Wednesday, August 30, 2023

Capital Markets: "Market Awaits US Data and Leadership"

From Marc to Market:

Overview:  The dollar staged a major technical reversal yesterday, in a dramatic reaction to a considerably weaker JOLTs report than expected, spurring a large drop in US interest rates. And this is despite press reports that the participation rate in the survey is half of what was three years ago. We suspect the price action said as much about market positioning as it did about the data. The path to the US jobs data on Friday goes through tomorrow's personal consumption figures, which will speak to robust demand. Follow-through selling of the dollar has been limited in Asia and the European morning. US leadership (and data) are awaited. The euro and sterling are firm, but the other G10 currencies are mostly softer. German states CPI may point to smaller than expected slippage in the national figure (median forecast in Bloomberg's survey is for a 0.3% month-over-month increase, which would allow the year-over-year rate to ease to 6.3% from 6.5%). This and the small rise in Spain's CPI (2.4% vs. 2.1%) have increased the perceived odds of an ECB hike next month. Emerging market currencies are mixed. Hungary and Mexico lead the advancers, while the Turkish lira and South African rand pace the declining EM currencies.

Most of the large Asia Pacific bourses advanced. Reports that Chinese mortgage and deposit rates could be cut today initially helped lift Chinese stocks both on the mainland and in Hong Kong, but the buying dried up and the CSI 300 and Hang Seng finished slightly lower. Europe's Stoxx 600 is falling for the first time this week, giving back about 0.3% after rallying around 1.8% in the past two sessions. US index futures are trading with a bit softer after yesterday's strong advance. European bonds are selling up and benchmark 10-year yield are mostly 6-7 bp higher. Gilts are holding in a bit better, and the 10-year yield is up two basis points, in line with 10-year US Treasuries, which now yield about 4.14%. Despite the rise in rates and the lack of much follow-through dollar selling, gold is consolidating yesterday's $17 rally. It is in an exceptionally narrow $3 range near yesterday's high slightly above $1938. October WTI is firm, extending yesterday's gains toward $81.75. Another sharp drop in oil inventories was reported by API. If the 11.5 mln barrel drop is confirmed, US private oil stocks would be the lowest in a year....