Monday, September 26, 2022

Markets Becalmed |


The US yield was hovering around 1.18% in Europe, while the on-the-run JGB benchmark yield was below zero for the first time this year.

and 10-year bond yields were at new six-month lows. The softer yields saw the dollar to two-month lows against the , while the rose to the highest level since last November against the .

Equities appear to like the lower yields. The set a closing record high yesterday, and, with the help of a more constructive tone from Beijing, all the major markets, but , traded higher today. The pushed back above the 200-day moving average.

The Dow Jones was at new record highs today, though US futures were softer. The Antipodeans were the strongest of the major currencies, while the Scandis, , Swiss franc, and Japanese yen posting minor losses.

Emerging market currencies were mixed. and led the advancers, while the and led the decliners. The net effect was that the JP Morgan Emerging Market Currency Index was slightly lower.

was trading quietly and remained within the range set on Monday (~$1805-$1820). September was little changed after recovering from $69.20 to settle above $70.50 yesterday.

API showed another of US stocks, and the DOE is expected to report an almost 3 mln barrels. It has shown one weekly build since mid-May.

was softer for the fourth consecutive session. The Index fell by 0.2% yesterday after falling by more than 1% in each of the previous two sessions.

Asia Pacific

China’s Caixin service PMI was stronger than expected, rising to from 50.3. This lifted the composite to from 50.6. The market’s focus is elsewhere. First, China is experiencing its broadest outbreak of the virus, and lockdowns are likely to spur downward revisions to growth.

Nearly half of China’s 32 provinces are reporting cases, and travel is being discouraged. The economic impact is reinforcing expectations for additional policy support. Second, after appearing to be like the proverbial bull in a china shop, Beijing appears to have softened rhetoric about the video game sector without backtracking on the underlying criticism.

Japan’s service PMI was revised to from the preliminary estimate of 46.4 but remains below the 50 boom/bust level and is weaker than the 48.0 reading in June. This put the composite at 48.8, not 47.7, but slightly lower than June’s 48.9. Worries about the virus and the decline in US and European yields helped drag the JGB yield below zero for the first time this year. However, activity in the benchmark was uneven and low, and yesterday, it did not trade, according to reports. 

Australia’s service and composite PMI were unchanged from the preliminary readings of and 45.2, respectively. In June, the service PMI was at 56.8, and the composite stood at 56.7. The central bank’s decision to proceed with tapering its bond purchases starting next month appears to look past the implications of the weak data, assuming a strong recovery when the lockdown is lifted, but it could last for the rest of the month at least.

Separately, New Zealand reported better than anticipated employment data. The unemployment rate in Q2 fell to from 4.6%, despite the small tick up in the participation rate (to from 70.4%). Employment rose by in Q2 after a 0.6% increase in Q1. The RBNZ meets on Aug. 17. The overnight index swaps imply a 25 bp hike has fully been discounted.

The dollar was trading inside yesterday’s range against the yen (~JPY108.88-JPY109.35). Although the greenback closed above JPY109.00, it continued to straddle the level in Asia. Assuming US Treasuries remain stable, the dollar could extend its recovery, but the JPY109.50 area, where a nearly $550 mln option expires tomorrow, may offer the nearby cap.

The reached its best level in nearly three weeks, around $0.7425. However, it has not closed above the 20-day moving average (~$0.7400) since mid-June. The next target is by $0.7445.

The edged higher today and snapped a three-session drift lower. The dollar wais trading comfortably in the narrow range of roughly CNY6.45 and CNY6.47. The PBOC set the dollar’s reference rate spot on expectations of CNY6.4655.


The final eurozone service PMI was softer than expected, and this served to drag the composite below the flash estimate. The aggregate service PMI stands at , still strong but not as strong as the preliminary estimate of 60.4. It was at 58.3 in June.

The final and readings were below the preliminary estimate, while and were weaker than projected. The composite EMU PMI stands at rather than 60.6, a modest improvement from June’s 59.5.

Separately, the eurozone reported June retail sales rose by , slightly less than expected, and June’s 4.6% rise was shaved to 4.1%. The June data is less important now that has been reported. Still, the takeaway is that the eurozone recovery has gathered strength and is broadening and deepening, 

Meanwhile, the latest poll (Forsa) has Germany’s CDU/CSU leading with 26% support to hold on to its lead over the Greens (205). The SPD is drawing about 16% support, while the FDP is at 13%. Predictit.Org gives Laschet almost a 90% chance of replacing Merkel as Chancellor next month. On another front, Merkle is sending a frigate to the South China Sea for a seven-month deployment, joining the UK and India with a beefed-up presence. It is the first such German deployment in two decades. 

The UK’s final PMI was stronger than expected. The service PMI final reading rose to from the 57.8 estimate and pared the loss from the 62.4 reading in June. The composite PMI stands at , better than the flash 57.7 estimate but still lower than the 62.2 in June. It is the second consecutive decline in the composite PMI, which peaked in May at 62.9.

The BOE tomorrow, and although officials appear more confident in the recovery, there is no need to rush ahead of the expiration of the furlough program. However, the market has begun boosting the chances of a hike in the middle of next year rather than the end.

The euro slipped to test a four-day low near $1.1840 earlier today. It was also the third session of lower highs. It has not been able to resurface above $1.19 after briefly trading above it ahead of last weekend. Without fresh incentives, it may languish for another day or two. Consider an option for nearly 825 mln euros at $1.1855 that expires today and more than 3 bln euros in options that expire tomorrow between $1.1850 and $1.1860.

traded at a three-day high near $1.3950. Although it was firm, it was not going anywhere quickly. Recall, last week’s high was slightly above $1.3980, and support is about a cent lower. Intermittent support was seen in the $1.3900-$1.3910 area.


The US sees the final PMI readings, ISM services, and the ADP’s private-sector job estimate. Earlier this week, the market put more emphasis on the than the final . The same may be true today of services.

The initial reading showed the services PMI slowed for the second consecutive month to 59.8 from 64.4 in June and 70.4 in May. The flash composite fell to , returning to the level last seen in March. The risk is that the ISM services point in the other direction.

After retreating to 60.1 in June from 64.0 in May, ISM services are expected to have edged up to . The ADP private-sector jobs estimate is expected to be around , a little lower than the June estimate. Year-to-date, the ADP has estimated US private-sector jobs growth has averaged 515k this year. The official nonfarm payroll data shows an average monthly gain of 479k private-sector jobs.

Canada reports today ahead of trade figures tomorrow. The economic data highlight remains the July data on Friday.

Politics moves to center stage today as Huawei’s CFO Meng’s extraction procedure enters its last phase. A final decision is expected on Aug. 20. There is said to be a strong presumption in favor of extradition. She is accused by the US of defrauding HSBC by lying about the company’s business dealings with Iran.

Some suggest a scenario by which the US is granted extradition by the Canadian court, and then a political compromise is struck. Canada is in a difficult spot. Critics say that it is not clear that Weng could have a fair trial in the US, but the problem is Ottawa will not be able to please both the US and China and could face retaliation for either outcome.

Brazil reported that industrial output stagnated in June and FIPE CPI ticked up more than expected (July vs. 081% in June). Today, the final PMI will be released, but the focus is on the central bank. After raising rates three times this year by 75 bp each and unable to stem the rise of prices, the central bank is expected to hike the by 100 bp and signal that it is not done. As a result, the market appeared to be discounting another 400-450 bp of tightening over the next 12 months.

The US dollar extended its recovery against the for the third session yesterday, rising to about CAD1.2575, just shy of the 200-day moving average (~CAD1.2590). It was trading quietly, oscillating around the CAD1.2535 area. There is an option for a little more than $1 bln at CAD1.2550 that expires tomorrow. Initial support was seen near CAD1.2515, but it takes a break of CAD1.2500 to be anything notable.

The dollar continued to trade sideways against the . It is the fifth session that the MXN19.80 to MXN19.93 range may prevail. Friday’s US jobs data may inject more volatility. 

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