August 30, 2024 at 08:41PM The main driver of US dollar strength over the past number of years was ‘US exceptionalism’. That’s meant stronger growth and higher US interest rates. The stronger growth narrative is still in place — even if it requires a deficit at 7% of GDP — but Fed Chairman Jerome Powell has deconstructed the second part of narrative. His comments suggest the Fed won’t tolerate a rise above 4.4% and that the FOMC plans to cut rates even with strong growth. That’s prompted a re-think in the market and some broad softening of the US dollar (at least until today). This article was written by Adam Button at www.forexlive.com.
Goldman Sachs workers face the annual cull
August 30, 2024 at 08:15PM Goldman Sachs plans to layoff 3-4% of its workforce or between 1300 and 1800 people, according to the WSJ. This shouldn’t come as a surprise as the company trims 2-7% of its workforce annually on performance factors. The layoffs have started and will continue through the autumn. The cutthroat culture finally appears to be making shareholders money after trading virtually flat from 2018 to early this year. This article was written by Adam Button at www.forexlive.com.
US weekly Baker Hughes oil rig count unchanged at 483
August 30, 2024 at 06:03PM Oil is having a rough one today, down 3% after a report said OPEC was planning to proceed with the October production rise. Oil rigs unchanged at 48. Gas rigs -2 This article was written by Adam Button at www.forexlive.com.
David Rosenberg sees a sharp fall in USD/JPY ahead
August 30, 2024 at 05:54PM Global equity semi-permabear David Rosenberg is out with a new commentary and he’s wading into the foreign exchange market with a strong case to sell USD/JPY. He said it “could be the most glaring price anomaly on the planet” and it carries the headline “Want to make a 30% return with little risk? Here’s a rare opportunity to do so.” Those are the kinds of statements that have humbled many men in markets but the former Merrill Lynch analyst isn’t afraid to stir the pot. You can read it here but some highlights: JPY hit 3-decade low in July at 161, now at 146- but story far from over BoJ policy shift: Rate hikes just getting started, bucking global trend Japan’s economic outlook upgraded for first time in 15 months Weak yen boosting inflation: Import prices up 10.8% YoY Mean reversion target: 113 yen per dollar (20% upside) Big Mac Index shows yen 44% undervalued Says to split the difference on a 30% return trade: Long JPY via money markets, no equity/duration risk Key drivers: BoJ tightening vs Fed easing, unwinding of yen carry trades “What has caused the slide in the yen has been the financial repression engineered by the BoJ, but that phase has now come to an end — first via forex intervention and second by rate hikes that are far from over.” This article was written by Adam Button at www.forexlive.com.
Dallas Fed trimmed mean PCE price index for July 1.7% versus 1.8% in June
August 30, 2024 at 05:17PM 12 month trimmed mean 2.7% vs 2.8% prior Looking through the data here are some notable changes: Eggs: Massive increase of 90.9% (annualized 1-month change) Window coverings: Large decrease of -27.3% Used autos: Significant decrease of -25.2% Jewelry: Notable decrease of -20.4% Natural gas: Decrease of -7.7% Physician services: Slight decrease of -2.2% Electricity: Slight increase of 1.3% Fresh milk: Substantial increase of 25.1% The moves in some of the heavier weightings: Owner-occupied stationary homes Change: +4.4% (annualized 1-month % change) Nonprofit hospitals’ services to households Change: -0.8% Other purchased meals Change: +2.6% Physician services Change: -2.2% Tenant-occupied stationary homes and landlord durables Change: +6.0% Final consumption expenditures of nonprofit institutions serving households Change: +11.0% The changes in this report can be very volatile but they’re some indication of what’s happening to prices. To me, the big one is used autos, which are really starting to struggle right now. There is also evidence of building inventories at new dealers. This article was written by Adam Button at www.forexlive.com.
Canadian GDP beat for all the wrong reasons. The market sees a chance of 50 bps next week
August 30, 2024 at 05:10PM On the face of it, the Q2 Canadian GDP report looked good today at 2.1% annualized compared to 1.6% expected. It also handily beat the Bank of Canada’s forecast of 1.5%. The problem is that the composition of growth was in all the wrong places. Consumer spending rose at just a 0.6% annualized rate while government consumption rose at 6.7% annualized rate and contributed 1.3 pp to GDP. Business investment was a positive, rising at an 11.1% annualized rate but stripping it back shows aircraft and transportation driving the gain. Those are notoriously volatile components that don’t speak to underlying economic investment. Meanwhile, rates are biting with residential investment down at a 7.3% annualized rate and undoubtedly worsening as the rates bite. The monthly numbers likely tell the tale that the Bank of Canada will be worried about. GDP was flat in June and the advance report for July was also flat. Both point to a worsening trajectory of growth and so far rate cuts have done little to boost activity in real estate. By sector, manufacturing, construction and wholesale were the largest negatives to growth in June, while utilities was the largest upward contributor: Again a poor signal. The market is now pricing in a 20% chance of a 50 bps cut on Wednesday. The Bank of Canada also isn’t afraid to deliver a surprise, so don’t rule out a faster move. In any case, look for 25 bps cuts at every meeting from now through next year. This article was written by Adam Button at www.forexlive.com.
European close: The fourth week of gains comes with record highs
August 30, 2024 at 04:39PM It was a strong week that finished with some gains, though all indices were well off the session highs. Stoxx 600 +0.2% German DAX +0.1% Francis CAC flat UK’s FTSE 100 flat Spain’s IBEX +0.4% Italy’s FTSE MIB +0.6% On the week: Stoxx 600 +1.4% (record weekly close, fourth week of gains) German DAX +1.6% (record close) Francis CAC +0.8% UK’s FTSE 100 +0.6% Spain’s IBEX +1.2% Italy’s FTSE MIB +2.2% There has been more equity selling in the US following the European close. This article was written by Adam Button at www.forexlive.com.
Choppy trading in the countdown to month end
August 30, 2024 at 04:20PM We saw some US dollar demand into the London fix all week and that was a preview of today’s flows, as the dollar accelerated into the final fix of the month. USD/JPY touched a session high up 76 pips to 145.74, while the Australian dollar also fell to a session low at 0.6775. The euro and pound are slightly above the earlier lows. It’s tough to make sense of market moves at month end as flows top fundamentals. Looking ahead, September seasonals are poor for risk trades but that doesn’t always transfer into the types of moves you would expect in FX. Instead, looks for a healthy dose of fundamentals to dominate, including non-farm payrolls next week and rate decisions from all the majors, starting with the Bank of Canada on Wednesday. The loonie is particularly volatile today after a decent GDP report. Note that it’s a holiday in the US and Canada on Monday so the flows in USD and CAD are particularly strong today. This article was written by Adam Button at www.forexlive.com.
OPEC likely to proceed with planned output hike from October
August 30, 2024 at 02:09PM OPEC+ is set to proceed with a planned oil output hike from October, as Libyan outages and pledged cuts by some members to compensate for overproduction counter the impact of sluggish demand, six sources from the producer group told Reuters. Eight OPEC+ members are scheduled to boost output by 180,000 barrels per day in October, as part of a plan to begin unwinding their most recent layer of output cuts of 2.2 million bpd while keeping other cuts in place until end-2025. For more check this article. This article was written by Giuseppe Dellamotta at www.forexlive.com.
US dollar pops as we count down to month end
August 30, 2024 at 01:58PM The US dollar jumped in the aftermath of the PCE report, though I’m not sure that correlation equals causation. The PCE report was a touch low, highlighting the downtrend in inflation. That should have weighed on the dollar and did initially, albeit slightly. A short time later the dollar rebounded and Treasury yields inched higher in what’s more-likely a case of month-end flows. It was a volatile month in the FX market and USD/JPY in particular. Right now is the most-liquid time of the day in FX and the move was likely an indication of strong flows ahead of the long weekend in the US, with some buy-stops run on the break of the weekly highs as well. This article was written by Adam Button at www.forexlive.com.