60%. The euro has been sold to about $1.1535 today, its lowest level since mid-August, and has approached the halfway mark of the rally from late July (~$1.1355). The next retracement target is near $1.1490. Still, the intraday momentum indicators are stretched. Initial resistance may be in the $1.1560-70 area.

• The sharp downside momentum seen in the dollar against the Japanese yen earlier this month eased in the past three sessions. The greenback traded broadly sideways, even if choppily, between roughly JPY152.90 and JPY154.65. It has approached the upper end of that range today. A BOJ rate hike this week is nearly fully discounted, as is another before the end of the year. The intraday momentum indicators are stretched, and the JPY154 area offers initial support. The JPY155 area, which had offered the greenback support previously now is important resistance. A move above it targets the JPY155.75-JPY156.25 area.

• Sterling recovered from a new low for the week (~$1.3480) and reached the session high in the North American morning before the weekend near $1.3535. It is recording an outside day, though the close is important. A trendline from the late June and July lows is found near the 200-day moving average (~$1.3455). A break may target the $1.3350 area.

• The Canadian dollar under-performed ahead of the weekend. Its 0.25% loss was only exceeded by the Swiss franc, which fell by about 0.50%. The greenback rose to a new seven-day high near CAD1.3885. It has a three-day advance in tow, which matches the longest such streak since June. The gains have been extended to a little above CAD1.39 today. The high set earlier this month, and high since the breakdown in trade talks was CAD1.3940.

• The Australian dollar recovered from $0.7150, a marginal new low for the week, and recorded the session high before European markets closed for the week, slightly shy of $0.7190. It has taken a new leg down today and reached $0.7125 in the European morning, slightly above the low for the month. This area represents the (38.2%) retracement of the rally since late July. A break targets the $0.7080 area next.

• The Mexican peso consolidated ahead of the weekend within the range set the previous session. The consolidation is morphing into a correction. The greenback reached MXN17.0865 today, its best level since August 12. The next nearby target is MXN17.1175-MXN17.1200.

• The dollar is pinned near three-year lows against the offshore yuan. The greenback is holding slightly above CNH6.70. The dollar has not traded above the 20-day moving average for two months. It is near CNH6.7185 now. Despite the firmer greenback on September 10, the PBOC set the dollar’s reference rate lower ahead of the weekend. Today the dollar’s fix was set below CNY6.70 for the first time in several years (CNY6.7698 vs. CNY6.7743 before the weekend). It is the fourth consecutive day of a lower dollar fix.

• Indian markets are closed today for a national holiday.

Other Markets

• News from Microsoft and Oracle, coupled with the pullback in the still elevated oil prices, support US equities before the weekend, and this spilled over to help Asia Pacific equities today. Last week, the MSCI Asia Pacific Index fell for the first time in four weeks. Europe’s Stoxx 600 fell 1.65% last week, its largest loss in two months. AI fears are taking a toll today. Even though Asia Pacific bourses were mixed today, the China, Taiwan, South Korea markets fell. The Stoxx 600 is off around 0.2%, while US index futures point to sharply lower openings. The Nasdaq composite futures are off 1.6% and the S&P futures are around 0.70% lower.

• Benchmark 10-year yields mostly pulled back in Europe and North America ahead of the weekend after spiking higher in the previous session. There are several drivers of the higher rates and the pullback in oil prices before the weekend may have helped yields stabilize. The rolling 30-day correlation of changes in WTI and the US 10-year yield is around 0.80, the highest in five years. The 10-year JGB yield edged a little higher to stay near but below 3%. European rates are mostly 1-3 bp higher, and the peripheral premiums are widening. The 10-year US Treasury yield is hovering near 4.96%.

• Gold recovered from a seven-day low (~$4293.50) before the weekend to briefly poke above $4400 in North American turnover. The momentum stalled and the yellow metal pulled back around $50-$55 before consolidating. It is trading heavier today and fell to a new low since early August, a little below $4279. Chart support is seen near $4200. Silver was sold to its lowest level in nearly four weeks ahead of the weekend (slightly below $63). It rebounded to almost $65.30 and consolidated in the North American afternoon. It also is under pressure today. It has been sold to about $62.35, which is also its lowest level since early August. There appears to be little chart support ahead of $60.

• October WTI reached a new contract high, almost $104.50, before the weekend. It was recorded in early in the Asia Pacific sessions and retreated to a still elevated $98.50 in the North American morning. It still settled above $100 a barrel. It is consolidating today in the upper end of last week’s highs.

Data

• Canada reports August CPI today. The risk is on the upside given the new US tariffs (August 22 implemented) and the disruption from the Middle East war. Last August’s 0.1% decline will drop out of the year-over-year measure. Still, with the underlying core rates near 2.0%, the Bank of Canada appears in no hurry to change policy, especially given the new risks. The swaps market has about a 40% chance of a hike discounted at the next meeting in late October. This seems on the high side to us. Still, a hike is nearly fully priced in by the swaps market at the last meeting of the year in December.

• Japan’s preliminary estimate that July industrial output rose by 0.1% was revised today to show a 0.2% decline. Initially the median forecast in Bloomberg’s survey was for a 0.7% decline. It followed a 1.9% jump in June. The Industry Ministry projects a dramatic 6.4% surge in August followed by a 4.2% decline in September. Although household spending disappointed, stronger labor earnings and the upward revision to Q2 GDP (1.4% vs. 1.1%) adds the conviction that the Bank of Japan will hike rates later this week and then again at the December meeting. Since the end of July intervention, the yield on Japan’s two-year bond has risen about 35 bp to 1.85%.

• China’s August lending figures disappointed today. Weaker demand from businesses and households offset government borrowing. Once a month, China reports high-frequency real sector data and house prices. Tomorrow is the day. Regardless of the data, the Chinese economy lacks forward momentum and besides the recent bank/insurance recapitalization, officials still seem reluctant to prove meaningful stimulus. At the same time that China’s 10-year discount to the US is slightly more than 325 bp, an apparent modern record, Beijing has accepted a modest appreciation of the yuan (4.15%) this year. The yuan is at its strongest level against the dollar since January 2023.

Disclaimer

Week Ahead: BOJ and Fed may Pay Heavy Price if They Disappoint the Market

noreply@blogger.com (Marc Chandler) — Sat, 12 Sep 2026 07:05:00 -0400

The Middle East war, for which President Trump has claimed victory many times, continues to be a powerful disruptive force. Iran is not hunkering down in a defensive position but has gone on the offensive. The combination of Ukraine's success, hitting Russian refinery capacity, the drop in Saudi output, the increased buying by China, and the Houthis success in securing the Bab-el-Mandeb Strait has driven a surge in oil and diesel prices. This, in turn, has lifted market rates and unsettled equity markets.

The week ahead features three G10 central bank meetings. The market is confident that the Bank of Japan will deliver a quarter-point hike and sound sufficiently hawkish as to support market expectations for a December move as well. The Bank of England will most likely deliver a hawkish hold--stand pat now but suggest a rate hike is coming. Of the central banks, the Federal Reserve's outlook is the most in doubt. The futures market is fairly confident of a hike (~87%), but economists are less sanguine. The slippage in the core CPI to 2.4% in August is the lowest in five, Nevertheless, the US two-year yield rose to 4.65% before the weekend, which is more than 25 bp higher than when Fed Chair spoke at Jackson Hole, touting the benefits of the market signal not distorted by forward guidance. Nor was US Treasury's increased bond buyback much of an inspiration. The market was disappointed with the announcement and the operation itself.

Drivers: The US continues to be seen as among the best in the G10 to cope with rise in oil prices. Moreover, the risk of a Fed hike this week has risen. According to the pricing of the Fed funds futures, there is almost an 87% chance of a hike discounted, up from a little more than 60% a week ago. A Bloomberg survey, conducted September 4-9, found only 13 of 48 economists expect the Fed to hike. However, by the weekend, it looked most economists had changed their minds. Given the hawkish takeaway from Fed Warsh's Jackson Hole speech, the failure to hike could see the yield curve steepen and the dollar weaken.

Data: The US reports August retail sales, industrial production and housing starts in the coming days. The data points will help shape expectations for Q3 GDP. The July portfolio flow capital report from the US Treasury (TIC) also will be reported. Through June, the TIC report showed foreign investors bought about $617.7 bln of US stocks and bonds, which is a little more than $200 bln less in H1 25. The Q2 current account has not been released, but we do know that the trade shortfall narrowed in H1, suggesting the funding requirements may be smaller. The US recorded a trade deficit of almost $359 bln in H1 26 compared with a deficit of $560.5 bln in H1 25. However, the most important data point in the week ahead is from the Federal Reserve. The market sees the outcome finely balanced after the jobs data and inflation gauges. The Federal Reserve will also update the Summary of Economic Projections. Chair Warsh did not submit his projections at his first meeting at the helm in June and seems unlikely to participate this time.

Prices: The Dollar Index reached a new high for the week after the US CPI report ahead of the weekend, near 99.40. It approached the (61.8%) retracement of the losses from the September 2 high (~99.85). The trendline, drawn off the late July high and the early September high, came in slightly above the pre-weekend high. At the end of the week ahead, the trendline is near 99.10. The Dollar Index settled lower for the second consecutive week, suggesting a possible decoupling from rates, which we will be monitoring.

EMU

Drivers: Rising two-year German yields does little to help the euro. The 30-day correlation is inverse (-0.20), which has been the case since the end of February, with the brief exception in late July. The inverse correlation with the US two-year yield is twice as much (-0.45). This shows that a rising interest rate environment is not associated with a stronger euro. The inverse correlation with changes in US two-year premium over Germany is about -0.40.

Data: The eurozone reports July trade balance, current account industrial production, and construction output. Yet, with the ECB meeting behind us and the recognized strong probability of a hike in December, the high-frequency data points may have little market impact. Germany sees the September ZEW investor survey on September 15. The assessment of the current situation has been improving though it took a hit in Q2, perhaps related to the disruption of the Middle East war, it improved in July and August and reached its best level in three years. The expectations component also weakened in the early months of the Middle East war but has trended higher for the past four months. It reached a six-month high in August of 34.2. Two more German state elections will be held on September 20.

Prices: The euro fell slightly below $1.1570 after the US CPI but held above the September 2 low (~$1.1565). It was recovered quickly and recaptured $1.1600, but still settled sliightly below it. The week's high was near $1.1655. A break of the $1.1565 area could target $1.1530 next. The momentum indicators are not generating robust signals and one-month implied volatility has slumped to around 4.9%, its lowest level in almost a month. The low for the year was recorded last month near 4.45%.

PRC

Drivers: Beijing's decision to accept gradual appreciation of the yuan seems ultimately political in nature. Still, it seems to track the broad movement of the dollar. The correlation between the dollar against the offshore yuan and the Dollar Index is a little above 0.55 for the past 30 days, 0.54 for the past 60 days, and near 0.60 for the past 100 days.

Data: This is the week for China's macroeconomic data. It includes house prices, retail sales, industrial production, capex, property investment, and residential property sales. The property market continues to bleed. In some ways, the particulars do not matter. The economy is underperforming what Beijing wants. Yet, it seems to be in no hurry to provide new support.

Prices: The US dollar has approached CNH6.70 and the PBOC reduced the lower fix in the past three sessions (CNY6.7743 before the weekend, a new multiyear low). Beijing continues to signal acceptance of a gradually appreciating yuan. Critics want it to go faster, and they claim this is what "fundamentals" require. The fundamental is the trade balance but there are other fundamental considerations, such as the interest rate differential. The US 10-year premium over China is nearly 325 bp, which is the most in at least 20 years.

Japan

Drivers: The late July intervention has injected a new consideration into trading the Japanese yen. It has diluted the impact of changes in the US 10-year yield. The 100-day correlation reached the high of the year in late July, near 0.52. and it is now at the low for the year (~0.32). The 30-day correlation is around 0.30, after having slipped briefly into inversion in early August. The 30-day correlation between the exchange rate and the US two-year yield has risen from about 0.20 in early August to almost 0.35 now. Over the past 30 days, the correlation between changes in the Japan's two-year yield and the exchange rate is slightly inverse. This is also true of the correlation over the past 100 days. It was inverse through late June before turning positive and reached the high for the year slightly above 0.20 before the late July intervention.

Data: The highlight in the coming week is the Bank of Japan meeting. It is nearly a foregone conclusion that the BOJ will hike by 25 bp to 1.25% and not push back against strong expectations of another hike before the end of the year. This seems independent of the vagaries of the high frequency economic data. This includes the August CPI, which is due a few hours before the BOJ meeting concludes on September 18. From the release of the Tokyo CPI, we already have a good idea that the national CPI likely accelerated slightly. The headline pace may rise to 2.0% from 1.9%. The core rate, which excludes fresh food, may edge up to 1.9% from 1.8%. The measure that excludes fresh food and energy also may have nudged up to 2.0% from 1.9%. The core rate has not been above the 2% target this year. Every country measures CPI differently but Japan's performance would be the envy of most countries, where inflation has overshot targets for years. Year-over-year growth in Japan is among the weakest among the G10 at around 0.7% year-over-year.

Prices: The surge in oil prices and jump in US yields helped the dollar stabilize after falling a little below JPY152.90 on September 8. However, the greenback stalled in front of JPY154.70. Previous support around JPY155 now acts as resistance. The euro decline after the ECB's well-telegraphed rate hike. So did the New Zealand dollar after the RBNZ's recent hike. A BOJ hike, and even hawkish comments by Governor Ueda, allowing for a December move, as well, may not spur a stronger yen. It is not yet clear from the weekly portfolio flows that rising rates and the intervention will spur the kind of powerful repatriation that some anticipate. The Japanese fiscal half year ends this month, and it is often associated with new allocation decisions. In the five weeks since the intervention, Japanese investors have sold few foreign bonds than in the five weeks before the intervention. For their part, foreign investors have flipped from net sellers of Japanese bonds in the five weeks before intervention to small buyers since.

Drivers: Sterling remains inversely correlated with the Dollar Index, but over the past 30 days, the inversion has weakened to around -0.75. At the end of August, it was near -0.85, and in April it recorded the most extreme of the year around -0.93. The 30-day correlation of changes in the sterling and euro are near 0.86. It has not been above 0.90 since mid-May. Sterling is inversely correlation with changes in the UK's two-year yield (~-0.25). It has been inversely correlated since early April, though it was positively correlated in January and February.

Data: The Bank of England meeting on September 17 renders the important economic data for the week, the three data points that the market is often most sensitive to, less significant. The BOE is on hold, but the swaps market is confident that a hike will be delivered in Q4. What pushes the central bank to hike will not rest much on next week's employment, inflation, and retail sales reports. After growing by about 0.5% in H1 26, the UK economy is projected to slow. However, Q3 is off to a better start than expected. Before the weekend, the UK reported an unexpected 0.4% rise in July GDP, its best monthly performance since February, and matched the second strongest since January 2024. It was apparently flattered by AI-related activity.

Prices: Sterling tested a shelf that has been forged in the $1.3475-80 area ahead of the weekend and recovered to new session highs near $1.3535. While it looks constructive, sterling needs to overcome resistance in the $1.3575-$1.3600 area to be important. Some pressure on sterling, coming from the cross against the euro, appears to have subsided. A push by the euro below GBP0.8550 could lend credence to this view.

Canada

Drivers: The 30-day correlation of the US dollar against the Canadian dollar and the two-year differential has been steady, hovering around 0.70 for the past several weeks. This is about twice the correlation of the exchange rate and changes in the US two-year yield. The exchange is inversely correlated with changes in the Canadian two-year yield. It is now around -0.22, which is almost half as inverse as it was at the end of August. The US dollar against the Canadian dollar has a little more than a 0.80 correlation with changes in the Dollar Index over the past 30 days, which is the highest since early March.

Data: The most important high-frequency data point is the August CPI on September 14. While headline inflation in July was 3%, the underlying core rates are around 2%. The central bank has some breathing space to see the impact of the recent shocks. The swaps market continues to look for a hike in Q4 and another in Q1 27.

Prices: Before the US-Canada talks broke down, the US dollar settled near CAD1.3760. Early last week, it returned to it. However, this seems to be part of a messy correction of the US dollar's decline since peaking in late June/early. Before the weekend the greenback reached almost CAD1.3885, a seven day high. A move above the CAD1.3930 area could target the CAD1.4000-CAD1.4050 area.

Australia

Drivers: Changes in the Australian dollar are positively correlated with changes in Australia's two-year yield but near 0.18, it is the lowest in around a month. The Aussie is inversely correlated with changes in the US two-year yield (~-.054), the most in three weeks. The exchange rate's inverse correlation with changes in the Dollar Index is near -0.62, while the inverse correlation with the US dollar against the offshore yuan is also around -0.62.

Data: Australia's data calendar is devoid of high-frequency data. The highlight of the week comes at the end as RBA Governor Bullock testifies before parliament. She is on record warning that the central bank may need to do more to restrain price pressures. Bullock has led the central bank to hike rates three times in the first five months of the year. The market is confident of at least one hike this year, with almost an 80% chance it comes late this month, up from about 66% chance a week ago.

Prices: The Australian dollar fell to a seven-day low before the weekend, near $0.7150. It has settled below the 20-day moving average the previous day (September 10) for the first time since late July. However, it recovered and made a new session high in the North American morning slightly shy of $0.7190. The market does not appear to have given up trying to secure a foothold above $0.7200. It traded above $0.7200 in the six sessions before September 11 but stalled near $0.7240 before bout of profit-taking in the last two sessions.

Mexico

Drivers: The Mexican peso serves as a proxy for emerging market currencies. The US dollar against the peso moves inversely to the JP Morgan Emerging Market Currency Index. The 30-day inverse correlation is near -0.76, and the 100-day inverse correlation is near -0.82. The 30-day correlation between the exchange rate and the Dollar Index is around 0.64 and the 100-day correlation is about 0.60. The little change between the two periods suggest a stable relationship presently. The peso has a risk element too as the 30-day inverse correlation between the exchange rate at the S&P 500 is around -0.42, while the 100-day inverse correlation is near -0.62.

Data: Mexico has a light economic calendar, and nothing with the heft to change expectations that the central bank will stand pat when it meets on September 24. Separately, Brail central bank meets on September 16, and the swaps market has nearly fully discounted the fourth rate cut of the year, which will bring the Selic to 13.75%.

Prices: The US dollar consolidated against the Mexican peso last week. It traded between about MXN16.87, seen to start the week, to a little above MXN17.00 in the last two sessions. On both sessions, it settled above the 20-day moving average for the first time July 24. The high from late August was around MXN17.0650. The momentum indicators look constructive.

Disclaimer

US Dollar Bid Ahead of ECB Rate Hike

noreply@blogger.com (Marc Chandler) — Thu, 10 Sep 2026 06:51:59 -0400

(

(No commentary on September 11 due to business travel, though the weekly analysis will be posted on September 12.)

It seems like a low probability scenario that the US can cap long-term US interest rate when hostilities in the Middle East are disrupting the energy market, while China appears not to be showing the extent of the buying restraint It previously did. Moreover, investment grade corporate issuance is projected to raise a record over $200 bln this month. The inability to stabilize US yields may jeopardize the efforts to weaken the yen. Treasury Secretary Bessent claims possessing asymmetrical information about what the BOJ will do. Yet, the market has fully discounted a 25 bp hike by next week and a strong probability (77%) of another hike in December. The US 10-year premium over Japan is approaching 200 bp, the most since the end of Q1.

Meanwhile, at the Republican convention, President Trump has offered $5000 to each adult US citizen if the GOP retains both houses of Congress in November’s midterm election. The cost is estimated at $1.2-$1.3 trillion. After being told of $5000 stimulus checks from the ”Doge Dividend”, $2000 from the tariff dividend and $1000 from the expiring ACA subsidies, the market appears somewhat immune to the last promise. Still, it shows the lack of any semblance of concern for the fiscal straits. Meanwhile, the ECB rate hike today is nearly a foregone conclusion and the door to a December hike needs to remain open or the euro potentially faces what could be sharp decline.

Prices

G10

• The euro reached almost $1.1655 yesterday, its best level since August 28. It met the (61.8%) retracement objective of the losses from the August 21 high (~$1.1710) and settled above the 200-day moving average. It is in a narrow range of less than 20 ticks above $1.1620, ahead of the outcome of the ECB meeting. Options for almost 1.7 bln euros at $1.1650 expire today as do 1.2 bln euros at $1.1600.

• The yen consolidated yesterday and it continues today. The US dollar has recovered from almost JPY153.30 to JPY154.15 in Europe. Commitment of Traders report showed non-commercials (speculators) in the CME data were still adding on to short yen positions as of last Tuesday, the day before the squeeze began. They were rebuilding the shorts that were covered in the two weeks after the late July intervention. The same appears to be true of Japanese retail accounts. They were net short JPY3.6 trillion (~$23.5 bln) last week.

• Sterling rose to almost $1.3570 yesterday, a nine-day high. The $1.3575 area is the halfway mark of the decline from the August 21 high (~$1.3675). Sterling is trading quietly today between about $1.3535 and $1.3560. Support is seen in the $1.3520-30 area. Tomorrow, the UK is expected to report a flat July GDP with a contraction in industrial output and stagnation in services.

• The Canadian dollar consolidated yesterday despite the escalating trade conflict. The US two-year premium has narrowed slightly in recent days. A break of CAD1.3760 would target the three-month low set last month near CAD1.3730, reached the day before the trade talks with the US failed. The 20- and 200-day moving averages converge between CAD1.3830 and CAD1.3840. Options for about $455 mln at CAD1.3800 expire today, which is the session low so far.

• The Australian dollar recorded a higher high and a higher low yesterday for the fifth consecutive session. The pattern may break today. Yesterday, the Aussie reached almost $0.7240, its best level since May 14 The four-year high was set May 6 near $0.7280. It is holding below $0.7230 today. A break below $0.7200, where options for A$760 mln expire today, warns of a consolidative or corrective phase. There are no significant Australian economic reports in the coming days. The futures market has about a 75% chance of a hike later this month, up from around 50% at the end of August.

• The dollar was sold on Tuesday after reaching almost MXN17.00. It fell slightly below MXN16.91 and extended its decline yesterday to almost MXN16.87. The greenback is trading quietly today within yesterday’s narrow range. Last week’s two-year low was near MXN16.8575. Our correlation work shows the Mexican peso is a better proxy for the JP Morgan Emerging Market Currency Index than the Dollar Index. The JP Morgan Emerging Market Currency Index edged higher yesterday, for the fifth session in the past six. It has fared better than many would have anticipated given the dramatic rise of the yen, which had ostensibly funded some of the emerging market carry trades, and the rise in yields.

• The dollar ground down to a new low against the offshore yuan yesterday. It approached the CNH6.70 level, which has not traded below since January 2023. For the second consecutive session today, the greenback has been confined to about a CNH6.7030-CNH6.7080 range. Given the dollar’s weakness, the PBOC seemed to have little choice but to lower the dollar’s fix today, and it did, albeit slightly (CNY6.7766 vs. CNY6.7769 yesterday).

• Despite continued reports of central bank intervention, the Indian rupee fell for its third consecutive session today. It matches the longest losing streak in nearly two months. Many observers attribute the rupee’s weakness to the higher oil prices. The dollar reached INR94.7525 today, an eight-day high and settled above the 20-day moving average for the first time since August 27. Last month’s high was a little above INR95.76.

Other Markets

• The major US equity indices settled below opening levels again yesterday and rising rates and oil prices are sapping risk-appetites. Nearly all the large bourses in the Asia Pacific region fell today, with Australia and Hong Kong leading with a little more thana 1% decline. After losing 1.4% yesterday, Europe’s Stoxx 600 is off another 0.2% in late morning turnover. US index futures are narrowly mixed.

• The tripling of the US Treasury bond buyback failed to persuade the market that Treasury Secretary Bessent’s purchases will make much of a difference given the rising oil prices and corporate and US government supply. The slightly more than a five-basis point increase in the US 10-year yield was the most since the day after Bessent announced that the Treasury would at least double the bond buybacks. The yield is up a little less than two basis points today to a new high near 4.86%. European yields jumped 7-11 bp yesterday, and as is often the case in a rising rate environment, the peripheral premiums over Germany widened. European yields are mostly slightly softer today, though the 10-year UK Gilt is up a almost a basis point to a new high around 5.27%.

• Gold traded inside Tuesday’s range yesterday, and for the sixth consecutive session today, it traded on both sides of $4400. Silver looks better technically. It traded on both sides of Tuesday’s range yesterday and settled above its high. However, there has been no follow-through today, and silver is trading with a heavier bias inside yesterday’s range. Still, for the fourth session, it is holding above $65.

• October WTI has extended its gains to almost $97.85 today. The 98.30 area is the (61.8%) retracement of the losses from the early April high (~$117.65). The October contract settled above the upper Bollinger Band for the past two sessions. It is near $96.70 today.

Data

• Weekly US initial jobless claims have been steady between 204k and 207k for the past three weeks. Several Fed officials have characterized the labor market as stable, which allows them to focus on the other mandate, price stability. August producer prices are expected to have risen by 0.4%, which would lift the year-over-year rate to 5.3% (from 4.7%) at the headline level. The core is seen firming to 4.6% from 4.2%. Tomorrow’s CPI is more important in the reaction function of most, if not all, Fed officials. The headline CPI is seen flat at 3.4%, while the headline may tick down to 2.4% from 2.5%.

• The ECB will hike key rates 25 bp shortly. This will lift the deposit rate to 2.50%. The market is also confident (~90%) of a hike in December. The swaps market has another hike in H1 27 discounted. The ECB staff will update its forecasts. In June, it anticipated 0.8% growth this year, 1.2% in 2027 and 1.5% in 2028. After Q2 GDP was revised to 0.6%, the staff will likely bump up this year’s forecast. The staff had projected 3% CPI this year, 2.3% next, and 2.0% in 2027. The August aggregate CPI was 3.3%, and it rose by a cumulative 0.2% in the last four months of 2025. That may be challenging to best this year, which seems to suggest an upward revision to this year’s forecast.

• Australia’s Melbourne Institute’s measure of consumer inflation expectations was steady at 4.9% in September. It finished last year at 4.7% and peaked in April at 5.9%. Firm data and hawkish comments from central bank officials have bolstered market expectations for a hike late this month. Three weeks ago, the futures market had about a 10% chance of a hike discounted and now there is a little less than a 75% chance discounted.

• Japan reported the surge in machine tool orders continued in August. For the third consecutive month, the year-over-year pace exceeded 50%. The preliminary estimate was for a 64.7% rise year-over-year (50.4% in July). Both domestic and foreign orders are up over 60% year-over-year. In August, foreign orders rose 4.6% after slipping 3.8% in July. Domestic orders fell for the second consecutive month (-3.2% in August and -8.2% in July). The weekly portfolio flow report from the Ministry of Finance showed that last week, Japanese investors bought foreign bonds for the first time in three weeks. However, they sold more foreign equities than bond purchases. For their part, foreign investors bought Japanese bonds for the third consecutive week, the longest buying streak since January. Foreign investors also bought Japanese stocks for the second consecutive week; something they have not done since May.

Disclaimer

Oil Higher, Yen Consolidates, US to Reveal Bond Buyback Plans

noreply@blogger.com (Marc Chandler) — Wed, 9 Sep 2026 06:48:45 -0400

There are two main developments today. The first is the escalation of the Middle East war has lifted oil prices. October WTI rose 9.7% last week, and with today’s gains, is a little more than 4% this week. This has helped lift bond yields. The second is the short squeeze of the Japanese yen. Since the middle of last week, the yen has surged about 4.7%. Although US Treasury Secretary Bessent appears to take credit for it, recall that initially after the intervention drove the dollar to JPY155, it had recovered to almost JPY160.40 last Wednesday. Many observers are concerned that the short yen positions funded the purchase of higher yielding or more volatile assets. However, it appears that some have shifted from yen funding to dollar funding, and we note that the Swiss franc may also replace the yen on the margins. The franc is near the year’s low against the euro.

Separately, the US trade conflict with Canada continues. The US has moved to block imports of some goods and has threatened to impose more tariffs on others. President Trump has threatened to bar Canadian companies from selling to US contractors. The import banks on some dairy products and alcohol will take effect in three weeks, while new tariffs will be in place in a week and these new tariffs will be stacked on top of the industry-specific levies that have already been implemented. Canada and the EU are expected to soon announce a comprehensive agreement. Canada appears prepared to do everything but join the EU itself. Next week Canada’s PM Carney will meet with EC President von de Leyen.

Prices

G10

• The euro mostly mirrored Monday’s range yesterday. While every day last week, the euro spent some time below $1.16, it held above it for the past two sessions. Options for 1.3 bn euros that expire today are struck there. The euro reached an eight-day high today near $1.1650, which is slightly above the (50%) retracement of the leg down from the August 21 high (~$1.1710) and above the 200-day moving average (~$1.1635). However, it has been under pressure since early European trading and has retreated back to the $1.1625 area. Initial support is seen in the $1.1620 area.

• The ongoing short squeeze lifted the yen to a new high early yesterday before reversing lower. The dollar briefly traded below JPY153 and approached JPY154.45 in Europe and North America. The greenback settled firmly around JPY154. It retested the JPY153 area in late Asia Pacifici trading. It has been capped near JPY153.70 in Europe. Although estimates suggest US intervention in late July was small (~500 mln euros), US Treasury Secretary Bessent boast that he “is the house”.

• Sterling rose to a seven-day high today, slightly below $1.3570. It has not been able to sustain the upward momentum. It has slipped back toward session lows in the European morning, near $1.3535. Options for almost GBP600 mln at $1.3550 and GBP560 mln at $1.3525 expire today. Meanwhile, euro is trading in the upper end of the two-month trading range against sterling. It held GBP0.8550 at the end of August and pushed above GBP0.8600 on an intraday basis last week, its best level since July 1. It recovered from yesterday’s four-day low (~GBP0.8570) and reached GBP0.8590 today.

• The US is very dismissive of Canada, but the market is not so much. Yesterday, the Canadian dollar return to where it settled before the trade talks collapsed. The US dollar closed at CAD1.3760 on August 21, and that was also yesterday’s low. It is consolidating quietly between about CAD1.3765 and CAD1.3790 today. The three-month low recorded that day before the talks failed was almost CAD1.3730. According to the pricing in the swaps market, the Bank of Canada will hike by about 84 bp by the end of H1 27, while the Fed will hike rates by around 62 bp. This suggests the market is pricing peak policy gap differential. The 150 bp current differential is the widest since the late 1990s.

• The Australian dollar traded above $0.7230 yesterday for the first time in almost four months. It edged a little higher today and reached nearly $0.7240 before it returned to session lows (~$0.7215). Options for A$730 mln at $0.7200 expire tomorrow. The daily momentum indicators are stretched but has been the case for several weeks. There is little on the charts ahead of the four-year high recorded in May near $0.7280. That said, a break of the $0.7175 area may warn that the pull of the momentum indicators may finally have the upper hand.

• The Mexican peso recovered from a three-day low yesterday. The US dollar was initially bought to almost MXN17.00 before surrendering its gains and returning to test MXN16.91. The price action, such as settlement being nearer session lows than highs in four of the past five sessions, suggests there continues to be peso demand. The greenback is in a narrow range so far today between almost MXN16.89 and MXN16.92.

• The dollar consolidated inside Monday’s range against the offshore yuan yesterday, when it recorded a new low near CNH6.7050. It made a marginal new low of almost CNH6.7030 today. It is difficult to talk about meaningful support when the dollar is trading at levels not seen in a little more than 3 ½ years. Back in Q1 23, the dollar bottomed slightly below CNH6.70. We had thought it was possible that the PBOC would slow the pace of yuan gains. On one hand, the dollar’s fix has fallen for the past four weeks and has only risen in two weeks since the end of H1. On the other hand, the pace has moderated. Consider that on a monthly basis, the dollar’s fix fell by 0.1% in August after it declined by a little more than 1% over the previous three months. Consider that the one-month historic volatility (actual) is near 1.3%, while at the end of July it was slightly below 2%. The dollar’s reference rate was set at CNY6.7769 today (CNY6.7804 yesterday).

• After falling a little more than a third of one percent yesterday, its largest decline since mid-July, the Indian rupee was sold further today. The dollar rose to about INR95.2275, its best level this month and approached the 20-day moving average (~INR95.2645). The rise in oil prices does the rupee few favors. The central bank used short-term currency swaps to absorb bank liquidity today. Under the arrangement, the RBI sold dollars to banks for rupees and agreed to buy back the dollars later.

Other Markets

• Asia Pacific equities fell yesterday and the MSCI regional index fell for the first time in four sessions and on the second time in past 11 sessions. The signal from the US was muted as both the S&P and Nasdaq Composite settled a little below opening levels and appear to remain mired in trading ranges. The US index futures are around 0.25%-0.40% lower. The large bourses in Asia Pacific were mixed today, and Europe’s Stoxx 600 is off about 1%, which if sustained would be the largest loss in over a month.

• Benchmark 10-year yields are mostly 3-4 bp higher in Europe, lifting rates to new highs. The 10-year US Treasury yield is up almost two basis points to near 4.81%.

• Gold settled poorly yesterday after falling through last Friday’s low (~$4365) late in the North American session. It made a marginal new low, slightly below $4342, before catching a bid and recovering to session highs, near $4413. It stalled but found new bids ahead of $4385 in Europe. Silver traded a bit firmer, but it also remained in last Friday’s range (~$64.75-$67.20). It also settled near session lows recorded late yesterday. It is trading within yesterday’s range today.

• Although October WTI stalled yesterday, near $94.75, it did post a record-high settlement (~$94.30) that was also near where it had opened. The ongoing heightened conflict lifted it to almost $95.60 today and it is still bid ahead of the US open.

Data

• The US Treasury is expected to announce details of the bond buyback options ahead of tomorrow’s operation to repurchase 10–20-year bonds. Most estimates seem to be around $6-$10 bln for the seven remaining buyback operations scheduled for this year. Treasury Secretary Bessent says this is for liquidity purposes, but the market is skeptical. The administration has introduced other measures seemingly aimed to boost demand for US Treasuries from banks and the Genius Act, which established the framework for stable coins backed by the US dollar (Treasuries). The Congressional Budget Office projects a deficit of 5.8% of GDP this fiscal year and exceeding 5.6% of GDP through the 2036 forecasting window. The US is selling $39 bln 10-year notes today and $22 bln 30-year bonds tomorrow.

• Mexico reports August CPI today. The headline rate is projected to rise to 3.30% from 3.12% in July. If so, it would be the first increase since March, when it peaked at almost 4.60%. It was 3.57% in August 2025. The core rate, which has been stickier, may have slipped for seventh consecutive month. It peaked at 4.52% in January, and the median forecast in Bloomberg’s survey is for a small decline to 3.92% (from 3.95% in July). The central bank meets on September 24. The swaps market is discounting about a 50% chance of a hike, which we think is exaggerated.

• Earlier this week, Germany reported an unexpected 1.1% drop in July industrial output. Today, it was France’s turn to disappoint. Economists surveyed by Bloomberg expected a 0.2% increase in industrial production. Instead, it fell by 0.4%, and the June series was revised to a 0.1% decline from a 0.1% increase.

• Chinese inflation ticked up last month. The PPI rose 3.8% year-over-year (3.5% in July). The pace peaked in June at 4.1%. Recall that producer prices fell from October 2022 through February this year. The disruption from the war in the Middle East and China’s efforts to curb what it calls “involution” (excess capacity) seem to be key factors. China’s consumer prices flirted with deflation but that ended in Q3 25 and since then China’s consumer prices have risen. From February through June, the CPI rose between 1.0% and 1.3% year-over-year. The increase slowed to 0.5% in July and accelerated to 0.8% in August. The core rate (excludes food and energy) has risen between 0.8% and 1.8% year-over-year since July 2025. It was slightly firmer last month (1.0% vs. 0.9% in July).

Disclaimer

Yen Short Squeeze Runs into Middle East War Escalation

noreply@blogger.com (Marc Chandler) — Tue, 8 Sep 2026 06:46:31 -0400

The yen’s surge that began in the middle of last week continued today. The greenback fell from above JPY160 to a little below JPY153 today, its lowest level in seven months. There still is no evidence of official intervention. The swaps market continues to price a hike next week and most likely another in December. It has hardly changed since the middle of last week. While the US has strongly advocated tighter Japanese monetary policy, despite US inflation and economy running hotter than Japan’s the Trump administration continues to argue against a Fed hike. President Trump has threatened to halt all trade with countries that the US has a trade deficit unless the Fed cuts rates. Yet clearly the issue that the FOMC faces next week is whether it should hike. None of the officials seem to support a cut. While Trump’s threat is bluster, it shows that even with his appointment of a new Fed chair, the president continues to try to drive monetary policy, and its pressure on Governor Cook as not gone away.

Outside of the yen and the Canadian dollar and Norwegian krone, the US dollar is firmer against the G10 currencies, and most emerging market currencies. New hostilities in the Middle East have lifted oil prices further, and fanned risk-off position adjustments. Canada’s retaliatory tariffs kick-in today, and the US is threatening further action against its trading partner that buys 15% of its exports and is the top destination of goods from 34 US states.

Prices

G10

• The euro was firm yesterday on the back of a broadly weaker dollar led by the continued short squeeze of the yen. The euro approached by held below last Thursday’s high near $1.1640. The cap is holding today and is about the halfway point of the pullback from the August 21 high (~$1.1710). Options for nearly 1.3 bln euro expire today at $1.1650. The euro is trading with a heavier bias and looks set to probe $1.16. Support is seen in the $1.1565-85.

• The powerful short squeeze of the yen continued. The dollar fell through JPY155 and almost to JPY154 yesterday. The losses were extended today about JPY152.90. The greenback recovered to about JPY154.25 in the European morning, where it stalled. While there still is no indication of intervention, some remain on guard for a change in tactics.

• While sterling was firm yesterday, it held below the $1.3550 area that capped it in the last two sessions last week. That area corresponds to the (38.2%) retracement of the losses from the August 21 high (~$1.3675). Although sterling briefly traded above it today, it does not signal a breakout, it was greeted by sellers that pushed it to new session lows near $1.3520. Support is seen in the $1.3475-$1.3500 area. The next retracement is near $1.3575 and then $1.3600.

• President Trump’s threat that the Canadian dollar’s (imbalance with the US is unacceptable” and that “it has been that way for years-but no longer” appears to be part of the escalating trade conflict between the two countries. Canada’s retaliatory tariffs are implemented today. It is true that the according to the OCED’s model of purchasing power parity, the Canadian dollar is the third most under-valued G10 currency against the US dollar (~-18.6%) behind the Japanese yen (~-61%) and the euro (~-28.6%). Canada’s overnight target rate at 2.25% is the lowest compared with the US Fed funds since the mid-1990s, which is partly the result impact of the disruption spurred by the US administration. The holiday in the US and Canada yesterday made for quiet trading and the Canadian dollar consolidated quietly within the pre-weekend range. The US dollar traded between CAD1.3805 and about CAD1.3840. The greenback was sold to almost CAD1.3775 today, and buyers emerged ahead of last week’s low (~CAD1.3765). It recovered to a little above C AD1.3800. Initial resistance may be in the CAD1.3820-40 area.

• The Australian dollar rose for the fourth consecutive session yesterday and reached $0.7225, its best level since mid-May. It stalled today and is consolidating quietly, slightly above $0.7200. It looks vulnerable. Nearby support is seen in the $0.7175-$0.7185 area.

• The greenback recorded a new two-year low against the Mexican peso before the weekend (~MXN16.8575) after the push above the 20-day moving average was rejected in the middle of last week. It consolidated yesterday within the pre-weekend trading range and settled firmly slightly below MXN16.93. Today’s risk-off has lifted the US dollar back to MXN16.99, a three-day high. The 20-day moving average is around MXN16.9780 and the dollar has not settled above it since late July.

• The dollar bled lower against the offshore yuan ahead of the weekend. It fell to nearly CNH6.7050, its lowest level since February 2023. It consolidated quietly yesterday and this has continued today. The greenback held below CNH6.7125. The PBOC fixed the dollar slightly higher at CNY6.7795 (from CNY6.7787 last Friday) and today’s was set at CNY6.7804.

• The Reserve Bank of India continues to intervene in the foreign exchange market. Report suggest is operating the offshore and onshore markets. The large inflows from the central bank’s effort to draw in foreign deposits has boosted its reserves and boosted liquidity in the banking system. Overnight borrowing costs are well below the central bank’s policy rates. The dollar traded between about INR94.3725 and INR94.4915 yesterday. The greenback rose slightly above INR94.89 today, helped by the continued rise in oil prices. The gap created last Thursday’s sharply lower dollar extended to about INR94.8425 was filled today, and the dollar settled above its five-day moving average (~INR94.6565) for the first time in a little better than two weeks.

Other Markets

• Most of the large Asia Pacific equity markets rallied yesterday, led the South Korea’s Kospi’s 4.6% surge. Hong Kong, India, and Singapore were notable exceptions. The MSCI Asia Pacific Index has risen in six of the past seven weeks. Higher oil prices are taking a toll today. All of the large bourses in the region fell today. Europe’s Stoxx 600 eked out the smallest of gains yesterday to record its third consecutive gain. However, it is heavier today and has given back the gains of the past two sessions. US index futures are trading with a heavier bias.

• Benchmark 10-year yields rose mostly 4-5 bp in Europe yesterday. While the 10-year JGB yield was practically flat, the longer end of the curve saw yields increase. The 30- and 40-year yields rose almost two basis points to 4.01% and 4.08%, respectively. These gains have been unwound today. European yields are mostly less than a basis point lower, while the 10-year year Treasury yield is firmer, near 4.80%. The US Treasury’s first bond buyback under the “stepped up” plan announced recently will begin tomorrow for at least $14.5 bln.

• Gold consolidated with a heavier bias yesterday. It straddled the $4400 level. Last week’s low was a little below $4283 and the high was nearly $4511. Gold reached almost $4443 today but is back near $4400 late in the European morning. Chinese reserve figures showed the PBOC continued to accumulate gold last month. For its part, silver traded in a little more than a dollar range between $65.40 and $66.75 yesterday, inside last Friday’s range. It made a marginal new three-day high today, near $67.20 but is around a dollar lower in European turnover.

• October WTI rose nearly 9.7% last week, its largest gain since mid-July and the second-largest weekly gain since mid-March. It reached almost $93.15 last week. Yesterday’s low was recorded in early European turnover slightly below $90.90 and recovered to a new high near $93.30 before European markets closed. Houthi attacks on Saudi vessels lifted October WTI to almost $94.75 today. It pulled back in Europe and is now around $93.65. Support is seen in between $92 and $93.

Data

• The US market has had a long weekend digesting the US jobs data. The focus this week turns to prices with the PPI and CPI late in the week. Today’s report of the NY Fed’s August inflation expectation survey and July consumer credit tend not to be market movers. Still, consumer credit rose by an average of $11.25 bln a month in the first six months of the year. It compares with an average of about $8.6 bln in H1 25 and $6.4 bln in H1 24. The NY Fed’s one-year median inflation rate has been between 3.42% and 3.67% since the war on Iran began. It was near the upper end in July. The three- and five-year expectations were 3.3% and 3.0%, respectively in July.

• Yesterday, the eurozone revised Q2 growth to 0.6% from 0.4%, helped by stronger than expected consumption and capex. However, Germany’s July industrial output disappointed economists, especially after the strong factory orders (3.7% month-over-month in June and 2.5% in July). Adding insult to injury, the June industrial production was revised to flat from 0.2%. Today, Germany and France reported July trade figures. The German trade surplus of 21.3 bln euros (seasonally adjusted) was larger than expected and more than the H1 average (17.3 bln euros) and last July’s 17.7 bln surplus. Still exports fell for the first time since January (-0.8%) and imports plunged 5.7% (vs. -1.0% median forecast in Bloomberg’s survey). France’s July trade deficit of 6.7 bln euros compares with an average shortfall of 5.65 bln euros in H1 and 6.26 bln in July 2025.

• Japan reported labor earnings growth accelerated in July. In nominal terms, cash earnings rose 4.7% year-over-year in July, after June’s 3.4% increase was revised to 4.0% in June. Adjusted for inflation, real cash earnings were 2.4% higher than a year ago, up from the revised 2.2% in June (from 1.6% initially). The BOJ has worked up a time series that uses the same sample base for cash earnings. They slowed to 2.8% from 4.8% (initially 4.4%) and the scheduled full-time pay (with the same sample base) rose 2.7% (2.9% in June). Separately, Japan revised up its estimate of growth in Q2 to 1.4% annualized for 1.1%, on what appears to be less of drag from capex. Lastly, Japan reported its July current account surplus. True to form, it improved. It has not failed to improve in July from June for more than 20 years. Japan reported a current account surplus of JPY2.99trillion up from a JPY92.3 bln deficit. The current account surplus in July 2025 was JPY2.59 trillion. Yet, despite the undervalued yen, Japan reported its second consecutive trade deficit (`JPY400 bln) on a balance-of-payments basis. Still, it reported a trade surplus in H1 26 (JPY742.2 bln) compared with a (JPY1.46 trillion) deficit in H1 25 and (JPY2.02 trillion) deficit H1 24.

• China reported a $119.09 bln August trade surplus after the $112.3 bln in July. Exports are a quarter higher than a year ago (23.9% in July). Imports rose 28.2% year-over-year (27.6% in July) Separately, yesterday, Beijing announced it would inject CNY300 bln (~$45 bln) into its largest banks and insurers. It did so with the Ministry of Finance special bond issue. The ostensible reason for the recapitalization was to help facilitate lending and promote financial stability. It was the largest injection in nearly 20 years. Since early 2025, it brings the total government recapitalization to CNY500 bln. Given the size of the economy, banks, and lending, this still seems like modest amounts.

Disclaimer

Week Ahead: Yen in Play, ECB Hikes, and US CPI to Impact FOMC

noreply@blogger.com (Marc Chandler) — Sat, 5 Sep 2026 06:33:21 -0400

The G20 and Shanghai Cooperation Council held their respective summits. The American agenda was to convince countries to take a harder stand against Chinese exports while still threatening some members with sanctions due to trade or facilitating trade with Iran, including airlines. The G20 failed to agree on a statement. Media accounts blamed China. Yet, in 2025, when the US boycotted the G20 meeting, it was still able to produce a statement. For their part, the Shanghai Cooperation Council statement expressed solidarity with Iran. At the very least, the statement suggests that Washington's "Operation Economic Outcast" may not be the economic chokehold advertised. October WTI rose 9.2% last week and settled above $90 a barrel. November Brent rose 8.5% and settled above $95. Despite the jump in oil prices, benchmark 10-year bond yields stabilized with the G7 rates +/- 1.5-2.0 bp.

In the foreign exchange market, the dramatic short-covering rally in the yen looks like large pools of capital, perhaps even pension funds, adjusting positions rather than intervention per se. Three times now (after the April/May intervention, then after the late July operations, and again last week) the dollar held JPY155. The highlight next week includes the reaction to the German state election that could possibly see the AfD secure a majority, which could send reverberations through the German political establishment. The European Central Bank meets, and the market is confident it will deliver another rate hike and keep the door open to additional tightening. At the end of the week, the US reports August CPI. A firm or even steady pace could boost speculation of a Fed hike on September 16.

USA

Drivers: The rolling 30-day correlation between the changes in the Dollar Index and the two-year note yield is near 0.52. It peaked near 0.80 around the mid-June FOMC. Despite the outsized increase in August nonfarm payrolls, and the initial surge in the US two-year yield, as the pre-weekend session extended, the yield pulled back toward the middle of the range and the Dollar Index surrendered most of its initial gains. When everything was said and done, the Fed funds futures has slightly more than 15 bp of tightening discounted this month. It finished with a little more than 14 bp after Fed Chair Warsh's Jackson Hole speech.

Data: The most important data ahead of the September 15-16 FOMC meeting is the inflation gauges at the end of the upcoming week. Some Fed officials, whose June dot suggested they thought a hike would be necessary this year have set the bar. Several have said they want to see a decline in inflation to hold their hand. The year-over-year CPI rate has slowed for the last two months and looks to have slowed a little further in August. Given the base effect, a 0.2% increase last month would see the year-over-year rate slip to 3.3% (from 3.4%). It peaked in May at 4.2%. The same is generally true of the core rate. The year-over-year rate has fallen in the past two months from 2.9% to 2.5%. A 0.2% increase in the core rate, which is its average this year, would allow the year-over-year rate to slip to 2.4%. It has not been lower than that in more than five years.

Prices: Our bullish outlook for the Dollar Index looked good in the first half of last week when DXY reached a little above 99.85, a two-and-a-half-week high. However, with a dramatic short squeeze of the yen, the greenback set a new low for the week on Thursday (~98.85). And despite the stronger than expected job growth, the Dollar Index was unable to rise above Thursday's high (~99.60). Broad consolidation may be the most likely scenario, given Monday's US-Canada holiday, Thursday's ECB meeting (hike) and Friday's US CPI.

EMU

Drivers: Two considerations stand out. First, the results of the Germany state election in Saxony Anhalt can see the populist AfD win its first state election. The key is that it has to win sufficiently to secure majority. In other states, the firewall around the AfD that has effectively blocked it, has forced sometime unstable coalition governments. This is taking place as Le Pen is ahead in the polls in a run-off with the Mélenchon. Chancellor Merz, who had often been critical of Merkel from the right, tried to steer the CDU to the right, but the further he went the further the AfD seemed to go. His tenure as Chancellor could be impacted by the election. Second, there is little doubt but that the ECB will deliver a quarter-point to 2.50% and recognize that inflation risks are on the upside. The swaps market is pricing in a strong chance of a hike and possibly another in Q1 27.

Data: The key data is the ECB meeting on September 10. It is nearly a forgone conclusion that it will hike its key rates by 25 bp, which would lift the deposit rate to 2.50%. We assume that the ECB officials as a whole are not persuaded by the American example of withdrawing forward guidance and being less transparent about its reaction function. Given the strong chance (70%+) of another hike before the end of the year, the market is giving officials a free option. Given that the staff may have to revise up its forecasts for 2027 and 2028 CPI forecasts (2.3% and 2.0%, respectively), ECB President Lagarde could simply suggest that the central bank's work may not be done.

Prices: With the midweek losses the exception, the euro spent last week largely confined to the range set on August 28, the day Fed Chair Warsh spoke at Jackson Hole. That range was roughly $1.1580-$1.1660. The midweek low was almost $1.1565. The euro's resilience in the face of the stronger than expected US jobs growth was notable. The $1.1575 area corresponds to the (38.2%) retracement of the euro's rally from the late July low (~$1.1355) to the August 20 high (~$1.1710). Still, with the momentum indicators still falling, the consolidative/correction phase may not be over.

PRC

Drivers: Beijing's currency management of the market forces has produced an incredibly stable exchange rate. The actually historic volatility over the past month has been about less than 1.4% and about 1.7% in the past three months. Still, within that officials have allowed the yuan to rise a little more than 4% this year, it the sixth strongest emerging market currency this year and only two G10 currencies have outperformed it (Norwegian krone +8.4% and the Australian dollar +7.9%).

Data: This week's data are closely watched. The most important of these are the August trade figures and the CPI. Since China has been finding other channels to recycle the current account surplus, including sovereign wealth funds, as well as portfolio and direct investment, the monthly reserve figures do not capture the attention of the market the way they once did. Europe and America seemed particularly troubled by China's growing trade surplus. Many emerging markets economies are on the other side. They are selling commodities and raw materials to China. Its imports in July were about 27.5% higher year-over-year. Exports, mostly of manufactured goods at both ends of the value chain, were up nearly 24% year-over-year, and therein lies the challenge. The US increasing tariffs and blockage of Chinese goods add to the pressure for Europe (and others) to do the same. China's August CPI and PPI will be reported early on September 9. The general picture will not change. China's measured consumer prices are hardly rising. The headline has risen by about 0.5% year-over-year, and while some disinflation reflects weak demand, the decline in food prices has also been an important driver. The core rate is hovering around 1.0%. China's producer prices were gradually moving out of deflation and the war in Iran helped accelerate the process.

Prices: The dollar fell to almost CNH6.7050 ahead of the weekend. That is lowest level since January 2023, when it traded to CNH6.6975. The median forecast in Bloomberg's survey is for the dollar to finish the year at CNH6.70. This seems too conservative. Subjectively, we suspect it may be closer to CNH6.65, and maybe a little lower.

Japan

Drivers: It does not always hold but it seems fair to say that markets respond more to surprises than to as-expected developments. The market has come around to the view that a BOJ rate hike later this month is about as done of a deal as these things get. Moreover, the pricing in the swaps market implies hawkish guidance toward another hike before the end of the year. Another consideration, of course, is intervention. Indicative pricing in the options market is consistent with the talk of long dollar positions being protected by long put structures, which would cushion the blow of intervention.

Data: The BOJ meeting that concludes on September 18 and a rate hike has become sufficiently discounted to make its absence more unsettling than its delivery. This saps the interest from most of the economic data. Still, the July labor earnings and trade figures may draw interest. In June real cash earnings rose by a revised 2.2% (up from 1.6%) year-over-year. However, higher real wages have not translated into stronger consumption. At the same time that the earnings data will be reported on September 8, Q2 GDP revisions will be announced, but in the first estimate private consumption was flat. The other data point of note is the July current account. Of note, despite the undervalued yen, Japan continues to report a trade deficit, though in the current estimate of GDP, net exports contributed about half of Japan's growth.

Prices: The JPY155 level is key on the dollar's downside. Japan's intervention in April/May and the joint intervention in late July did not drive the greenback below it. Similarly in last week's yen surge, the JPY155 held again. We suspect the upside may be limited to the JPY157.00-JPY157.25 area.

Drivers: Sterling remains sensitive to the US dollar's broad direction. The changes in sterling and the Dollar Index are inversely correlated between about -0.80 and -0.83 for the past 30, 60, and 100 sessions. The correlation between change in sterling and changes in the euro are a little lower but also fairly stable (~0.65-0.75). Relative to short-term interest rates, sterling is inversely correlated with changes in US two-year yields (~-0.25 for 30 days, -0.48 for 60 days, and -0.60 for 100 days). Sterling is less correlated with changes in short-term UK rates, but the correlation is also inverse. The correlation between changes in the exchange rate and the two-year rate differential is less inverse than US or UK rate changes.

Data: The UK reports July GDP and details on September 11. The World Cup and the heat wave is thought to have boosted UK June GDP by 0.3%. The economy appears to have cooled. After growing by 0.4% quarter-over-quarter in Q2, the median forecast in Bloomberg's survey is for a meager 0.1% expansion in Q3. The swaps market sees only a slight change (~10%) of a rate hike at the September 17 Bank of England meeting. That said, the market has a hike fully discounted by the year and another one by the end of Q1 27.

Prices: Sterling's retreat from the $1.3675 high on August 21 extended to $1.3475 in the middle of last week. It forged a possible base there. It must re-establish a foothold above the $1.3550 area to lift the tone, and even then, the $1.3575-$1.3600 area may be more important, technically. The momentum indicators are still falling, and the trendline connecting the June and July lows will come in around $1.3550 at the end of next week.

Canada

Drivers: A hawkish hold by the Bank of Canada helped fuel a dramatic recovery in the Canadian dollar in the middle of last week. The Bank of Canada's overnight target rate is below the Federal Reserves by the most since the late 1990s. The US dollar's movement against the Canadian dollar is more correlated with the two-year rate differential, as theory would suggest, than US or Canadian rates separately. Over the past 30 sessions, changes in the USD vs. CAD and US two-year yields, the correlation is a little less than 0.35 and a little below 0.37 for the past 60 sessions. The correlation with Canada's two-year yield is about -0.38 over the past 30 sessions and about -0.25 for the past 60 sessions. The correlation between the exchange rate and changes in the two-year differential is slightly above 0.70 for both the past 30 and 60 sessions.

Data: There are no government economic reports in the week ahead. The Bank of Canada met last week and left its overnight target rate at 2.25%. Despite the trade shock, the market continues to anticipate the next move is a hike, and the market has two hikes fully discounted in the next eight months.

Prices: The diverging employment reports favored the Canadian dollar in early August, but the divergence ahead of the weekend weighed on it. The Canadian dollar was the weakest of the G10 currencies before the weekend. It lost a little more than a third of one percent. The Canadian dollar rallied Wednesday and Thursday last week, encouraged by the hawkish hold of the Bank of Canada and the broadly weaker US dollar. The greenback's low last week was about CAD1.3765. Recall that it settled at CAD1.3760 before the US-Canadian trade talks collapsed. The pre-weekend US dollar bounce saw it recover slightly above CAD1.3870, which met the (61.8%) retracement of the Wed-Thurs slump. The CAD1.39 area offers initial resistance and last week's high was around CAD1.3940. A move above there targets CAD1.40 next.

Australia

Drivers: Over the past 30 sessions, changes in the Australian dollar are more inversely correlated with the Dollar Index (-0.65) than correlated with changes in the US two-year yield (~-0.32) or Australia's two-year yield (~0.32). The 30-day correlation of changes in the exchange rate and the two-year yield differential is near 0.45, while the correlation with gold is almost 0.57.

Data: Australian data is limited to a couple of banks' confidence surveys and the Melbourne Institutes Consumer Expectation survey. The central bank meets September 29. The recent string of data (including stronger than expected Q2 GDP on the heels of somewhat hotter than expected inflation and strong private sector credit growth) and official comments have encouraged the market to boost the chances of a rate hike to around 66% from a little less than 50% at the end of the previous week and about a 12% chance as recently as August 25. A hike to 4.60% is fully discounted by the end of the year in the futures market.

Prices: The Australian dollar fell to about $0.7120 in the middle of last week. Although it was the lowest it had been since August 21, it still managed to hold above the 20-day moving average. The Aussie rose to $0.7215 before the weekend, a new high since mid-May. The Australian dollar posted an outside up week. It traded on both sides of the previous week's range and settled above it higher. Initial resistance may be around $0.7250 but the big target is the four-year high from May (~$0.7280).

Mexico

Drivers: Changes in the US dollar against the Mexican peso continues to be more correlated with changes in the JP Morgan Emerging Market Currency Index (~-0.80) than the Dollar Index (~0.65) for the past 30 days. The exchange rate is more correlated with changes in the US two-year yield (~0.45) than changes in Mexico's two-year yield (~0.30).

Data: Mexico reports August vehicle production and exports at the start of the week and industrial production at the end of the week. However, the most important high-frequency data point is August CPI in the middle of the week. The headline rate on a year-over-year basis may rise for the first time since March. It approached the middle of the 2-4% target range in July (3.12%, the lowest since the pandemic). The core rate has been a little stickier and in July it slipped below 4% for the first time since last April. It has fallen moderately since the January peak, slightly above 4.50%. It may have slipped marginally.

Data: Mexico reports August vehicle production and exports at the start of the week and industrial production at the end of the week. However, the most important high-frequency data point is August CPI in the middle of the week. The headline rate on a year-over-year basis may rise for the first time since March. It approached the middle of the 2-4% target range in July (3.12%, the lowest since the pandemic). The core rate has been a little stickier and in July it slipped below 4% for the first time since last April. It has fallen moderately since the January peak, slightly above 4.50%. It may have slipped marginally.

Prices: The US dollar bounce we expected stalled in the MXN17.05-MXN17.07 area. It posted a bearish outside down day on September 3 and follow-through selling ahead of the weekend took it to MXN16.8625. That is a new low since the mid-2024 run-up to the presidential election. The price action reinforced the cap that has formed over the past three weeks. On a weekly basis, the greenback has recorded lower highs for the eighth consecutive week. On a net basis, the US dollar has risen once in the past seven weeks. It is difficult to find meaningful chart support near current levels, but we suspect that there may be scope toward MXN16.80 next.

Disclaimer

Yen Stabilizes as Market Awaits US Employment Data

noreply@blogger.com (Marc Chandler) — Fri, 4 Sep 2026 06:33:02 -0400

The US dollar is mostly consolidating quietly ahead of the employment data. Seasonal factors, and the challenge economists experience in forecasting August job growth in part because of the distortions around local governments and the beginning of the new school year. While Federal Reserve Governor Waller drew attention to next week’s CPI, an unexpected loss of jobs, after July’s loss would pose a serious setback to those who expect a Fed hike later this month. The Fed funds futures have trimmed the odds of a hike this week.

Meanwhile, few are attributing the yen’s two-day surge to intervention. Most accounts attribute it to hawkish comments from the Bank of Japan, speculation of somewhat faster BOJ tightening, and perhaps some adjustment by large pools of capital. The dollar held above JPY155 as it did during the April/May intervention and again in late July. The yen is the weakest of the G10 currencies today, off a little more than 1/3 of 1%. The greenback reached almost JPY156.60 in Europe. Lastly, October WTI is a little softer after rallying for the past four sessions. It is about 9% higher on the week.

Prices

G10

• After falling to a two-week low on Wednesday near $1.1565, the euro jumped to almost $1.1645 yesterday. It was the best level since Fed Chair Warsh delivered hawkish commentary at Jackson Hole at the end of last week. It is consolidating quietly ahead of the US jobs reported in narrow range below the 200-day moving average (~$1.1635). Options for almost 2.5 bln euros expire today at $1.16.

• The dollar was under persistent pressure yesterday against the Japanese yen. The decline was orderly without the kind of spikes seen in past intervention. Still, it was a large move (~2%) and perhaps reflects a change in tactics. Most explanations involved market participants, perhaps even including Japan’s GPIF (Government Pension Investment Fund) buying back short yen positions. The dollar settled more than three standard deviations below the 20-day moving average, reflecting the extreme move. The Bollinger Band is set at two standard deviations. If it was intervention, eventually there will be evidence in the BOJ’s balance sheet and/or the US Treasury’s Exchange Stabilization Fund. The US dollar continues to hold above JPY155, where $2.6 bln in options expire today. On the top side, the JPY157.00-25 area may offer an initial test.

• On the heels of the dollar’s broad decline, sterling recovered from Wednesday’s nearly three-week low of $1.3475 and reached almost $1.3550 yesterday. It stopped a few hundredths of a cent short the (38.2%) retracement of the losses since the six-month high on August 21 (~$1.3675). It is consolidating in about a quarter-cent range below $1.3550. The $1.3575-$1.3600 area may prove more formidable resistance.

• Treasury Secretary Bessent questioned recently how Canada could seriously challenge an economy 12x the size. Yet, last week’s byelections that the Liberals won and the performance of the Canadian dollar arguably teaches the same lesson Ukraine and Iran, in their own ways. The Canadian dollar gains over the past two sessions practically retraced the losses since the US-Canada trade talks broke down. The greenback peaked on Wednesday (~CAD1.3940), its best level since August 13 and tested CAD1.3765 yesterday. The US dollar settled around CAD1.3760 before the fateful weekend that the trade talks failed. Ahead of the US and Canadian employment reports, the US dollar is trading in about a 10-tick rangetheCAD1.3795 settlement. Options for $1.2 bln at CAD1.3800 expire today.

• While the market may be somewhat less sure than it was at the end of last week that the Federal Reserve will hike rates this month, it is more convinced that the Reserve Bank of Australia will. This has helped the Aussie recover from about $0.7120 on Wednesday to a high yesterday around $0.7205. It reached $0.7225 today, its best level since the four-year high, recorded in early May (~ $0.7280). It has pulled back and is straddling the figure in late European morning turnover. There are nearly A$1.3 bln of options at $0.7200 that expire today.

• Emerging market currencies, and especially many of the high yielders, (except Brazil and Türkiye) held up well yesterday as the yen’s gains may signaled unwinding of carry trades. Instead, it looks like some simply shifted the funding leg to dollars from yen. The Mexican peso reached its best level six sessions. The US dollar posted an outside down day against the peso. After setting a three-day high (almost MXN17.03), the dollar reversed lower and was sold through Wednesday’s low. It traded below MXN16.94 for the first time since August 26. Follow-through selling today saw the greenback slip below MXN16.89. The two-year low was recorded on August 24 near MXN16.8875.

• The broad dollar sell-off yesterday had little impact on the yuan. The dollar chopped between about CNH6.7165 and CNH6.7210 throughout the North American session and settled little changed on the day. Today, the dollar has been sold to about CNH6.7085, a new three-and-a-half-year low. Yet given the greenback’s losses, the PBOC had little choice but to set the dollar’s reference rate lower, breaking the sawtooth pattern of alternating directions of the fix on a daily basis. Today, it was set below CNY6.78 for the first time since February 2023 (CNY6.7787 vs. CNY6.7807 yesterday).

• The Indian rupee traded quietly today. The US dollar gapped lower yesterday and recovered to about INR94.4950. It has edged up to INR94.5050 today. It barely entered the gap that extends to Wednesday’s low near INR94.8425.

Other Markets

• The cash S&P 500 index and Nasdaq composite gapped higher yesterday and did not look back. The strong showing fanned the animal instincts and Asia Pacific and European equities rallied. In the Asia Pacific region, the large bourses but mainland China and Australia were exceptions. Europe’s Stoxx 600 is slightly firmer, while the S&P and Nasdaq futures are also a little higher.

• Benchmark 10-year yields fell mostly 3-5 bp in Europe yesterday, though the 10-year Gilt yield was off nearly 10 bp. The Swiss bond was an exception. It edged slightly higher to a little above 0.4% after reporting higher than expected August CPI and Q2 GDP. The market ignored the higher energy prices, which were worrisome earlier this week. The 10-year JGB yield fell four basis points today to settle slightly lower on the week. European yields are mostly a little firmer. The 10-year US Treasury yield is off a basis point to slightly below 4.76%.

• Gold recovered smartly yesterday. It traded above $4500 for the first time this week after having plumbed a little below $4283 on Wednesday. Gold is trading quietly below $4500 but above $4460 as it awaits clearer directional cues. It needs to overtake the $4330-$4340 area to signal a run toward late August higher near $4700. For its part, silver’s bounce stalled yesterday fractions of a penny shy of Monday’s high, which itself was slightly below $67.50. It is trading a little heavier today and has spent most of the session so far below the almost $67 settlement.

• October WTI steadied yesterday after setting a new contract high near $93.15. To put that in perspective, note that the rolling front-month contract peaked near $119.50 on March 9 and has not been above $93.50 for almost three months. It is trading inside yesterday’s range today. It held above $90 but faltered a little above $92.

Data

• The US jobs report is the key event of the day. The median forecast in Bloomberg’s survey is for a 55k increase, though the risks are on the downside. Bloomberg notes that August jobs report has tended to disappoint expectations. The potential downside risk emanates from state and local government and involves education. There is a decline in public school enrollments and, reportedly, around half the districts are cutting staff and/or budgets. In five of the last six Augusts, there has been deterioration from July, and in July 2026, the initial estimate is that the US lost 23k jobs. The US shed 70k jobs in August 2025 and gained 9k in August 2024. In the modern era, the Fed has not lifted rates following back-to-back declines in non-farm payrolls. The Fed funds futures have about a 63% chance of a hike discounted ahead of the report.

• Canada’s August jobs data also will be reported. Canada created about 69k jobs in the first seven months of the year, down from around 84k in Jan-July 2025. Last August, Canada lost 4k jobs. The unemployment rate stood at 6.4% in July, the lowest since May 2024. It has eased for the last three months. Barring a significant surprise, with the Bank of Canada standing pat on Wednesday and not meeting again until late October, the Canadian report will be overshadowed by the US data.

• Mexico’s June capex and consumption data and the July Leading Indicators typically have little market impact, and this may be especially true given the market sensitivity to the US employment data.

• The eurozone reported disappointing retail sales today. The median in Bloomberg’s survey was for a 0.2% rise, but the precipitous drop of 3.4% in Germany seemed to suggest it was exaggerated. It came in at -0.6%. However, the sting was lessened by the upward revision in the June series to 0.2% from -0.3%. Separately, Germany reported the second consecutive jump in factory orders. The 2.5% rise was more than expected and followed a 3.7% jump in June. Domestic orders rose by 9.1% (9.0% in June) month-over-month. Foreign orders fell by 2.1% (0.3% in June). Lastly, Germany’s construction PMI rose to 48.7 (from 42.1) and is the highest for the year.

• The UK’s August construction PMI unexpected soften (44.3 vs. 44.7). It stalled after two months of improvement, but it has been below the 50 boom/bust level since the end of 2024.

• Japan reported July household spending figures today. It fell 3.6% year-over-year, a much sharper decline than expected. Household spending has not risen since last November. Labor earnings will be released early next week but real earnings have risen year-over-year every month of the year. Consumption was a small drag on GDP in Q2.

Disclaimer

The Yen Squeezes Higher, Though Official Fingerprints are Elusive

noreply@blogger.com (Marc Chandler) — Thu, 3 Sep 2026 06:43:17 -0400

The main story today is the Japanese yen. It is sharply higher today. The move began early North America yesterday. No one claimed intervention and many, including ourselves, thought it may have been a rate check. An initial look at the BOJ’s balance sheet suggests that Japan likely did not intervene yesterday. The dollar trended lower through the European morning today, but the price action was smooth and not spikey as intervention often appears. The dollar’s weakness against the yen spilled over and dragged it lower against most the other major currencies.

Meanwhile, the Middle East hostilities continue and October WTI is at a new contract high near $93. However, pressure on bond yields appears limited today, with benchmark 10-year yields in Europe softer and the US 10-year Treasury yield little changed. Tomorrow sees the market sensitive US jobs report and ahead of it, short-term participants’ confidence appears to have been shaken.

Prices

G10

• After being sold to almost $1.1565 in late in the Asia Pacific session yesterday, the euro rose to session highs in early North American trading amid a sharp bounce in the yen, which some suspected was intervention. It reached almost $1.1610. The broad dollar set back today has seen the euro reach $1.1615. Nearly 1.3 bln options at $1.1625 expire today, and the intraday momentum indicators are stretched. A smaller stack of about 920 mln euro options at $1.1600 also expire today.

• The dollar sold off against the yen from around JPY159.70 to almost JPY158.20 relatively quickly in the North American morning. Some suspected intervention but we would not be surprised to learn it was a rate check, perhaps done at the US Treasury’s request. The dollar recovered to almost JPY159 by midday in NY. With slightly softer US rates, the market was denied fundamental cover to take the dollar much higher. Comments from BOJ Governor Ueda supported market expectations for a rate hike later this month, while a noted hawk on the central bank’s board (Takata) raised the possibility of a larger (than 25 bp) move. The dollar stalled early today near JPY159, and the decline has been steady to slightly below JPY156.20 in Europe. The price action itself does not look like intervention. It has been smooth. Bloomberg reports that a preliminary review of the BOJ’s balance sheet suggests it did not intervene yesterday. FT Alphaville estimates that the US Treasury may have sold around 500 mln euros in its intervention operation in July, considerably smaller than many thought. The key level now is JPY155, which was the low in the spring intervention and again more recently. The swap market took the “bait” and now has slightly more than a quarter point hike discounted. The swaps market has about 49 bp of tightening priced before the end of the year, up from 40 bp at the end of last week and about 22 bp before the intervention in late July.

• Two weeks ago, sterling reached a six-month high near $1.3675. Yesterday, it reached a low near $1.3475, its lowest level since August 13. It bounced but stalled slightly below the session high recorded in the Asia Pacific session (~$1.3520). Sterling met retracement target of the rally since the June and July lows, but the momentum indicators are still falling, suggesting the move it now complete. It is trading quietly today in a little more than a quarter of a cent above $!.3480. A break of $1.3475 signals the next leg down that may extend into the $1.3400-$1.3445 area.

• The Canadian dollar got a bigger lift from the Bank of Canada’s hawkish hold than the New Zealand dollar got on the RBNZ rate hike and signal that another one is likely before the end of the year. The Canadian dollar settled about 0.4% higher, while the New Zealand dollar lost about 0.7%. The greenback posted an outside day—after reaching its best level since August 13 (~CAD1.3940), it fell through Monday and Tuesday’s low and briefly traded below CAD1.3840. Still, it settled slightly inside Tuesday’s range. With yesterday’s losses, the US dollar nearly met the (50%) retracement of the gains scored in the wake of the breakdown of trade negotiations with the US. The next retracement (61.8%) is near CAD1.3810 has been met today. Nearby support is seen in the CAD1.3780 area.

• Even after Australia reported slightly stronger than expected Q2 GDP yesterday, the Australian dollar continued to sell off. It reached almost $0.7120 in early in the North American session before it recovered to new session highs near $0.7175. It stalled in front of Tuesday’s high, slightly above $0.7180. It extended the gains marginally today to almost $0.7180. Last week’s high was almost $0.7210.

• The Mexican peso consolidated in quiet turnover yesterday. For the third time in four sessions, the greenback tested the 20-day moving average but could not establish a foothold above it. The 20-day moving average is near MXN17.0125 today, and the dollar’s high so far is almost MXN17.03. With a brief exception on Tuesday, the US dollar has largely remained within last Friday’s range (~MXN16.9440-MXN17.0645). The Brazilian real rose by almost 1%, and while it led the Latam currencies higher, it was unable to best the South Korean won’s gain (~1.05%), which was the top EM performer yesterday. The Bovespa rallied nearly 3% yesterday and extended its rally for the 11th consecutive session.

• The dollar was turned back from about CNH6.7265 against the offshore yuan and fell to a marginal five-day low near CNH6.7160 yesterday. It has mostly traded between CNH6.7160 and CNH6.7200 today. The multiyear low was recorded on August 25 slightly below CNH6.7130. For a little more than a week, the PBOC has been alternating daily between higher and lower dollar fixes. Yesterday’s fix was slightly higher and today’s was slightly lower but at a marginal new three-and-a-half-year low (CNY6.7807 vs. CNY6.7829 yesterday). The previous multiyear low was set on August 20 at CNY6.7808.

• News that $136 bln flowed into India in the special initiative to attract deposits from overseas citizens was well above expectations lifted the Indian rupee today. This is seen building the central bank’s war chest for intervention. The rupee rose about 0.5% today, its biggest gain since June. The dollar gapped sharply lower today and fell to almost INR94.27. It settled near its high, INR94.4950. The gap extends to yesterday’s low (~INR94.8425).

Other Markets

• US equities did better than expected yesterday and this, arguably, helped stabilize Asia Paciifc and European equities today. The S&P 500 rose and closed the upside gap created by Tuesday’s low opening. The Nasdaq composite held below Tuesday’s high (~26261). The US index futures are narrowly mixed. The MSCI Asia Paciifc Index snapped six-day advance yesterday but stabilized today. Europe’s Stoxx 600 is fighting for its first gain of the week.

• The US 10-year yield stabilized yesterday around 4.80% after having risen for the previous five sessions from slightly below 4.63% last Tuesday. It is hovering near 4.79% now. A smooth 30-year bond auction and a recovery of the yen helped push Japan’s 10-year yield five basis points lower, after poking above 3% yesterday. European yields are a little softer, though the 10-year Gilt is off three basis points.

• Gold held a key retracement objective yesterday and recovered to settle higher on the day. Gold was initially sold a little through $4283. It reached almost $4400 in North America and nearly $4445 today. To lift the tone, the yellow metal needs to overcome the $4450 area. Silver overshot the (50%) retracement of last month’s rally, which is found around $63.85. It recovered to new session highs, a little above $65.50 before European markets closed. It has risen to about $66.25 today to test the 20-day moving average from below. The week’s high was on Monday around $67.50.

• The war in the Middle East drags on. Iran is not making it easy for the US to have a face-saving exit, but at the same time, a blockade is recognized as an act of war. October WTI slipped below $80 a barrel seven days ago, and it reached almost $92.30 yesterday. It pulled back to around $89 in North America yesterday but recovered back above $91 later in the session. The gains have been extended to almost $92.60 today, a new high for the year for the contract.

Data

• There is a slew of US data today. The most important is likely the new news in the ISM services index, which stood at 54.1 in July. The year’s high was before the war on Iran began at the end of February. It was at 56.1 in February, the highest since July 2022. The July trade deficit is expected to have widened, and this was already in the advance goods balance previously report. Productivity and unit labor costs are not measured directly but are derived from the GDP report. The services and composite PMI are final reading, and the preliminary estimates are usually close enough for market participants. Weekly job claims are overshadowed by tomorrow’s non-farm payroll report.

• Canada reports Q2 productivity, and more importantly, July goods trade balance and the services and composite PMIs. In H1 26, Canada reported a modest trade surplus of about C$4.2 bln. In H1 25, the deficit was nearly C$17.8 bln. In July, the services and composite PMI were below the 50 boom/bust level.

• The eurozone final August services and composite PMI stand at 51.6 (flash was 51.7). The composite PMI is at 52.0 (flash was 52.1 and 52.0 in July). Separately, the year-over-year increase in producer prices accelerated to 5.8% from 4.6%, a bit more than expected. The multiyear high was recorded in May at 5.9%.

• The UK’s final August services PMI was slightly lower than the preliminary reading (52.5 vs.52.8), but the composite PMI confirmed the preliminary estimates of 52.5.

• Australia’s final August PMI stronger than the preliminary estimated. The services PMI rose to 53.2 from 52.9, but still down from 53.6 in July. The composite stands at 52.7 (52.5 flash estimate and 53.2 in July. Unlike Canada, which we noted has swung from a goods deficit to a surplus this year, Australia’s goods surplus has been shaved. It was A$31.7 bln in the first seven months of 2025 and a little less than A$9 bln in Jan-July 2026.

• Japan’s PMI typically does not draw much of a market response and today’s final readings are in line with the preliminary estimates. The services PMI is at 52.5 (vs. 52.3 preliminary estimate) and composite stands at 53.5 (vs.53.4 flash estimate). Japanese investors were net sellers of foreign bonds last week, for the second consecutive week, which practically offset the purchases made in the first two weeks of August, following the late July intervention. The Ministry of Finance weekly report showed that Japanese investors bought small amount of foreign equities last week.

• China’s RatingDog manufacturing PMI surprised on the upside earlier this week and today’s reports also were stronger than expected. The services PMI edged up to 51.4 from 50.4. The composite rose to 52.1 from 50.8. It is the first increase in three months.

Disclaimer

Bond and Equity Sell-Off Continues, Greenback Extends Gains

noreply@blogger.com (Marc Chandler) — Wed, 2 Sep 2026 06:46:51 -0400

The risk averse market conditions persist. Yields are higher and stocks are lower. October WTI set a new contract high as hostilities in the Middle East continue. The S&P 500 and Nasdaq composite could gap lower when the cash session begins, though ADP private sector jobs estimate will be released before the opening.

The US dollar is firmer against almost all the G10 currencies. The yen is faring best and is the exception among the major currencies with a small gain. BOJ Governor Ueda seemed to confirm a rate hike, while a hawkish board member held out the possibility for a larger move. The weakest currency among the G10 is the New Zealand dollar. It is off around 1.4% and is a cautionary note to those who expect the yen to rally on a well-signaled BOJ hike late this month.

Prices

G10

• The euro nearly met the (38.2%) retracement of its losses since the recent highs near $1.1710 before turning lower yesterday. The euro approached lows from Friday and Monday, slightly below $1.1580, and the losses were extended to almost $1.1565 today. It has not been lower since August 17. The five- and 20-day moving averages are set to cross tomorrow. The next downside target is in the $1.1520-30 area.

• It is difficult to hold down dollar-yen now in the rising interest rate environment, at least partly influenced by the renewed rise in oil prices and increased hostilities in the Middle East, not to mention the appreciation in key food prices, and the familiar supply issues. The US Treasury may have it backwards, the weak yen is not driving US yields higher, but higher US yields may be a drag on the yen. The dollar initially rose to almost JPY160.40 before hawkish BOJ comments pushed the greenback below yesterday’s low (~JPY159.65) but it quickly rebounded to almost JPY159.90. Options for more than $1 bln each at JPY159.60 and JPY160 expire today.

• Sterling had a rough time yesterday. Fiscal issues seemed to help account for the sharp sell-off in Gilts. The 10-year rose eight basis points, more than double any major European country. Sterling was sold through last Friday’s low (~$1.3525). Sterling met the (38.2%) retracement of its four-cent rally since late July. It approached the (50%) retracement today (~$1.3475). The five-day moving average crossed below the 20-day moving average for the first time in a month. A break of $1.3475 could target the $!.3430-45 area next.

• The Canadian dollar has traded in a wide range for the past three sessions, and it is breaking lower today. After trading between roughly between CAD1.3845 and about CAD1.3910, the US dollar rose to almost CAD1.3940 today. The next technical target is near CAD1.40. The five-day moving average has crossed above the 20-day moving average for the first time since mid-July.

• Yesterday, the Australian dollar posted its second outside down day in the past three sessions. A firm GDP reading today (0.4% quarter-over-quarter) failed arrest the downside correction. The Aussie took another leg lower today; to nearly $0.7120 so far, where options for almost A$750 mln expire today. The next target is around $0.7100 and then $0.7065. The hike by the Reserve Bank of New Zealand, which was widely expected, has not protected the New Zealand dollar. Its1.5% loss today leads the G10 currencies lower against the greenback (yet somehow, we are to believe that the well-telegraphed BOJ hike would support the yen).

• The Mexican peso set a marginal new three day high before reversing lower. The US dollar fell to almost MXN16.94 in the North American morning to extend the decline that had begun in the European morning. The greenback settled little changed, slightly below MXN17.00. The dollar has come back bid and is pushing above MXN17.02 late in the European morning. Last Friday’s high was near MXN17.0650. Latam currencies were the three best performing emerging market currencies yesterday (Colombian peso, almost 2%, the Brazilian real, around 0.85%, and the Peruvian sol about 0.25%).

• The dollar continues to drift in narrow ranges against the offshore yuan in the trough it is forged for nearly two weeks now (~CNH6.7130-CNH6.7330). It continues to trade on a CNH6.72 handle. The onshore yuan settled at a three-year high on Monday. The fix has been between CNY6.7808 and CNY6.7920 since late July. The firmer dollar tone pointed to a higher fix today. It was set at CNY6.7828 (CNY6.7809 yesterday).

• The dollar traded quietly against the Indian rupee today. Intervention in the offshore and onshore markets was reported. The greenback traded between INR94.8425 and INR94.9775, inside yesterday’s range and settled near session highs.

Other Markets

• Higher oil prices and rising yields are weighing on what were seen as richly valued equity markets and nervous investors. Despite better-than-expected Dell earnings late yesterday, rising yields proved too much for Asia Pacific equities. The Nikkei fell by nearly 3%, South Korea’s Kospi was tagged for almost 4%. China’s CSI 300 fell by about 1.4% and Taiwan’s Taiex was off nearly 1.7%. Europe’s Stoxx 600 is off more than 0.5% for the third consecutive session. US Nasdaq and S&P 500 futures warn of the possibility of a gap lower open in the cash market.

• The 10-year US Treasury yield has risen by almost 14 bp in the past five sessions. The 10-year Bund yield rose about 11 bp and the 10-year Gilt yield increased by 23 bp. The 10-year JGB yield rose by about 10 bp. Today, European yields are 5-7 bp higher. The 10-year JGB yield was practically flat, and the US 10-year yield is up almost two basis points to nearly 4.82%.

• Rising yields dulled the yellow metal. No safe haven here. Gold fell to almost $4326 yesterday, and a little below $4283 today. its lowest level since August 17. It settled below the 20-day moving average for the first time in nearly a month. The next retracement objective is near $4265. The five-day moving average has crossed below the 20-day moving average for both gold and silver. Silve has been sold to about $63.30 today. A break of $63 could signal another $2 decline.

• October WTI jumped 5.2% yesterday and traded above $90 for the first time since May. A new contract high was set today near $92.30 before steadying. The upper Bollinger band is near $90.50 and that is where the contract is hovering in late European morning activity.

Data

• ADP provides its estimate of August’s change in private sector employment. Through July, it’s estimated that the US private sector created an average of 72k jobs a month. The BLS estimate is identical. The median forecast in Bloomberg’s survey is for a 47k increase after 44k in July. Factory orders are expected to rise 0.7% in July after a 0.3% contraction in June. The preliminary estimate is that durable goods order rose 1.1% in July, the most since April. Excluding aircraft orders and defense, they rose 0.2% after a 1.7% jump in June (initially 1.2%).

• There is little chance of a change in Bank of Canada’s monetary setting today. Its overnight target rate is 2.5%. The swaps market has about a 65% chance of a hike before year-end, which seems subjectively high to us. Past the central bank meeting and the data highlight is the August employment report on Friday. Through July, Canada created almost 10k jobs on average a month (recall the economy is about 1/12 the size of the US) and an almost 12k average in the first seven month of 2025.

• Mexico reports August domestic auto sales. They tend not to move the market. Auto sales have risen up about 6.2% in the first seven months of the year. For the record, auto exports are running around twice as much as domestic sales.

• Australia’s GDP slowed from 0.9% in Q4 25 to 0.3% in Q1 26. It grew 0.4% in Q2, slightly better than many expected. Consumption rose by 0.4%, the same as in Q1. Trade and government spending improved but capex fell. The central bank does not meet until late this month, and the futures market is discounting a nearly 80% chance of a hike, up from a little more than 50% yesterday. It was about a 10% probability a week ago. Stronger than expected, July CPI and another strong monthly gain in household spending lifted expectations. The Reserve Bank of New Zealand delivered the expected quarter-point hike earlier today. The new cash rate target is 2.75%. The swaps market is discounting another hike fully before the end of the year.

Disclaimer

The Dollar Bounces Back but US Efforts on Rates and the Yen are Being Challenged as Iran Presses Hard

noreply@blogger.com (Marc Chandler) — Tue, 1 Sep 2026 06:48:31 -0400

After consolidating softer yesterday, the US dollar has come back bid today. It often does better when US rates are rising unlike many of the other major currencies. However, the dollar’s strength does not reflect is successes on the various fronts the Trump administration has made a stance.

The war in the Middle East has escalated and a few ships have been attacked today in the Strait of Hormuz. October WTI is traded at its highest level since May earlier today. The long-end US yields are at new multiyear highs despite the Treasury’s plan to boost buybacks starting this week. The effort to support the yen are being rebuffed as the dollar trades above JPY160, despite high conviction that the Bank of Japan raises rates late this month. While some reports claimed Treasury Secretary Bessent told Japan’s Ministry of Finance and the central bank that its next move should be to raise rates, Japanese officials seemed to play it down, and the Minister of Finance herself cited the BOJ Act, protecting its independence. The swaps market shows high confidence in a BOJ rate hike. It is higher than the US, which has stronger growth and higher inflation.

Prices

G10

• The euro consolidated within the pre-weekend range and reached about $1.1620 in North America yesterday. After reaching $1.1625 in Asia Pacific turnover, the euro was sold slightly below $1.1590 in early European turnover. Options for 1.8 bln euros at $1.1600 expire today. A break of the $1.1575 area may target the $1.1530 area.

• The dollar climbed on rising US Treasury yields before the weekend to test JPY160.20, the highest level against the yen since intervention. Treasury Secretary Bessent told a CNBC audience that “disorderly” yen moves can destabilize global markets. While that is certainly possible, that is not the case now. Recall that before the intervention in late July, benchmark three-month implied volatility was below 7%, the lower end of where it has been since early 2022. The intervention saw implied vol surge to around 8.8%, its highest level since the first part of April. It is now back to about 7.5%. Before the intervention, the swaps market was pricing in almost six basis points of a September hike and now in a little more than 23 bp. Leaving aside theory, we note that the rolling 30-day correlation of changes in dollar-yen and changes in the two-year US yield is about 0.25. The correlation of changes in the exchange rate and Japan’s two-year yield is not even 0.05. The dollar is trading inside yesterday’s range, which was inside last Friday’s range. The consolidation looks constructive for the US dollar.

• Sterling recovered about half of its pre-weekend, Warsh-inspired losses. It reached $1.3565 in North America yesterday. It is also recording in an inside day today, trading between about $1.3530 and $1.3560. It remains within the pre-weekend range (~$1.3525-$1.3600). The intraday momentum indicators are stretched, however, which inclines us to look for downside pressure in North America. Options for al most GBP575 mln at $1.3550 expire today.

• The US dollar briefly traded at two-week high against the Canadian dollar yesterday, slightly above CAD1.3910. It surrendered its gains and recorded a session low near CAD1.3855 in North America. It tested the pre-weekend low, seen before Warsh and the firm Q2 GDP, near CAD1.3845 today. The US dollar recovered and reached the session high in Europe slightly above CAD1.3875. Resistance is seen near the highs from the last two sessions around CAD1.3910.

• After reversing lower before the weekend, the Australian dollar traded quietly yesterday in less than 1/5 of a cent range, mostly between $0.7155 and $0.7170. The Aussie is recording a bearish outside day. It reached slightly above $0.7080 before being sold to about $0.7140. The daily momentum indicators look set to turn lower from over-bought territory. The next chart area to note is near $0.7100, which seems a little far today, given the intraday momentum indicators. The $0.7100-level holds nearly A$665 mln in options expire today and more before the end of the week.

• The Mexican peso consolidated its pre-weekend losses and traded quietly in a narrow range yesterday. The greenback traded between almost MXN16.99 and a little above MXN17.05. It is straddling the MXN17.00 level tightly today. The consolidation looks constructive for the dollar and a close above the MXN17.0350 area lends credence to our near-term favorable dollar outlook. The dollar reached its best level against the Colombian peso since August 4 yesterday. It was the sixth consecutive decline in the Colombian peso. Last week, the new government unveiled a preliminary fiscal deficit for next year of 9.4% of GDP, relying on more borrowing from abroad. Its estimate of borrowing this year is $11 bln higher than anticipated and almost a quarter is expected to be borrowed from abroad. President de la Espriella’s withdrawal of negotiations with some of the rebel groups that began under the former president. Last week the government bombed a position and ordered alleged drug traffickers to be extradited to the US. Separately, Colombia reported that urban unemployment jumped to 8.5% in July from 8.0% in June. A break of the COP3244 area could signal a move toward COP3300.

• The offshore yuan was largely confined to the pre-weekend range and settled firmly yesterday. The US dollar traded between about CNH6.7175 and CNH6.7320. The G20 finance ministers’ meeting yesterday did not appear to give a formal endorsement to US Treasury’s call to review the terms of trade with China. Moreover, the Trump-Xi meeting later this month is seen to lay the groundwork for an extension of the tariff truce that expire in September. At the same time, the Shanghai Cooperation Organization meeting ended today, and it appears many members, including Pakistan and India, do not appear obliged to support the US-touted “Economic D-Day” against Iran. The PBOC shaved the dollar’s fix today to CNY6.7809 (from CNY6.7828 yesterday).

• Despite higher oil prices, the Indian rupee rose to its highest level since July 1 today. The central bank reportedly continued to intervene in the offshore and onshore markets. The dollar gapped lower today and briefly fell below INR94.80. It settled at INR94.50, its lowest close since late June.

Other Markets

• Equities are beginning the month heavily. The S&P 500 and Nasdaq composite gapped lower yesterday, and while the Nasdaq’s gap was closed, the S&P’s was not. In the futures market, both are trading broadly lower. Asia Pacific equities are mostly lower. Japan’s Topix, South Korea’s Kospi, and Taiwan’s Taiex are notable exceptions. Europe’s Stoxx 600 is off nearly 0.8%, and if it is sustained, it would be the largest drop since late July.

• Higher oil prices weighed on bond prices yesterday. Benchmark 10-year yields in Europe and the US rose 3-5 bp yesterday. New high yield levels were reached. Asia Pacific bonds played catch-up today. The generic 10-year JGB traded and settled above 3% yield. Benchmark yields in the region were up 5-8 bp. European yields are up mostly another 3-4 bp today. The 10-year US Treasury yield is up 3-4 bp and is nearing 4.80%. The 30-year benchmark yield is up more than three basis points to slightly above 5.27%.

• Gold extended its pre-weekend loss yesterday and fell about $4397 in the Asia Pacific session. It recovered to around $4464 in Europe before it consolidated in North America, mostly below $4450. Gold recorded its first back-to-back loss in over a month and is off to a poor start in September. It frayed our initial target today near $4365 and looks headed lower. Silver fell to a seven-day low and frayed the 20-day moving average (~$65.90 today) for the first time since early August. It has been sold slightly below $64.50 today and also is poised to fall further.

• The new hostilities in the Middle East saw the October WTI contract gap higher yesterday. It reached almost $86.80 before stalling. Morre ships have been attacked in the Strait of Hormuz today and oil prices are higher. October WTI reached a little more $88 to test July’s high. The August high was about $87.70.

Data

• The preliminary US August manufacturing PMI slipped to 53.2 from 53.9. It implies the slowest growth since March. It is subject to revision today. The August manufacturing ISM is expected to have eased from the 55.6 reading in July, which was its strongest reading since May 2022. Yet the sectors that received the most tariff protection are not the source of the strength in the US manufacturing sector, which is AI and tech related. The July JOLT report will draw some attention. Job openings are projected to decline for the third consecutive month but are expected to remain well above year-ago levels (7.089 in July 2025). Construction spending slipped by 0.1% in June and looks flat in July. Auto sales will trickle in over the course of the session and are projected to slow slightly from the 16.33 mln annual pace in July. If so, it would be the first back-to-back decline since May-June 2025.

• Canada sees its August manufacturing PMI. It rose to a marginal new high of 53.5 in July. It is a busy week for Canada. The Bank of Canada meets tomorrow and there is little doubt but that rates are on hold at 2.25%. July trade figures are due Wednesday and the August jobs report on Friday. Separately, Canada’s Liberal Party won all three elections yesterday and this increased its parliamentary majority to 173-166. It will be seen by many as endorsing Prime Minister Carney’s stance vis a vis the US.

• Mexico’s favorable external balances are bolstered by worker remittance. They are expected to have risen to $5.53 bln in July from $5.47 bln in June. Mexico’s August manufacturing PMI is due (51.3 in July), but the IMEF surveys are weaker. The manufacturing and non-manufacturing readings are expected to have remained below the 50 boom/bust levels.

• The eurozone’s August aggregate manufacturing PMI was slipped to 52.7 in the final reading from the preliminary estimate 52.8, its strongest reading since in a little more than four years. The preliminary August CPI rose 0.4% and lifted the year-over-year rate to 3.3% (from 2.9%). It has not been highest since September 2023. The core rate ticked down to 2.4% from 2.5%. The July unemployment rate was unchanged at 6.4% because the June’s 6.3% was revised to 6.4%.

• The UK’s final manufacturing PMI stands at 51.5, up from the preliminary 51.5. However, new consumer credit data was made available today. July consumer credit expansion accelerated slightly but net mortgage lending and approvals slipped. Prime Minister Burnham will speak to parliament today for the first time as PM as the summer recess ends. Tomorrow is the question session.

• Australia’s final August manufacturing PMI was confirmed at 52.0. The Q2 current account deficit widened to A$27.2 bln from A$25.4 bln in Q1 26. Australia’s current account deficit was 2.7% of GDP in 2025. The IMF expects it to narrow to 2.3% this year, while the OECD projects it to widen to 2.8%. The A$57 bln c/a deficit in H1 26 compares with a A$26 bln deficit in H1 25. Tomorrow, Australia reports Q2 GDP. A 0.3% quarterly expansion would show the year-over-year rate to 1.9% from 2.5%. Separately, the Reserve Bank of New Zealand is widely expected to hike its overnight cash target rate at the second consecutive meeting tomorrow to 2.75%. The swaps market is fully discounting another hike in Q4 26. The market is pricing in another 50 bp of hikes in H1 27.

• Japan reported strong corporate profits (24.6% year-over-year in Q2) but stronger than expected capex, which rose 1.6% year-over-year (after a flat Q1). Excluding software, capex rose 3.6% year-over-year after contracting by 1.4% in Q1. The final August manufacturing PMI slipped to 54.9 from the initial estimate of 55.1.

• Yesterday, India reported solid 7.8% year-over-year growth in Q2 (8.6% in Q1). The economy is expected to slow in H2. Earlier today, the August manufacturing PMI was reported at 52.8, after a preliminary estimate of 52.9. It is the third consecutive monthly decline and the weakest reading it at least three years.

• The “official” Chinese PMI showed a slowed contraction in China’s manufacturing sector, but today’s RatingDog iteration ticked up to 51.5 from 50.9. The RatingDog methodology reportedly gives more weight than the “official” measure to small and medium-sized businesses.

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