Tuesday, August 29, 2023

Capital Markets: "Still No Follow-Through Dollar Buying After Last Week's Surge"

 From Marc to Market:

Overview: The dollar was threatening to break higher at the end of last week, and the euro and sterling closed below key supports. However, so far this week, the greenback is consolidating and has not seen follow-through buying. The key data this week, US consumption and jobs, and the eurozone's CPI still lay ahead. The Antipodeans and Norwegian krone enjoy a firmer today. A 0.8% contraction in Sweden's Q2 GDP was not as deep as had been feared, but enough to keep the Swedish krona on the defensive. The G10 currencies are mostly trading in narrow ranges. Emerging market currencies are mixed. The South African rand and Hungarian forint lead the advancers. There is some speculation that Hungary may cut its base rate today.

Stocks in the Asia Pacific extended yesterday's rally, led by Hong Kong and China. Europe's Stoxx 600 is up about 0.5% after gaining 0.9% yesterday. US index futures are narrowly mixed. Bond yields are mostly lower. Benchmark 10-years yields are 2-4 bp lower in Europe, with the exception of UK Gilts, where the yield is slightly firmer after yesterday's holiday. The 10-year US Treasury yield is off one basis point to about 4.19%. The two-year yield has slipped slightly below 5.0%. Note that yesterday, the sold $222 bln in bills and notes and comes back for another $96 bln today (bills and notes). Softer yields help support gold prices. Recall that the yellow metal bottomed last week near $1885 and reached $1926 yesterday. It is firm now near yesterday's highs. October WTI bottomed last week near $77.60 and reached almost $80.90 yesterday. It is holding just below there so far today, testing the 20-day moving average (~$80.75). Talk that OPEC+ may extend production cuts, ostensibly in reaction to anticipated weaker demand from China seems to be neutralizing what appears to be increased Iranian supply....