Monday, August 28, 2023

Capital Markets: "Dollar Consolidates as Market Considers Breakout and Rebuffs Beijing's Latest Efforts"

From Marc Chandler at Bannockburn Global Forex:

Overview: Many market participants sense an inflection point is near. The dollar settled last week beyond key levels against several major currencies, bolstered by higher short-term US rates. The market is aware that the Bank of Japan could intervene in the foreign exchange market with the trading near its best levels of the year, and the 10-year JGB yield grinding higher. Beijing cut the tax on equity transactions, will restrict IPOs, and urged some funds to buy more equities than they sold. Still, the equity market gave back around 80% of its initial gains and the yuan weakened after a stronger start. London markets are closed for the summer bank holiday, which has thinned market activity in the European morning. The dollar is a narrow range (~+/- 0.15%) against the G10 currencies. And all but a handful of emerging market currencies are lower. Among the exceptions are the South Korean won and Mexican peso.

Equities are off to a firm start. All the large bourses in the Asia Pacific region were higher, with the Nikkei's 1.7% gain leading the way. Europe's Stoxx 600 is up about 0.55% in the morning, which recoups in full the losses of the past two sessions. US equity futures are trading with a firmer bias. Note that so far this month, the S&P 500 has not posted back-to-back gains. If sustained this week, Bloomberg notes, it would be the first time since April 2002 that the benchmark was unable to gain in two consecutive days for a month. The streak could be at risk today after the S&P 500 posted a modest gain of nearly 2/3 of 1% before the weekend. European bond yields are most 1-2 bp higher, while the 10-year US Treasury yield is about two basis points softer near 4.22%. Gold is little changed in a narrow range roughly $1913.55-$1917.80. October WTI is firm in a narrow range near the pre-weekend high around $80.45.

Asia Pacific
Investors and the media continue to debate and digest the significance of the last week's BRICS summit....