Analysis: Why the Fed Might Welcome a Bond Market Tantrum

Persistently low yields are a feature of bond markets across the developed world, with central banks mostly in no hurry to raise interest rates and a global savings glut that keeps debt securities in constant demand.

But it is in the United States that the contradiction between economic recovery and bond yields is starkest.

Even with growth tipped to surpass 6% this year and a “taper” in sight for the Fed’s bond-buying programme at the end of this year, 10-year yields are still stuck at just above 1.3%..

The Fed probably rejoiced at low yields in the initial stages of the economic recovery, but now needs bonds to respond to the end of pandemic-linked recession, said Padhraic Garvey, head of research for the Americas at ING Bank.

Current pricing, analysts say, looks more consistent with heightened economic uncertainty, whereas higher yields would align markets more with the signals coming from central banks.

“To facilitate that, we argue that there needs to be a tantrum. If the Fed has a taper announcement … and there is no tantrum at all, that in fact is a problem for the Fed,” ING’s Garvey said.

Analysts say a bond market tantrum would involve yields rising 75-100 basis points (bps) within a couple of months.

The original “taper tantrum” in 2013 boosted U.S. yields just over 100 bps in the four months after then Fed boss Ben Bernanke hinted at an unwinding of stimulus measures.

But that kind of sudden jump in yields looks unlikely right now, given how clearly the Fed has telegraphed its plans to taper its bond-buying. And as 2013 showed, bond market tantrums carry nasty side-effects including equity sell-offs and higher borrowing costs worldwide.

A happy medium, analysts say, might be for benchmark yields to rise 30-40 bps to 1.6-1.8%

FED AND BANKS NEED AMMUNITION

Besides wanting higher yields to better reflect the pace of economic growth, the Fed also needs to recoup some ammunition to counter future economic reversals.

The Fed funds rate – the overnight rate which guides U.S. borrowing costs – is at zero to 0.25%, and U.S. policymakers, unlike the Bank of Japan and the European Central Bank, are disinclined to take interest rates negative.

The Fed won’t want to find itself in the position of the ECB and BOJ, whose stimulus options at the moment are limited to cutting rates further into negative territory or buying more bonds to underwrite government spending.

Jim Leaviss, chief investment officer at M&G Investments for public fixed income, said policymakers would probably like the Fed fund rate to be at 2%, “so, when we end up in the next downturn, the Fed will have some space to cut interest rates without hitting the lower bound of zero quickly”.

Another reason higher yields might be welcomed is because banks would like steeper yield curves to boost the attractiveness of making longer-term loans funded with short-term borrowing from depositors or markets.

Thomas Costerg, senior economist at Pictet Wealth Management, notes that the gap between the Fed funds rate and 10-year yields of about 125 bps now is well below the average 200 bps seen during previous peaks in economic expansion.

He believes the Fed would favour a 200 bps yield slope, “not only because it would validate their view that the economic cycle is fine but also because a slope of 200 bps is healthy for the banking sector’s maturity transformation.”

GRAVITATIONAL FORCE

But even a tantrum might not bring a lasting rise in yields.

First, while the Fed may look with envy at Norway and New Zealand where yields have risen in expectation of rate rises, it has stressed that its own official rates won’t rise for a while.

Structural factors are at play too, not least global demand for the only large AAA-rated bond market with positive yields.

The Fed also, in theory at least, guides rates towards the natural rate of interest, the level where full employment coincides with stable inflation.

But this rate has shrunk steadily. Adjusted for projected inflation, the “longer-run” funds rate – the Fed’s proxy for the natural rate – has fallen to 0.5% from 2.4% in 2007. If correct, it leaves the Fed with little leeway.

Demographics and slower trend growth are cited as reasons for the decline in the natural rate though a paper https://bit.ly/3nVMxMv presented last month at the Jackson Hole symposium also blamed a rise in income inequality since the 1980s.

The paper said the rich, who are more likely to save, were taking a bigger slice of overall income and the resulting savings glut was weighing on the natural rate of interest.

“One lesson from this year is that there is massive gravitational force, a price-insensitive demand which is pressing down on Treasury yields,” Pictet’s Costerg said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Stefano Rebaudo; Additional reporting by Dhara Ranasinghe in London and Dan Burns in New York; Editing by Sujata Rao and David Clarke)

 

China Evergrande Contagion Concerns Rile Global Markets

Shares in Evergrande, which has been scrambling to raise funds to pay its many lenders, suppliers and investors, closed down 10.2% at HK$2.28 on Monday, after earlier plummeting 19% to its weakest level since May 2010.

Regulators have warned that its $305 billion of liabilities could spark broader risks to China’s financial system if its debts are not stabilised.

World shares skidded and the dollar firmed as investors fretted about the spillover risk to the global economy. U.S. stocks were sharply lower, with the S&P 500 down nearly 2%.

A major test comes this week, with Evergrande due to pay $83.5 million in interest relating to its March 2022 bond on Thursday. It has another $47.5 million payment due on Sept. 29 for March 2024 notes.

Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

In any default scenario, Evergrande, teetering between a messy meltdown, a managed collapse or the less likely prospect of a bailout by Beijing, will need to restructure the bonds, but analysts expect a low recovery ratio for investors.

Evergrande’s troubles also pressured the broader property sector, with Hong Kong-listed shares of small-sized Chinese developer Sinic Holdings down 87%, wiping $1.5 billion off its market value before trading was suspended.

Evergrande executives are working to salvage its business prospects, including by starting to repay investors in its wealth management products with real estate.

“(Evergrande’s) stock will continue to fall, because there’s not yet a solution that appears to be helping the company to ease its liquidity stress, and there are still so many uncertainties about what the company will do in case of a restructuring,” Kington Lin, managing director of Asset Management Department at Canfield Securities Limited, said.

Lin said Evergrande’s shares could fall to below HK$1 if it is forced to sell most of its assets in a restructuring.

“As of right now, I don’t see any systemic risk for the global economy from the Evergrande situation, but there doesn’t need to be any systemic risk in order for markets to be affected,” David Bahnsen, chief investment officer, The Bahnsen Group, a wealth management firm based in Newport Beach, Calif, said in emailed commentary.

There was some confidence, however, that the situation would be contained.

“Beijing has demonstrated in recent years that it is fully able and willing to step in to stem widespread contagion when major financial/corporate institutions fail,” Alvin Tan, FX Strategist at RBC Capital Markets, said in a research note.

DOLLAR BONDS

Despite mounting worries about the future of what was once the country’s top-selling property developer, analysts, however, have played down comparisons to the 2008 collapse of U.S. investment bank Lehman Brothers.

“First, the dollar bonds will likely get restructured, but most of the debt is in global mutual funds, ETFs, and some Chinese companies and not banks or other important financial institutions,” said LPL Financials’ Ryan Detrick.

“Lehman Brothers was held on nearly all other financial institution’s books,” he said. “Secondly, we think the odds do favor the Chinese communist government will get involved should there be a default.”

Policymakers in China have been telling Evergrande’s major lenders to extend interest payments or rollover loans, but market watchers are largely of the view that a direct bailout from the government is unlikely.

The People’s Bank of China, its central bank, and the nation’s banking watchdog summoned Evergrande’s executives in August in a rare move and warned that it needed to reduce its debt risks and prioritise stability.

Trading of the company’s bonds underscore just how dramatically investor expectations of its prospects have deteriorated this year.

The 8.25% March 2022 dollar bond was traded at 29.156 cents on Monday, yielding over 500%, compared to 13.7% at the start of year. The 9.5% March 2024 bond was at 26.4 cents, yielding over 80%, compared to 14.6% at the start of 2021.

PROPERTY PUNISHED

Goldman Sachs said last week that because Evergrande has dollar bonds issued by both the parent and a special purpose vehicle, recoveries in a potential restructuring could differ between the two sets of bonds, and the process may be prolonged.

Investors, meanwhile, are increasingly worried about the contagion risk, mainly in the debt-laden Chinese property sector, which along with the yuan came under pressure on Monday.

The yuan fell to a three-week low of 6.4831 per dollar in offshore trade.

Hong Kong-listed Sinic, which saw massive selling pressure, has nearly $700 million in offshore debts maturing before June 2022, including $246 million due in a month — a bond which has tumbled to around 89 cents on the dollar.

Sinic has a junk rating from Fitch, which downgraded its outlook to negative on Friday.

Other property stocks such as Sunac, China’s No.4 property developer, tumbled 10.5%, while state-backed Greentown China shed around 6.7%.

Guangzhou R&F Properties Co said on Monday it was raising as much as $2.5 billion by borrowing from major shareholders and selling a subsidiary, highlighting the scramble for cash as distress signals spread in the sector.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 7.7863 Hong Kong dollars)

(Reporting by Clare Jim; additional reporting by Tom Westbrook and Alun John; Writing by Sumeet Chatterjee; Editing by Shri Navaratnam; Mark Potter and Alexander Smith)

The Week Ahead – Central Banks back in Focus with the BoE and the FED in Action

On the Macro

It’s a quiet week ahead on the economic calendar, with 37 stats in focus in the week ending 17th September. In the week prior, 62 stats had also been in focus.

For the Dollar:

Prelim private sector PMIs for September will be in focus on Thursday.

Expect the services PMI to be the key stat of the week.

Other stats include housing sector data that will likely have a muted impact on the Dollar and the broader market.

The main event of the week, however, is the FOMC monetary policy decision on Wednesday.

With the markets expecting the FED to stand pat, the economic and interest rate projections and press conference will be pivotal. FED Chair Powell prepped the markets for the tapering to begin this year. The markets are not expecting any hint of a shift in policy on interest rates, however…

In the week ending 17th September, the Dollar Spot Index rose by 0.66% to 93.195.

For the EUR:

It’s a relatively busy week on the economic data front.

Prelim September private sector PMIs for France, Germany, and the Eurozone will draw plenty of interest on Thursday.

While Germany’s manufacturing PMI is key, expect influence from the entire data set. Market concerns over the economic recovery have tested support for riskier assets. Softer PMI numbers would test EUR support on the day.

For the week, the EUR fell by 0.75% to $1.1725.

For the Pound:

It’s a relatively busy week ahead on the economic calendar.

On the economic data front, CBI Industrial Trend Orders and prelim private sector PMIs are due out.

Expect the services PMI for September to be the key stat on Thursday.

While the stats will influence, the BoE’s monetary policy decision on Thursday will be the main event.

Persistent inflationary pressure has raised the prospects of a sooner rather than later move by the BoE. Weak retail sales figures have made things less clear, however.

Expect any dissent to drive the Pound towards $1.40 levels.

The Pound ended the week down by 0.71% to $1.3741.

For the Loonie:

It’s another quiet week ahead on the economic calendar.

Early in the week, house price figures for August are due out. The numbers are not expected to have a material impact on the Loonie, however.

Retail sales figures for July, due out on Thursday, will influence, however. Another sharp increase in spending would deliver the Loonie with much-needed support.

The Loonie ended the week down 0.57% to C$1.2764 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

There are no major stats to provide the Aussie Dollar with direction.

While there are no major stats, the RBA monetary policy meeting minutes on Tuesday will influence. The markets will be looking for forward guidance following the latest lockdown measures.

The Aussie Dollar ended the week down by 1.05% to $0.7279.

For the Kiwi Dollar:

It’s another quiet week ahead.

Early in the week, consumer sentiment figures for the 3rd quarter will be in focus.

Trade data, due out on Friday, will be the key numbers for the week, however.

Away from the economic calendar, however, COVID-19 news updates will also be key.

The Kiwi Dollar ended the week down by 1.03% to $0.7040.

For the Japanese Yen:

It’s a relatively busy week on the economic calendar.

Inflation and prelim private sector PMIs are due out on Friday. We don’t expect the numbers to influence the Yen, however.

On the monetary policy front, the BoJ is in action on Wednesday. We aren’t expecting any surprises, however, as the Delta variant continues to deliver economic uncertainty.

The Japanese Yen rose by 0.01% to ¥109.93 against the U.S Dollar.

Out of China

There are also no major stats due out of China for the markets to consider, with the Chinese markets closed early in the week.

On the monetary policy front, the PBoC is in action. We don’t expect any changes to the Loan Prime Rates, however.

The Chinese Yuan ended the week down by 0.34% to CNY6.4661 against the U.S Dollar.

Geo-Politics

Iran, China, and Russia remain the main areas of interest for the markets. News updates from the Middle East, in particular, will need continued monitoring following recent events in Afghanistan.

The Weekly Wrap – Economic Data and Policy Jitters Delivered a Boost for the Greenback

The Stats

It was a busier week on the economic calendar, in the week ending 17th September.

A total of 61 stats were monitored, which was up from 42 stats in the week prior.

Of the 61 stats, 21 came in ahead forecasts, with 27 economic indicators coming up short of forecasts. There were 13 stats that were in line with forecasts in the week.

Looking at the numbers, 29 of the stats reflected an upward trend from previous figures. Of the remaining 32 stats, 30 reflected a deterioration from previous.

For the Greenback, upbeat economic data and sentiment towards monetary policy delivered support in the week. In the week ending 17th September, the Dollar Spot Index rose by 0.66% to 93.195. In the previous week, the Dollar had risen by 0.59% to 92.582.

Out of the U.S

Early in the week, inflation figures were in focus.

In August, the annual rate of core inflation softened from 4.3% to 4.0% versus a forecasted 4.2%. While softer than expected, 4% continued to sit well above the FED’s 2% target, leaving tapering on the table.

Mid-week, industrial production and NY Empire State manufacturing figures were market positive.

On Thursday, retail sales, Philly FED Manufacturing PMI, and jobless claims figures were of greater interest, however.

In August, retail sales increased by 0.7% versus a forecasted 0.2% decline. Core retail sales jumped by 1.8% versus a 0.1% decline. In July retail sales had fallen by 1.1% and core retail sales by 0.4%.

Manufacturing numbers were also upbeat, with the Philly FED Manufacturing PMI increasing from 19.4 to 30.7 in September.

Jobless claims figures failed to impress, however, with sub-300k remaining elusive. In the week ending 10th September, initial jobless claims rose from 312k to 332k. Economists had forecast an increase to 330k.

At the end of the week, consumer sentiment improved, albeit moderately. In September, the Michigan Consumer Sentiment Index rose from 70.3 to 71.0, falling short of a forecasted 72.0.

Out of the UK

It was also a busy week. Employment, inflation, and retail sales figures were in focus. The stats were skewed to the positive.

In August, claimant counts fell by a further 58.6k after having fallen by 48.9k in July. In July, the unemployment rate fell from 4.7% to 4.6%.

The UK’s annual rate of inflation accelerated from 2.0% to 3.25 in August, also delivering Pound support.

At the end of the week, retail sales disappointed, however. Month-on-month, core retail sales fell by 1.2% in August, following a 3.2% slide in July. Retail sales fell by 0.9% after having fallen by 2.8% in July. Economists had forecast a pickup in spending.

In the week, the Pound fell by 0.71% to end the week at $1.3741. In the week prior, the Pound had fallen by 0.23% to $1.3839.

The FTSE100 ended the week down by 0.93%, following a 1.53% loss from the previous week.

Out of the Eurozone

Economic data included wage growth, industrial production, trade, and finalized inflation figures for the Eurozone.

Finalized inflation figures for Spain, France, and Italy were also out but had a muted impact on the EUR.

In the 2nd quarter, wage fell by 0.4%, year-on-year, partially reversing a 2.1% increase recorded in the previous quarter.

Industrial production and trade data were positive, however.

Production increased by 1.5%, reversing a 0.1% fall from June, with the Eurozone’s trade surplus widening from €17.7bn to €20.7bn.

At the end of the week, finalized inflation figures for the Eurozone were in line with prelim figures. The Eurozone’s annual rate of inflation accelerated from 2.2% to 3.0% in August.

For the week, the EUR fell by 0.75% to $1.1725. In the week prior, the EUR had fallen by 0.56% to $1.1814.

The CAC40 slid by 1.40%, with the DAX30 and the EuroStoxx600 ending the week with losses of 0.77% and 0.96% respectively.

For the Loonie

Economic data included manufacturing sales, inflation, and wholesale sales figures.

The stats were mixed in the week.

In July, both manufacturing sales and wholesale sales disappointed with falls of 1.5% and 2.1% respectively.

Providing support, however, was a pickup in the annual rate of inflation from 3.3% to 3.5%.

The pickup in inflationary pressure and rising oil prices were not enough to support the Loonie against the Greenback.

In the week ending 17th September, the Loonie fell by 0.57% to C$1.2764. In the week prior, the Loonie had fallen by 1.34% to C$1.2692.

Elsewhere

It was another bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar fell by 1.05% to $0.7279, with the Kiwi Dollar ending the week down by 1.03% to $0.7040.

For the Aussie Dollar

Business and consumer confidence figures were in focus in the 1st half of the week.

In spite of the latest lockdown measures, the stats were skewed to the positive.

The NAB Business Confidence Index rose from -8 to -5 in August.

More significantly, the Westpac Consumer Sentiment Index increased by 2.0% in September. The index had fallen by 4.4% in August.

On Thursday, employment figures disappointed, however.

In August, full employment fell by 68k following a 4.2k decline in July. Employment tumbled by 146.3k, however, versus a forecasted 90.0k decline. In July, employment had risen by 2.2k.

According to the ABS,

  • The unemployment rate fell from 4.6% to 4.5%, with the participation rate declining from 66.0% to 65.2%.
  • Year-on-year, the number of unemployed was down by 298,000.

For the Kiwi Dollar

It was also a mixed week on the economic data front.

2nd quarter GDP numbers impressed, with the NZ economy expanding by 2.8%, quarter-on-quarter. The economy had expanded by a more modest 1.4% in the previous quarter.

On the negative, however, was a slide in the Business PMI from 62.6 to 40.1 in August. The figures reflected the impact of the latest lockdown measures on production, justifying the RBNZ’s decision to leave the cash rate unchanged.

For the Japanese Yen

It was a relatively quiet week, with the numbers skewed to the negative.

According to finalized figures, industrial production fell by 1.5% in July. While in line with prelim figures, this was a partial reversal of a 6.5% jump from June.

In August, Japan’s trade balance fell from a ¥439.4bn surplus to a ¥635.4bn deficit. Exports rose by 26.2%, year-on-year, after having been up by 37% in July.

The Japanese Yen rose by 0.01% to ¥109.93 against the U.S Dollar. In the week prior, the Yen had fallen by 0.21% to ¥109.94.

Out of China

Fixed asset investment and industrial production figures were in focus mid-week.

There were yet more disappointing numbers from China for the markets to consider.

In August, fixed asset investment increased by 8.9%, year-on-year. This was softer than a 10.3% increase in July.

More significantly, industrial production was up by 5.3% in August versus 6.4% in July.

In the week ending 17th September, the Chinese Yuan fell by 0.34% to CNY6.4661. In the week prior, the Yuan had ended the week up by 0.18% to CNY6.4443.

The CSI300 and the Hang Seng ended the week down by 3.14% and by 4.90% respectively.

Dollar Touches Three-Week High, Lifted by Recent Data, Fed Taper View

The dollar index, a gauge of the greenback’s value against six major currencies, rose to 93.220, the highest since the third week of August. It was last up 0.4% at 93.207.

For the week, the dollar index gained 0.6%, its largest weekly percentage rise since mid-August.

The Fed holds a two-day monetary policy meeting next week and is expected to open discussions on reducing its monthly bond purchases, while tying any actual change to U.S. job growth in September and beyond.

“While we doubt that the FOMC will set out a plan for tapering its asset purchases, the new economic projections may shed some light on its reaction function given building cyclical inflationary pressures,” wrote Jonathan Petersen, markets economist at Capital Economics, in its latest research note.

“Our view remains that inflation in the U.S. will stay elevated for longer than the FOMC and investors currently anticipate, in turn supporting higher U.S. yields and a stronger dollar,” he added.

Speculation about a Fed taper this year gathered pace after U.S. retail sales unexpectedly increased in August, data showed on Thursday, rising 0.7% from the previous month despite expectations of a 0.8% fall. A business sentiment survey also showed a big improvement.

In afternoon New York trading, the euro slid 0.3% to $1.1729, after hitting a three-week low of $1.1724 earlier in the session.

The University of Michigan consumer sentiment for September inched higher to 71 versus the final August reading of 70.3, but overall analysts said the rise was nowhere near the improvements seen in the Empire States and Philadelphia Fed manufacturing surveys.

The dollar held gains after the Michigan sentiment report.

Currency markets were generally quiet on Friday with traders reluctant to take on new positions ahead of a clutch of important central bank meetings next week including the Fed, the Bank of Japan and the Bank of England.

The dollar was up 0.5% against the Swiss franc at 0.9320 francs, after earlier hitting a five-month high of 0.9324 francs .

The dollar rose 0.2% to 109.92 yen.

The yen has shown limited reaction to the ruling Liberal Democratic Party’s leadership race, which formally kicks off on Friday ahead of a Sept. 29 vote. The LDP’s parliamentary dominance means the party’s new leader will become prime minister.

The dollar also rose to a two-week high against the offshore yuan and was last up 0.3% at 6.4711. The yuan is being pressured by growing worries about China’s real estate sector as investors fear property giant China Evergrande could default on its coupon payment next week.

The British pound fell 0.4% to $1.3738 as UK retail sales undershot expectations. However, with investors bringing forward forecasts for a Bank of England interest rate hike to mid-2022, sterling remains supported.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Muralikumar Anantharaman, Alex Richardson and Sonya Hepinstall)

Dollar Index Climbs After U.S. Retail Sales Show Surprise Rebound

The dollar index, which measures the U.S. currency against six others, added to gains following the report and was last up 0.5% at 92.866. It hit its highest level since Aug. 27.

Retail sales rose 0.7% last month, boosted in part by back-to-school shopping and child tax credit payments, while data for July was revised down.

A separate report showed U.S. initial claims for state unemployment benefits increased 20,000 to a seasonally adjusted 332,000 for the week ended Sept. 11. Economists had forecast 330,000 applications for the latest week.

“If you look at the retail sales number, it’s quite constructive even with the revisions, so we are seeing the dollar benefit from that, particularly against the funding currencies like the euro, Swiss and the yen,” said Bipan Rai, North American head of FX strategy for CIBC Capital Markets in Toronto.

The news could bolster investor expectations for next week’s Federal Reserve policy meeting and how soon the U.S central bank will start to taper stimulus.

“It feels like whatever lingering concerns there were with the underlying economy … that was kind of washed away a little bit. So as we move towards the Fed next week, the evidence backs up the idea that we’re going to get a taper signal from the Fed at the meeting,” he said.

On Tuesday, the dollar index fell to a one-week low of 92.321 after a softer-than-expected inflation report. Its low for the month was 91.941, on Sept. 3, when payrolls data disappointed.

Investors are looking for clarity on the outlook for both tapering and interest rates at the Fed’s two-day policy meeting that ends next Wednesday.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy.

It also means the central bank will be buying fewer debt assets, in effect reducing the amount of dollars in circulation, which in turn lifts the currency’s value.

The dollar also gained 0.3% to 109.70 yen , after sliding to a six-week low of 109.110 in the previous session.

The euro was 0.4% lower at $1.1766.

The Swiss franc also fell against the dollar and was last at 0.9263 franc per dollar.

Elsewhere, the Australian dollar was down 0.5% at $0.7296.

Earlier, data showed the country’s jobless rate unexpectedly fell to 4.5%, but the statistics bureau said the change reflected a drop in the participation rate rather than a strengthening of the labor market.

In cryptocurrencies, moves in bitcoin were relatively subdued. It was last down 0.9% at $47,711. Ether changed hands at $3,589, down 0.7%.

AMC Entertainment Holdings Inc boss Adam Aron said in a tweet this week that the theater chain would accept ether, bitcoin cash and litecoin alongside bitcoin for ticket purchases.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Caroline Valetkevitch; Additional reporting by Ritvik Carvalho in London and Kevin Buckland in Tokyo; Editing by Alexander Smith, Mark Potter and Jonathan Oatis)

 

World Shares Slide on Wall Street Sell-Off, China Worries

International investors that have been piling into China in recent years are now bracing for one of its great falls as the troubles of over-indebted property giant China Evergrande come to a head.

The developer’s woes have been snowballing since May. Dwindling resources set against 2 trillion yuan ($305 billion) of liabilities have wiped nearly 80% off its stock and bond prices, and an $80 million bond coupon payment now looms next week.

Hong Kong’s Hang Seng index dropped to its lowest level so far this year.

A report from the U.S. Commerce Department showed retail sales unexpectedly rose in August, indicating America’s economic recovery is strengthening on positive trends in consumer spending. The strong data lifted the dollar and pushed up treasury yields, and sent safe-haven gold down nearly 3%.

However, the U.S. labor market remains under pressure, with initial jobless claims rising by slightly more than expected last week.

Losses on Wall Street were dominated by technology and energy stocks as oil retreated from recent highs now that the threat to U.S. Gulf production from Hurricane Nicholas has receded.

The MSCI world equity index was last down by 0.29%, off an all-time high on Sept. 7. MSCI’s broadest index of Asia-Pacific shares outside Japan closed down 0.87%.

European equities bucked the trend, and Europe’s STOXX 600 closed up 0.44%.

The Dow Jones Industrial Average fell 91.51 points, or 0.26%, to 34,722.88, the S&P 500 lost 11.6 points, or 0.26%, to 4,469.1 and the Nasdaq Composite dropped 15.52 points, or 0.1%, to 15,146.01.

“(Retail spending) categories that were strongest in August were in Covid-beneficiary categories,” wrote Ellen Zentner, chief U.S. economist at Morgan Stanley.

“Now incorporating today’s retail sales release, we lift our real (personal consumer expenditures) tracking to +1.9% and GDP to +5.0%.”

Markets remain focused on next week’s Federal Reserve meeting for clues as to when the U.S. central bank will start to taper stimulus, especially after the flurry of U.S. economic data out this week.

On Tuesday, data from the U.S. Labor Department showed inflation cooling and having possibly peaked, but inflation in Britain was the highest in years, according to data on Wednesday.

“We have an unusual situation where the overall market is sideways to lower but with a  risk-on trend underneath and that’s down to signs the Delta variant may be peaking in the U.S., which is driving people into reflation and recovery plays,” said Kiran Ganesh, head of cross assets at UBS Global Wealth Management.

U.S. crude recently fell 1.2% to $71.74 per barrel and Brent was at $74.69, down 1.02% on the day.

The dollar index rose 0.506%, with the euro down 0.51% to $1.1755.

Spot gold slid 2.1% to $1,755.75 per ounce, after hitting an over one-month low of $1,744.30. U.S. gold futures settled down 2.1% at $1,756.70.

Caught in gold’s slipstream, silver was last down 4.3% at $22.79.

The U.S. 10-year Treasury yield was 1.3327%, while core euro zone government bond yields were little changed.

(Reporting by Elizabeth Dilts Marshall; editing by David Evans and Steve Orlofsky)

Dollar Falters After U.S. Inflation Rise Eases, Safe-Haven Yen, Franc Up

Several Fed officials have suggested the U.S. central bank could reduce its buying of debt securities by the end of the year, but said an eventual interest rate hike would not happen for some time.

The Fed will hold a two-day monetary policy meeting next week, with investors keen to find out whether a tapering announcement will be made.

Tapering tends to benefit the dollar as it suggests the Fed is one step closer toward tighter monetary policy. It also means the central bank will be buying fewer debt assets, effectively reducing the number of dollars in circulation.

Data on Tuesday showing the U.S. consumer price index, excluding the volatile food and energy components, edged up just 0.1% last month has raised doubts about tapering this year, some analysts said.

August’s core CPI rise was also the smallest gain since February and followed a 0.3% rise in July. The so-called core CPI increased 4.0% on a year-on-year basis after gaining 4.3% in July.

“The softer inflation prints caused investors to push back on bets that the Fed could move sooner to taper bond purchases. Easing inflation would take the heat off the Fed to move prematurely,” said Fiona Cincotta, senior financial markets analyst at City Index.

She also cited U.S. core producer prices (PPI) data for August released last week, which also rose at a slower pace. Excluding the food, energy and trade services elements, producer prices rose 0.3% last month, the smallest gain since last November. The so-called core PPI shot up 0.9% in July.

“So the evidence does appear to be building that peak inflation has passed. That said, supply chain bottlenecks are expected to persist for a while so it’s unlikely that either PPI or CPI will drop dramatically or rapidly,” Cincotta added.

In afternoon trading, the dollar index was slightly down at 92.601, moving away from a more than a two-week high on Monday.

The euro was flat against the dollar at $1.1807.

Risk appetite soured on Tuesday as well, with Wall Street shares down while U.S. Treasury prices were up sharply, pushing yields lower.

Investors looked past decelerating inflation and focused on uncertainties about U.S. growth now clouded by the economic impact of the Delta variant.

Against the safe-haven Swiss franc, the dollar dropped 0.4% to 0.9189 francs.

Versus another safe-haven, the Japanese yen, the dollar fell 0.4% to 109.615 ye

In other currencies, the Australian dollar fell to a two-week low after Reserve Bank of Australia Governor Philip Lowe painted a very dovish policy outlook with no rate hikes on the horizon until 2024.

The Aussie dollar was last down 0.7% at US$0.7319. In cryptocurrencies, bitcoin was last up 3.1% at $46,400 . Ether changed hands at $3,344, up 1.9%.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Saikat Chatterjee in London and Shreyashi Sanyal in Bengalaru; Editing by Nick Zieminski and Paul Simao)

 

Embattled Evergrande Warns of Growing Default Risks as Pressures Mount

The real estate giant has been scrambling to raise funds it needs to pay lenders and suppliers, with regulators and financial markets worried that any crisis could ripple through China’s banking system and potentially trigger wider social unrest.

In the latest development, Evergrande said two of its subsidiaries had failed to uphold guarantee obligations for 934 million yuan ($145 million) worth of wealth management products issued by third parties.

That could “lead to cross-default”, which would “would have a material adverse effect on the group’s business, prospects, financial condition and results of operations,” it said in a statement to the Hong Kong stock exchange, without providing further details on the products.

The company’s shares slumped to a six-year low in Hong Kong on Tuesday and the Shanghai bourse halted trading of its listed bonds amid wild swings in its price.

Evergrande said it has appointed Houlihan Lokey and Admiralty Harbour Capital as joint financial advisers, the clearest indication yet that it is looking at restructuring options, analysts say.

The two firms will assess the group’s capital structure, evaluate its liquidity, explore solutions to ease the current liquidity stress and reach an optimal solution for all stakeholders as soon as possible.

“Evergrande’s announcement flags the first step of a restructuring, which usually involves either delay in interest payment, no interest payment or delay together with haircuts,” said James Shi, distressed debt analyst at credit analytics provider Reorg.

He added liquidation would only happen if the restructuring failed.

Evergrande late on Monday said online speculation about bankruptcy and restructuring was “totally untrue”.

That came despite growing markets expectation that Evergrande may need to restructure, after China ruled in August that various lawsuits against the developer would be centrally handled in Guangzhou.

Evergrande said it is talking to potential investors to sell some of its assets, but has made no “material progress” so far.

The company said earlier this month that it was in talks to sell certain assets, including stakes in Hong Kong-listed units Evergrande New Energy Vehicle and Evergrande Property Services.

Pressure on Evergrande – which has 1.97 trillion yuan ($305 billion) in liabilities – has intensified in recent weeks as fears over its ability to repay investors triggered protests that are certain to rattle Beijing.

The company blamed “ongoing negative media reports” for dampening investor confidence, resulting in a further decline in sales in September.

WIDER IMPACT

Shares of the company fell over 10% on Tuesday morning to their lowest since December 2014. Its listed e-vehicle spinoff plunged over 23% and shares of its property management unit dropped 8%.

In the debt market, Evergrande’s June 2025 dollar bonds fell nearly 6 cents on Tuesday late morning to 27 cents, yielding 58.45%, according to financial data provider Duration Finance.

Moves in the company’s highly illiquid onshore bonds were more erratic, with one Shanghai exchange-traded bond surging nearly 23% and triggering a trading halt, while another in Shenzhen dived almost 12%.

Reorg’s Shi said there may be fresh bond selling if Evergrande defaults, but the market spillover would be limited because the risks have mostly been largely priced in.

The bigger risks are likely to be social, he added.

Angry investors gathered near Evergrande’s headquarters in the southern Chinese city of Shenzhen on Monday to demand the firm repay loans and financial products.

The developer’s struggles to quickly sell off assets and avert defaults on its massive liabilities are raising the risk of contagion for other privately-owned developers, fund managers and analysts say.

In a statement on Monday, it said it was facing “unprecedented difficulties” but would do everything possible to resume work and protect the legitimate rights and interests of its customers.

The company’s debt has been repeatedly downgraded by ratings agencies targeting the developer over its struggles to restructure huge debts.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 6.4511 Chinese yuan)

(Additional reporting by Miyoung Kim and Andrew Galbraith; Editing by Shri Navaratnam and Sam Holmes)

The Week Ahead – A Busy Economic Calendar to Test Market Risk Sentiment…

On the Macro

It’s a busy week ahead on the economic calendar, with 62 stats in focus in the week ending 17th September. In the week prior, 42 stats had also been in focus.

For the Dollar:

Inflation figures for August kick things off on Tuesday. We’ve seen labor market numbers disappoint. Another spike in inflation, however, would raise questions over whether the FED can stand pat on policy.

On Wednesday, industrial production figures will be in focus ahead of a particularly busy Thursday.

Retail sales, Philly FED Manufacturing PMI, and weekly jobless claims will be in focus on Thursday.

Expect retail sales and jobless claims to be key.

At the end of the week, consumer sentiment figures for September will also influence.

In the week ending 10th September, the Dollar Spot Index rose by 0.59% to 92.582.

For the EUR:

It’s a quieter week on the economic data front.

Eurozone 2nd quarter wage growth and July industrial production figures will be in focus on Wednesday.

In the 2nd half of the week, trade data and finalized inflation figures for the Eurozone will also influence.

For the week, the EUR fell by 0.56% to $1.1814.

For the Pound:

It’s a busier week ahead on the economic calendar.

Employment figures will draw attention on Tuesday. August claimant counts and July’s unemployment rate will be key.

On Wednesday, inflation figures will also draw plenty of attention ahead of retail sales figures on Friday.

The week’s data set should give the BoE enough data to make a more informed decision on the policy front.

The Pound ended the week down by 0.23% to $1.3839.

For the Loonie:

It’s another quiet week ahead on the economic calendar.

Manufacturing sales on Tuesday and wholesale sales figures on Thursday will influence.

For the week, however, August inflation figures due out on Wednesday will be key stat.

While the stats will influence, crude oil prices and OPEC’s monthly report will also provide direction.

The Loonie ended the week down 1.34% to C$1.2692 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Consumer and business confidence figures will be key on Tuesday and Wednesday.

On Wednesday, inflation figures will also draw interest, though expect employment figures on Thursday to have a greater impact.

Following the latest lockdown measures and the RBA’s more dovish stance, the markets will be looking to assess the damage.

The Aussie Dollar ended the week down by 1.39% to $0.7356.

For the Kiwi Dollar:

It’s another quiet week ahead.

2nd quarter GDP numbers are due out on Thursday ahead of Business PMI numbers on Friday.

Expect the GDP numbers to be key. While the RBNZ hit pause on lifting rates, the markets will be expecting solid numbers.

The Kiwi Dollar ended the week down by 0.63% to $0.7113.

For the Japanese Yen:

BSI large manufacturing conditions data for Q3 and trade data for August due out on Monday and Thursday will be key.

Finalized industrial production figures on Tuesday should have a muted impact on the Yen and the Asian markets…

The Japanese Yen fell by 0.21% to ¥109.94 against the U.S Dollar.

Out of China

Fixed asset investment, industrial production, and retail sales figures on Wednesday will be in focus.

Expect industrial production and retail sales figures to be the key numbers…

The Chinese Yuan ended the week up by 0.18% to CNY6.4443 against the U.S Dollar.

Geo-Politics

Iran, China, and Russia remain the main areas of interest for the markets. News updates from the Middle East, in particular, will need monitoring following recent events in Afghanistan.

The Weekly Wrap – Dovish Central Banks and Concerns over the Recovery Delivered Dollar Support

The Stats

It was a quieter week on the economic calendar, in the week ending 10th September.

A total of 42 stats were monitored, which was down from 81 stats in the week prior.

Of the 42 stats, 20 came in ahead forecasts, with 21 economic indicators coming up short of forecasts. There was just 1 stat that was in line with forecasts in the week.

Looking at the numbers, 21 of the stats reflected an upward trend from previous figures. Of the remaining 21 stats, 21 reflected a deterioration from previous.

For the Greenback, dovish FOMC member chatter failed to deliver Dollar weakness. Concerns over the economic recovery and dovish central banks drove Dollar demand in the week. In the week ending 10th September, the Dollar Spot Index rose by 0.59% to 92.582. In the previous week, the Dollar had fallen by 0.59% to 92.137.

Out of the U.S

Early in the week, JOLT’s job openings for July were upbeat with openings rising from 10.185m to 10.943m. Economists had forecast a decline to 10.000m.

On Thursday, jobless claims were also impressive. In the week ending 3rd September initial jobless claims fell from 345k to 310k.

At the end of the week, wholesale inflation was in focus. In August, the core PPI rose by 0.6% versus a forecasted 0.5%, with the Producer Price Index rising by 0.7% versus a forecasted 0.6%. Both had risen by 1.0% in July.

Out of the UK

Economic data was on the busier side. Early in the week, construction PMI and BRC retail sales monitor figures were skewed to the negative.

In August, the construction PMI fell from 58.7 to 55.2, with the BRC Retail Sales Monitor rising by just 1.5%. The Retail Sales Monitor had risen by 4.7%, year-on-year, in July.

At the end of the week, key stats included GDP, manufacturing and industrial production, and trade data.

In July, the UK economy expanded by 0.1% and grew by 7.5% year-on-year.

While industrial production rose by 1.2%, manufacturing production stalled in July.

Trade figures were mixed, however. The UK’s trade deficit widened from £11.99bn to £12.71bn in July, while the non-EU deficit narrowed from £7.19bn to £6.99bn.

In the week, the Pound fell by 0.23% to end the week at $1.3839. In the week prior, the Pound had risen by 0.78% to $1.3871.

The FTSE100 ended the week down by 1.53%, following a 0.14% loss from the previous week.

Out of the Eurozone

Economic data included factory orders, industrial production, and trade data from Germany.

While the stats were skewed to the positive, there was little support for the EUR, with the markets looking ahead to the ECB policy decision.

ZEW Economic Sentiment figures for Germany and the Eurozone were disappointing, however, pegging the EUR back.

At the end of the week, finalized inflation figures from Germany had a muted impact on the majors.

While there were plenty of stats for the markets to consider, it was ultimately the ECB monetary policy decision and press conference that was the main event.

In line with market expectations, the ECB held policy unchanged and talked of economic uncertainty stemming from the Delta variant. Lagarde did confirm plans to modestly reduce the asset purchasing program. The forward guidance was not enough to deliver a EUR rally, however.

For the week, the EUR fell by 0.56% to $1.1814. In the week prior, the EUR had risen by 0.70% to $1.1880.

The CAC40 fell by 0.39%, with the DAX30 and the EuroStoxx600 ending the week with losses of 1.09% and 1.18% respectively.

For the Loonie

Economic data included Ivey PMI and employment figures for August.

The stats were skewed to the positive. In August, the Ivey PMI rose from 56.4 to 66.0, with Canada’s unemployment rate falling from 7.5% to 7.1%.

While the stats were upbeat, the Bank of Canada’s monetary policy decision and forward guidance weighed.

In line with expectations, the BoC left policy unchanged, with the BoC also taking a cautious view on the economic recovery. Supply chain disruption and the Delta variant remained key concerns…

In the week ending 10th September, the Loonie fell by 1.34% to C$1.2692. In the week prior, the Loonie had risen by 0.76% to C$1.2524.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar slid by 1.39% to $0.7356, with the Kiwi Dollar ending the week down by 0.63% to $0.7113.

For the Aussie Dollar

There were no major stats for the markets to consider.

On Tuesday, the RBA delivered it’s September monetary policy decision, which was in line with expectations.

The RBA left policy unchanged and talked of the likely impact of the latest lockdown measures on the economy.

For the Kiwi Dollar

It was a quiet week, with retail sales in focus.

In August, electronic card retail sales tumbled by 19.8%, with the decline attributed to the latest lockdown measures introduced in mid-August.

The markets were forgiving, however, with a material decline in retail sales expected.

For the Japanese Yen

It was a relatively busy week, with the numbers skewed to the positive.

In July, household spending rose by 0.7%, month-on-month, coming in ahead of a forecasted 0.1% rise. Spending had tumbled by 5.1% in June. Year-on-year, spending was down by 0.9%, however, versus a forecasted 1.1% increase. Spending had been down by 3.2% in June, year-on-year.

In the 2nd quarter, the Japanese economy expanded by 0.5%, which was up from a prelim 0.4%. The economy had contracted by 0.9% in the previous quarter. Year-on-year, the economy grew by 1.9%, which was up from a prelim 1.6%. In the 1st quarter, the economy had contracted by 3.7%.

The Japanese Yen fell by 0.21% to ¥109.94 against the U.S Dollar. In the week prior, the Yen had risen by 0.12% to ¥109.72.

Out of China

Trade and inflation figures were in focus in the week.

In August, China’s U.S Dollar trade surplus widened from $56.59bn to $58.35bn. Economists had forecast a narrowing to $51.05bn. Exports rose by 25.6% versus a forecasted 17.1% increase, with imports up 33.1%. Economists had forecast imports to rise by 26.8%.

Inflation figures were skewed to the negative, however, with the annual rate of inflation softening from 1.0% to 0.8%. In August, consumer prices rose by just 0.1% after having risen by 0.3% in July.

Wholesale inflationary pressures were still evident, however. The annual rate of wholesale inflation picked up from 9.0% to 9.5% in August.

In the week ending 10th September, the Chinese Yuan rose by 0.18% to CNY6.4443. In the week prior, the Yuan had ended the week up by 0.25% to CNY6.4560.

The CSI300 and the Hang Seng ended the week up by 1.17% and by 3.52% respectively.

Dollar Gains With Yields as Fed Policy in Focus

The greenback has risen from a one-month low reached last Friday after jobs data for August showed that jobs growth slowed, while wage inflation rose more than expected.

It has not yet been able to establish a strong trend, however, as investors wait on new clues on when the Fed is likely to begin paring its bond purchases and, eventually, raise rates.

“That to me is the most important thing, is when does the Fed hike rates, and unfortunately we may not know that for a little while,” said Erik Nelson, a macro strategist at Wells Fargo in New York.

Cleveland Fed President Loretta Mester said on Friday that she would still like the central bank to begin tapering asset purchases this year, joining the chorus of policymakers making it clear that their plans to begin scaling back support were not derailed by weaker jobs growth in August.

Fed officials are grappling with rising price pressures while jobs growth remains below their targets.

Data on Friday showed that U.S. producer prices increased solidly in August, indicating that high inflation is likely to persist for a while, with supply chains remaining tight as the COVID-19 pandemic drags on.

The Wall Street Journal on Friday wrote that Fed officials will seek to make an agreement at the Fed’s September meeting to begin paring bond purchases in November.

The dollar index gained 0.05% to 92.57. It is up from a one-month low of 91.94 on Friday.

The U.S. currency had dipped earlier on Friday on improving risk sentiment on news that U.S. President Joe Biden and Chinese leader Xi Jinping spoke for the first time in seven months.

In a statement, the White House said Biden and Xi had “a broad, strategic discussion,” including areas where interests and values converge and diverge. The conversation focused on economic issues, climate change and COIVD-19, a senior U.S. official told reporters.

The dollar was last down 0.13% to 6.4419 yuan, nearing a more than two-month low of 6.4233 yuan reached last week.

The euro fell 0.07% to $1.1816 on Friday, a day after the European Central Bank said it will trim emergency bond purchases over the coming quarter.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Ritvik Carvalho in London; Editing by Chizu Nomiyama)

Marketmind: Hitting the Buffers

A look at the day ahead from Sujata Rao.

Yet there is no dismissing the brewing concerns — we seem to be past peak liquidity and peak growth, yet inflationary pressures show no sign of abating. Chinese factory gate prices have hit 13-year highs, the ECB just upped inflation projections and later on Friday, we will see what U.S. producer prices looked like in August. Remember last month brought the biggest annual increase in over a decade.

Warnings about input costs are coming through from companies too, with Nestle warning of even higher factory prices in 2022. The question is when these costs trickle down to consumers and their earnings; wage inflation, as we know, tends to be less easily tamed.

It comes as the post-pandemic growth rebound fizzles. Data shows Britain’s economy barely grew in July (versus expectations for a 0.6% expansion), even as tax hikes loom.

What of stimulus? The Bank of England appears well on the road to a 2022 interest rate rise while the Bank of Canada on Thursday flagged plans to stop adding new stimulus and to raise interest rates.

Policy has long been tightening across emerging markets and later on Friday, Russia will likely raise interest rate for the fifth time this year.

Finally, there is no getting away from the fact that the ECB — among the more dovish central banks — has hit peak QE, even though it was at pains on Thursday to describe its stimulus slowdown as recalibration rather than tapering.

So while equity futures signal a more cheerful session in Europe and Wall Street, stocks may face a rocky ride from here.

Key developments that should provide more direction to markets on Friday:

-U.S. President Joe Biden and Chinese leader Xi Jinping spoke for 90 minutes

-China Evergrande bonds rebound as loan payment extensions ease default worries

-Willis Towers Watson has $5 bln of capital, possibly for M&A

-Euro zone finance ministers meet

-Fed speakers: Cleveland President Loretta Mester 1300 GMT

Russia central bank meeting

Ratings: S&P: Ukraine, Ghana, Jordan, Malta; Moody’s: Montenegro

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sujata Rao; Editing by Dhara Ranasinghe)

Easing Virus Woes Lift Asia FX View; Baht Bears at 6-Month Low – Reuters Poll

Countries, including Malaysia, Indonesia, and Thailand, have seen a drop in infections, enabling them to relax restrictions, while Singapore last month became the world’s most vaccinated country after it fully inoculated 80% of its population.

The U.S. Federal Reserve holding off on earlier-than-expected tapering of its massive asset purchases kept the dollar in check and further supported sentiment towards emerging currencies.

Investors placed long bets on the Chinese yuan for the first time since mid-July, and cut short bets on South Korea’s won, Malaysia’s ringgit and the Philippine peso, according to the poll of 11 respondents.

They also turned bullish on Singapore’s dollar and Indonesia’s rupiah for the first time since mid-June.

Short positions on the baht unwounded to their lowest since Feb. 25 as the tourism-reliant economy relaxed COVID-19 curbs, prompting its leading joint-business group to raise its 2021 economic forecast.

Market view of the region’s worst performing currency this year was also buttressed after Prime Minister Prayuth Chan-ocha survived a no confidence vote in parliament last week.

The baht is not out of woods yet, however, analysts at DBS Bank said while highlighting Thailand’s flip to a current account deficit since last year and potential policy normalisation from the Fed.

“Thailand’s need for external financing is coming at a potentially challenging period. The Thai baht is therefore vulnerable to any surprise in the Fed’s hawkish tilt,” they said.

The baht was seen weakening to 35-36 against the greenback by the first quarter of 2022. The currency traded at around 32.70 against the dollar on Thursday.

Long bets on India’s rupee rose to their highest in more than six months, as investors were convinced that a sustained economic recovery was underway despite warnings of a possible third wave of COVID-19 infections.

“Policy makers are likely to remain wary about potential increases in infections and their impact on economic activity,” Standard Chartered Global Research said in a note this week.

“However, given the recent increase in vaccinations and the reduced sensitivity of economic activity to COVID-19 infections, the impact of any future rise in infections is unlikely to derail the recovery process.”

The Reuters survey is focused on what analysts believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3.

A score of plus 3 indicates the market is significantly long U.S. dollars. The figures included positions held through non-deliverable forwards (NDFs).

The survey findings ASIAPOSN are provided below (positions in U.S. dollar versus each currency):

DATE USD/CNY USD/KRW USD/SGD USD/IDR USD/TWD USD/INR USD/MYR USD/PHP USD/THB

09/09 -0.09 0.33 -0.36 -0.44 -0.69 -0.88 0.23 0.40 0.12

26/08 0.425 0.868 0.474 0.18 0.326 -0.08 1.1922 0.779 1.351

12/08 0.32 0.69 0.77 0.2 -0.09 0.37 1.39 1.17 1.75

29/07 0.27 0.78 0.71 0.27 0.36 0.29 1.4 1.21 1.49

15/07 -0.15 0.27 0.53 0.23 0.13 0.68 1.06 1.06 1.56

01/07 -0.29 -0.29 0.02 0.36 -0.19 0.5 0.49 -0.04 0.85

17/06 -0.63 -0.36 -0.49 -0.5 -0.58 -0.21 -0.05 -0.31 0.2

03/06 -1.34 -0.51 -0.55 -0.4 -0.44 -0.71 0.32 -0.66 0.37

20/05 -0.33 0.43 0.37 -0.06 0.33 -0.03 0.26 -0.22 0.81

06/05 -0.52 -0.39 -0.58 0.31 -0.59 0.86 -0.04 -0.35 0.5

(Reporting by Shashwat Awasthi; editing by Uttaresh.V)

Expectations for Near-Term Easing Cool After China Central Bank Comments

China will not resort to flood-like stimulus, Pan Gongsheng, vice governor at the People’s Bank of China (PBOC) told a news conference on Tuesday.

The space for monetary policy is still relatively big, said Pan, in comments that some analysts said showed the Chinese central bank could conduct policy in a normal range.

Signs that China’s economy is losing steam and small firms are struggling had stoked market expectations of policy support sooner rather than later. The PBOC last delivered a cut to banks’ reserve requirement ratio (RRR) in mid-July.

The Chinese yuan rose against the dollar on Wednesday after the PBOC official’s comments cooled market expectations for imminent policy easing.

“As a result, the PBOC is unlikely to adopt strong stimulus to boost the economy, and aggressive monetary policy easing will likely be shunned,” Citi wrote in a note on Wednesday.

Speaking at the same event, Sun Guofeng, head of the monetary policy department at the PBOC, said there is no big shortfall of base money, and liquidity supply and demand will remain basically balanced in coming months.

“Based on the tone and messages from (the) press conference, we lower the probability of a targeted RRR cut in September-October to 50% from 70% previously,” Nomura wrote in a research note, adding that the PBOC could opt for more targeted tools to support groups such as SMEs instead.

Customs data released on Tuesday showed Chinese exports unexpectedly grew at a faster pace in August thanks to solid global demand, helping to take some of the pressure off the world’s No.2 economy.

At a meeting at the end of July, the ruling Communist Party’s top decision-making body said China would stick with its current economic policies in the second half of the year.

PBOC’s Pan reiterated that stance, saying the central bank should “do a good job in its design of cross-cyclical policies and comprehensively consider the connection of monetary policy this year and the next.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gabriel Crossley, Ryan Woo and Beijing Newsroom; Editing by Andrew Heavens, Ana Nicolaci da Costa & Simon Cameron-Moore)

The Week Ahead – Monetary Policy Decisions Put the EUR, the Loonie, and the Aussie Dollar in Focus

On the Macro

It’s a quieter week ahead on the economic calendar, with 38 stats in focus in the week ending 10th September. In the week prior, 80 stats had also been in focus.

For the Dollar:

It’s a quiet week ahead and a quiet start to the week, with the U.S markets closed for Labor Day on Monday.

On Tuesday, JOLT’s job openings will draw interest, with little else for the markets to consider.

The focus will then shift to the weekly jobless claim figures on Thursday.

Wholesale inflation numbers wrap things up at the end of the week.

In the week ending 3rd September, the Dollar Spot Index fell by 0.70% to 92.035.

For the EUR:

It’s a relatively busy week on the economic data front.

The German economy will be back in the spotlight in the week ahead.

German factory orders and industrial production figures will be in focus on Monday and Tuesday.

On Thursday, German trade data will also draw plenty of attention.

ZEW Economic Sentiment figures for Germany and the Eurozone will also influence on Tuesday.

The main event of the week, however, will be the ECB monetary policy decision.

With the markets expecting the ECB to stand pat on policy, the focus will be on the ECB Press Conference. Will the ECB continue to see reflation as transitory?

For the week, the EUR rose by 0.72% to $1.1880.

For the Pound:

It’s a busier week ahead on the economic calendar.

BRC Retail sales figures will be in focus early in the week. With the markets looking to see how the UK economy is faring, the numbers should have more influence than usual.

A lack of stats mid-week will leave the Pound in the hands of market risk sentiment ahead of a busy Friday.

Industrial and manufacturing production and trade data due out on Friday will be the key stats of the week.

The Pound ended the week up by 0.78% to $1.3871.

For the Loonie:

It’s a quiet week ahead on the economic calendar.

Ivey PMI numbers will be in focus on Wednesday ahead of employment figures on Friday.

While the employment numbers will be key, the BoC policy decision on Wednesday will be the main event.

BoC forward guidance will be the key area of focus on the day.

The Loonie ended the week up 0.76% to C$1.2524 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

There are no material stats to consider in the week.

While it’s a quiet week on the economic data front, the RBA is in action on Tuesday.

Have the latest lockdown measures left the RBA in a lengthier holding pattern on policy?

The Aussie Dollar ended the week up by 2.02% to $0.7460.

For the Kiwi Dollar:

It’s a quiet week ahead.

Electronic card retail sales figures on Friday will be the only key stat of the week.

From elsewhere, economic data from China will also influence, as will COVID-19 news updates.

The Kiwi Dollar ended the week up by 2.10% to $0.7158.

For the Japanese Yen:

Household spending will be in focus on Tuesday. On Wednesday, 2nd quarter GDP numbers will also draw interest. The markets will be looking for any revisions from the 1st estimates.

The Japanese Yen rose by 0.12% to ¥109.71 against the U.S Dollar.

Out of China

Trade data will have a material impact on market risk sentiment on Tuesday.

Private sector PMIs for July and August disappointed. Weak trade data will raise further question marks over the economic recovery.

With inflation still a hot topic, Inflation numbers on Thursday will also be key.

The Chinese Yuan ended the week up by 0.25% to CNY6.4560 against the U.S Dollar.

Geo-Politics

Iran, China, and Russia will continue to be the main areas of interest for the markets. News updates from the Middle East, in particular, will need monitoring following recent events in Afghanistan.

The Weekly Wrap – A Particularly Busy Economic Calendar Left the Greenback in the Red

The Stats

It was a particularly busy week on the economic calendar, in the week ending 3rd September.

A total of 80 stats were monitored, which was up from 49 stats in the week prior.

Of the 81 stats, 34 came in ahead forecasts, with 41 economic indicators coming up short of forecasts. There were 5 stats that were in line with forecasts in the week.

Looking at the numbers, 34 of the stats reflected an upward trend from previous figures. Of the remaining 46 stats, 41 reflected a deterioration from previous.

For the Greenback, FED monetary policy and economic data delivered Dollar weakness. In the week ending 3rd September, the Dollar Spot Index fell by 0.70% to 92.035. In the previous week, the Dollar had fallen by 0.88% to 92.653.

Out of the U.S

Early in the week, consumer confidence figures delivered yet more bad news. In August, the CB Consumer Confidence Index fell from 129.1 to 113.8, as the Delta variant continued to spread.

ADP nonfarm employment change figures on Wednesday also failed to impress. Nonfarm payrolls increased by 374k in August following a modest 326k rise in July.

On Thursday, jobless claim figures were somewhat better, with claims falling from 354k to 340k in the week ending 27th September.

At the end of the week, however, it was official nonfarm payroll figures that were key.

Falling well short of a forecasted 665k increase, payrolls rose by just 243k in August. In July, payrolls had jumped by 1,053k.

In spite of the weak number, the unemployment rate fell from 5.4% to 5.2% to further muddy the waters on FED policy.

From the private sector, the numbers were mixed. The ISM Manufacturing PMI rose from 59.5 to 59.9, while the all-important Non-Manufacturing PMI fell from 64.1 to 61.7.

Out of the UK

Economic data was on the lighter side once more. Finalized private sector PMIs for August disappointed in the week.

The all-important services PMI fell from 59.6 to 55.0, which was down from a prelim 55.5. Of less significance was a fall in the manufacturing PMI from 60.4 to 60.3, which was up from a prelim 60.1.

In the week, the Pound rose by 0.78% to end the week at $1.3871. In the week prior, the Pound had risen by 1.04% to $1.3764.

The FTSE100 ended the week down by 0.14%, partially reversing a 0.85% loss gain the previous week.

Out of the Eurozone

Private sector PMIs for August, French GDP, German unemployment, and prelim August inflation figures were in focus.

While inflationary pressures picked up once more in August, private sector PMIs delivered mixed results in the week.

According to prelim figures, the Eurozone’s annual rate of inflation accelerated from 2.2% to 3.0% in August. The core annual rate of inflation picked up from 0.7% to 1.6%.

French GDP numbers for the 2nd quarter were also upbeat, with the French economy expanding by 1.1% in Q2.  In the previous quarter, the French economy had stagnated.

While Germany’s unemployment rate fell from 5.6% to 5.5% in July, retail sales slid by 5.1%, reversing a 4.5% increase from June. French consumer spending was also woeful, falling by 2.2%. In June, consumer spending had risen by just 0.3%.

Private sector PMIs were weaker but not weak enough to cause a stir.

The Eurozone’s composite PMI fell from 60.2 to 59.0, which was down from a prelim 59.5. In August, the Eurozone’s services PMI fell from 59.8 to 59.0, with the manufacturing PMI declining from 62.8 to 61.4.

For the week, the EUR rose by 0.83% to $1.1795. In the week prior, the EUR had fallen by 0.84% to $1.1698.

The CAC40 rose by 0.12%, while the DAX30 and the EuroStoxx600 ended the week with losses of 0.45% and 0.09% respectively.

For the Loonie

GDP and trade data were the key stats of the week.

In the 2nd quarter, the Canadian economy contracted by 0.3%, quarter-on-quarter. The economy had expanded by 0.3% in the previous quarter.

On an annualized basis, the economy contracted by 1.1% after having expanded by 5.5% in the quarter prior.

Trade figures were also weak, with the trade surplus narrowing from C$2.56bn to C$0.78bn.

While the stats were disappointing, crude oil prices held relatively steady following the previous week’s rebound, to deliver support.

In the week ending 3rd September, the Loonie rose by 0.76% to C$1.2524. In the week prior, the Loonie had rallied by 1.57% to C$1.2620.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rallied by 2.02% to $0.7460, with the Kiwi Dollar ending the week up by 2.10% to $0.7158.

For the Aussie Dollar

Company gross operating profits were upbeat for the 2nd quarter, surging by 7.1%. In the previous quarter, profits had fallen by 0.3%.

Private sector credit rose by 0.7% off the back of a 0.9% increase in June.

Also positive were GDP numbers for the 2nd quarter. Year-on-year, the economy grew by 9.6% compared with 1.1% in the previous quarter. Quarter-on-quarter, the economy expanded by 0.7% after having expanded by 1.8% in the quarter prior.

Trade data on Thursday were upbeat, with the trade surplus widening from A$10.496bn to A$12.117bn.

Retail sales figures were negative, however. In July, retail sales fell by 2.7%, which was in line with prelim figures. Lockdown measures weighed, with sales having fallen by 1.8% in June.

For the Kiwi Dollar

It was a relatively quiet week, with business confidence in focus.

In August, the ANZ Business Confidence Index slid from -3.8 to -14.2. While negative for the Kiwi, the markets were in forgiving mood, however. Expectations of a rebound in confidence limited the damage.

For the Japanese Yen

It was a relatively busy week, with the numbers skewed to the positive.

Retail sales rose by 2.4% in July, which followed a more modest 0.1% increase in June.

Capital spending was also on the rise. In the 2nd quarter, capital spending rose by 5.3%, year-on-year, partially reversing a 7.8% slide from the previous quarter.

Industrial production fell by a relatively modest 1.5%, however, partially reversing a 6.5% jump from June.

Service sector PMI numbers also disappointed in August, falling from 47.4 to 42.9.

The Japanese Yen rose by 0.12% to ¥109.71 against the U.S Dollar. In the week prior, the Yen had fallen by 0.05% to ¥109.84.

Out of China

Private sector PMIs were key stats in the week and were skewed to the negative.

Both the NBS and the Markit Caixin figures disappointed.

According to the NBS, the manufacturing PMI fell from 50.4 to 50.1, with the non-manufacturing PMI falling from 53.3 to 47.5.

Of greater significance, however, was a fall in the Caixin Manufacturing PMI from 50.3 to 49.2.

According to the Markit Caixin survey, things were not much better for the services sector. The Caixin Services PMI slid from 54.9 to 46.7 in August.

In the week ending 3rd September, the Chinese Yuan rose by 0.25% to CNY6.4560. In the week prior, the Yuan had ended the week up by 0.45% to CNY6.4720.

The CSI300 and the Hang Seng ended the week up by 0.33% and by 1.94% respectively.

Marketmind: Currencies at a Crossroad

And recent days have seen the greenback undermined further as hawkish comments from a slew of European Central Bank policymakers have made investors sit up and sense signs of a shift in euro area monetary policy.

Don’t forget the backdrop to the barrage of hawkish ECB talk was data showing consumer inflation in the currency bloc has surged to a 10-year high – challenging the view that price pressures are transitory.

Inflation is at risk of overshooting the ECB’s projections, Bundesbank President Jens Weidmann said on Wednesday.

So no surprise then that the euro is trading near one-month highs above $1.18, having recovered around 1.5% from 9-1/2 month lows hit less than two weeks ago. The dollar index is not far off its lowest levels in almost a month.

Euro area bond yields too have shot up.

Both data and central bank-speak will remain in the spotlight. Thursday’s highlights include July U.S. industrial production, factory orders and trade balance data, along with the weekly initial jobless claims.

Concern about a slowdown in China, the world’s number two economy, is keeping world equity markets in a cautious mood. Asian shares held just below five-week highs, while European and U.S. stock futures were marginally lower.

Bank of Japan board member Goushi Kataoka warned the coronavirus may weigh on the economy longer than initially expected, warning of heightened risks to the central bank’s forecast of a moderate, export-driven recovery.

Elsewhere, oil prices fell after OPEC+ agreed to keep its policy of gradually returning supply to the market at a time when coronavirus cases around the world are surging and many U.S. refiners, a key source of crude demand, remained offline.

Key developments that should provide more direction to markets on Thursday:

– Australia trade surplus hits record in July as resources boom

– Apple loosens App Store payment rules for Netflix, others in deal with Japan

– U.S. venture capital firm Advent International and Aurora Investment offered to buy Sweden’s SOBI for $8 billion

– Euro zone July PPI

– U.S. treasury auctions 4 week tbills

– U.S. earnings: American eagle, Hewlett Packard, Lulu Lemon

(Reporting by Dhara Ranasinghe; editing by Sujata Rao)

What is China’s ‘Common Prosperity’ Drive and Why Does It Matter?

Common prosperity” as an idea is not new in China, but a sharp escalation in official rhetoric and a crackdown on excesses in industries including technology and private tuition has rattled investors in the world’s second-largest economy.

Xi, poised to begin a third term in 2022, is turning towards inequality after concluding a campaign to eliminate absolute poverty, pledging to make “solid progress” towards common prosperity by 2035 and “basically achieve” the goal by 2050.

WHAT DOES ‘COMMON PROSPERITY’ MEAN?

“Common prosperity” was first mentioned in the 1950s by Mao Zedong, founding leader of what was then an impoverished country, and repeated in the 1980s by Deng Xiaoping, who modernised an economy devastated by the Cultural Revolution.

Deng said that allowing some people and regions to get rich first would speed up economic growth and help achieve the ultimate goal of common prosperity.

China became an economic powerhouse under a hybrid policy of “socialism with Chinese characteristics”, but it also deepened inequality, especially between urban and rural areas, a divide that threatens social stability.

The push for common prosperity has encompassed policies ranging from curbing tax evasion and limits on the hours that tech sector employees can work to bans on for-profit tutoring in core school subjects and strict limits on the time minors can spend playing video games.

This year, Xi has signalled a heightened commitment to delivering common prosperity, emphasising it is not just an economic objective but core to the party’s governing foundation.

Officials say that common prosperity is not egalitarianism.

A senior party official said last month that “common prosperity” does not mean “killing the rich to help the poor”.

A pilot programme in Zhejiang province, one of China’s wealthiest, is designed to narrow the income gap there by 2025.

HOW WILL IT BE ACHIEVED?

Chinese leaders have pledged to use taxation and other income redistribution levers to expand the proportion of middle-income citizens, boost incomes of the poor, “rationally adjust excessive incomes”, and ban illegal incomes.

Beijing has explicitly encouraged high-income firms and individuals to contribute more to society via the so-called “third distribution”, which refers to charity and donations.

Several tech industry heavyweights have announced major charitable donations and support for disaster relief efforts. Online gaming giant Tencent Holdings has said it will spend 100 billion yuan ($15.47 billion) on common prosperity.

Long-discussed reforms such as implementing property and inheritance taxes to tackle the wealth gap could gain new impetus, but policy insiders believe such changes are years off.

A property tax has been discussed for years and two pilots have been implemented in Shanghai and Chongqing since 2011, but little progress has been made.

Other measures would include improving public services and social safety net.

WHAT WILL BE THE ECONOMIC IMPACT?

Chinese leaders are likely to tread cautiously so as not to derail a private sector that has been a vital engine of growth and jobs, analysts said.

The common prosperity goal may speed China’s economic rebalancing towards consumption driven growth to reduce reliance on exports and investment, but policies could prove damaging to growth driven by the private sector, analysts say.

Increasing incomes and improved public services, especially in rural areas, would be positive for consumption, and a better social safety net would lower precautionary savings.

The effort supports Xi’s “dual circulation” strategy for economic development, under which China aims to spur domestic demand, innovation and self-reliance, propelled by tensions with the United States.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 6.4622 Chinese yuan renminbi)

(Reporting by Kevin Yao; Editing by Michael Perry)

Two Major Surprises Today

The dollar has been sold against nearly all the currencies today. Among the majors, the Antipodeans and Swedish krona lead the move. The euro rose briefly through $1.1830 in the European morning, its best level in a little more than three weeks. The JP Morgan Emerging Market Currency Index is rising for the seventh time in eight sessions.

The risk-on mode to finish the month is evident in equities as well. Following the new record highs in the US, the MSCI Asia Pacific Index climbed for the sixth session in the past seven and has taken out the two-and-a-half-month downtrend. Europe’s Dow Jones Stoxx 600 is rising for its third consecutive session, while US futures indices are extending their recent gains. Debt markets are quiet. The US 10-year is hovering around 1.28%, while European yields are 1-3 bp firmer, following the higher than expected August CPI.

The UK Gilts are a notable exception, and the yield is nearly two basis points lower at 0.66%, perhaps helped by sterling, which is at a new two-week high. Gold found support near the 200-day moving average (~$1809) and is trading inside yesterday’s range when it peaked around $1823. Oil prices are surrendering yesterday’s late gains. OPEC+ meets tomorrow. Output is scheduled to rise by 400k barrels per day, but there are concerns about the strength of demand in the face of the spread of Covid. October WTI finished last month near $73.25. It is now near $68.40 after last week’s 10.6% rally.

China’s iron ore contract snapped a six-day advance today, slumped almost 2.5%. Copper is up slightly for the third consecutive session and the seventh in the past eight. The CRB Index rose yesterday for the fifth time in the last six sessions and set a new high for August. It is within striking distance of the six-year high set at the end of July.

Asia Pacific

The risk-on move today is surprising given the poor Chinese PMI. The manufacturing PMI slipped a little more than expected to 50.1 from 50.4, but the real shocker was the non-manufacturing PMI. It slumped to 47.5 from 53.3. The median forecast in Bloomberg’s survey anticipated a pullback to 52.0 from 53.3. This drove the composite to 48.9, its first reading below the 50 boom/bust level since February 2020. The composite peaked in May at 54.2 and has fallen in each of the following three months. Recall that the PBOC cut reserve requirements in July. Today’s dismal reading is likely to fan expectations for further accommodation.

On the other hand, Japan’s data was generally better than expected. Industrial output fell 1.5% in July. That may not sound so good, but it followed a 6.5% jump in June and was better than the 2.5% drop of the median forecast in Bloomberg’s survey. In addition, the unemployment rate unexpectedly slipped to 2.8% from 2.9%, and the job-to-applicant ratio rose to 1.15 from 1.13. defying forecasts for a decline. Lastly, housing starts also rose more than expected. However, with a formal Covid emergency covering more than 70% of the population, the recovery is not expected to gain much traction until Q4.

The virus could be knocking Australia into a contraction. The Q2 current account surplus was a little smaller than expected but was offset to some extent by the upward revision to Q1. To the extent that Australia’s current account is driven by trade flows, we are concerned that the rise in prices has concealed a decline in volumes. Separately, Australian building approvals slumped in July by 8.6%, more than expected, and follows a 5.5% decline in June (initially reported a -6.7%). The final August PMI due later this week is expected to confirm the 43.5 preliminary composite reading, though the risk is on the downside.

The dollar remains confirmed to a narrow range below JPY110.00, and it is holding above yesterday’s JPY109.70 low, where a nearly $400 mln option is set to expire later today. Recall that the dollar settled last month slightly above JPY109.70 too. After consolidating its pre-weekend gain yesterday, the Australian dollar was pushed higher to $0.7340 today to test the two-week high. Initial support is seen around $0.7320. Some buying may have been related to the A$588 mln option at $0.7300 expiring today.

The next area of chart resistance is seen in the $0.7370-$0.7380 area. Despite the disappointing data, the dollar eased toward the lower end of its recent range against the Chinese yuan. It found support in front of CNY6.4570. The yuan, like the yen, is nearly flat on the month. The dollar ended July near CNY6.4615. The PBOC set the dollar’s reference rate at CNY6.4679, tight to expectations of CNY6.4680.

Europe

Today’s upside surprises by French and Italian inflation readings helped lift the aggregate CPI to 3.0% from 2.2% in July. The median forecast in Bloomberg’s survey was for a rise to 2.7%. The core measure also rose more than expected to stand at 1.6%, up from 0.7% in July. The month-over-month increase of 0.4% was twice what had been expected. Recall that Germany’s CPI actually slipped to 3.4% from 3.5% when reported yesterday, while Spain surprised with a 3.3% year-over-year rate instead of 2.9%. Italy’s August CPI was “supposed” to fall by 0.2% but instead rose by 0.3%, and the year-over-year rate surged to 2.6% from 1.0%. French inflation rose 0. 7% this month to lift the year-over-year rate to 2.4% from 1.5%.

However, the French surprise was even more pronounced in the July consumption report. The median forecast in Bloomberg’s survey called for a 0.2% increase in consumer spending. Instead, it crashed by 2.2%. Consider that French consumer spending fell by an average of 0.1% a month in the first six months of the year. The only kind thing to be said is that it has become a volatile number under covid. Germany had a pleasant surprise. Its unemployment rate fell this month to 5.5% from 5.6% in July (that was initially reported at 5.7%). The unemployment queue fell by 53k, more than the 40k decline forecast. Note that Germany lost about 650k jobs in Q2 20 and has since gained back about 400k.

The euro posted an outside up day before the weekend, and follow-through yesterday was limited to about $1.1810. Additional buying today lifted it through $1.1830, its best level since August 6. It is rising for the seventh session in the past eight. An expiring option at $1.1875 for almost 720 mln euros seems too far to be relevant today, but tomorrow there is a nearly 650 mln option at $1.1825 that will be cut. The $1.1850-area may be sufficient to cap it today.

Sterling edged up to $1.3800, a two-week high. Soft consumer credit and mortgage lending figures may have encouraged the pullback in Europe to the $1.3760 area. The 200-day moving average is found near $1.3810. Meanwhile, the euro is approaching the GBP0.8600 cap that has held this month.

America

Pending July, home sales and the Dallas Fed’s manufacturing survey were consistent with the recent string of US reports that have been weaker than expected. As the second month of the quarter winds down, look at Q3 GDP forecasts. The Fed’s GDP nowcasts have softened. The NY Fed has Q3 GDP tracking 3.8%, while the Atlanta Fed’s model puts it at 5.1%, with the St. Louis Fed at 4.9%. This makes the median forecast in Bloomberg’s survey of 6.9% seem high. But it is not just that the Fed’s models are updated more frequently.

The last four contributions to the Bloomberg survey averaged 7.7%. However, it was flatted by one forecast that is the highest in the survey, for 11.2%. The others at 6.5%-6.6% were still above the Fed’s trackers.

Today’s US data features house prices (FHFA and CoreLogic). House prices are still rising. The Conference Board’s August confidence report will also be released. The market expects a softer report, but the risk is on the downside after the University of Michigan’s survey showed a sharp drop (10-year lows). Tomorrow, the ADP reports its private-sector job estimate. The Bloomberg survey median is for 625k after a 330k increase in July. Canada reports June monthly GDP. A sharp recovery is expected after a 0.3% contraction in May.

Growth in Q2 is seen at 2.5% annualized. Mexico’s central bank releases its inflation report. While price pressures are still on the upside, the two hikes (July and August) may see Banxico pause in September. Brazil sees June unemployment (14.4% vs. 14.6%) and its July budget. Of note, reports suggest that Brazil has surpassed the US in the proportion of adults with a single vaccine. Lastly, Chile’s central bank is expected to hike its overnight target rate by 50 bp to 1.25%. It lifted the key rate by 25 bp in July and signaled the start of a sequence.

The US dollar is trading at ten-day lows against the Canadian dollar. It has entered an area that may prove sticky ahead of today’s options expiry. There are options for $1.2 bln at CAD1.2560. The low in Europe has been CAD1.2570. There is another option that may be being absorbed for $645 mln at CAD1.2575. The greenback is fraying the uptrend drawn off the July 30 low and comes in today near CAD1.2585. Initial resistance is now pegged in the CAD1.2600-CAD1.2620 area.

The US dollar is seeing more follow-through selling against the Mexican peso after posting an outside down day at the end of last week. Dollar selling yesterday was limited to MXN20.11 and the 200-day moving average. Selling today has pushed the greenback to roughly MXN20.0650, an eight-day low. The next area of support is around MXN20.00.

This article was written by Marc Chandler, MarctoMarket.