The risk averse market conditions persist. Yields are higher and stocks are lower. October WTI set a new contract high as hostilities in the Middle East continue. The S&P 500 and Nasdaq composite could gap lower when the cash session begins, though ADP private sector jobs estimate will be released before the opening.
The US dollar is firmer against almost all
the G10 currencies. The yen is faring best and is the exception among the major
currencies with a small gain. BOJ Governor Ueda seemed to confirm a rate hike, while
a hawkish board member held out the possibility for a larger move. The weakest
currency among the G10 is the New Zealand dollar. It is off around 1.4% and is
a cautionary note to those who expect the yen to rally on a well-signaled BOJ
hike late this month.
Prices
G10
• The
euro nearly met the (38.2%) retracement of its losses since the recent highs
near $1.1710 before turning lower yesterday.
The euro approached lows from Friday and Monday, slightly below $1.1580,
and the losses were extended to almost $1.1565 today. It has not been lower
since August 17. The five- and 20-day moving averages are set to cross
tomorrow. The next downside target is in
the $1.1520-30 area.
• It
is difficult to hold down dollar-yen now in the rising interest rate
environment, at least partly influenced by the renewed rise in oil prices and
increased hostilities in the Middle East, not to mention the appreciation in
key food prices, and the familiar supply issues. The US Treasury may have it backwards, the
weak yen is not driving US yields higher, but higher US yields may be a drag on
the yen. The dollar initially rose to almost JPY160.40 before hawkish BOJ
comments pushed the greenback below yesterday’s low (~JPY159.65) but it quickly
rebounded to almost JPY159.90. Options for more than $1 bln each at JPY159.60
and JPY160 expire today.
• Sterling
had a rough time yesterday. Fiscal
issues seemed to help account for the sharp sell-off in Gilts. The 10-year rose
eight basis points, more than double any major European country. Sterling was
sold through last Friday’s low (~$1.3525). Sterling met the (38.2%) retracement
of its four-cent rally since late July. It approached the (50%) retracement
today (~$1.3475). The five-day moving average crossed below the 20-day moving
average for the first time in a month. A
break of $1.3475 could target the $!.3430-45 area next.
• The
Canadian dollar has traded in a wide range for the past three sessions, and it
is breaking lower today. After trading between roughly between CAD1.3845 and
about CAD1.3910, the US dollar rose to almost CAD1.3940 today. The next
technical target is near CAD1.40. The five-day moving average has crossed above
the 20-day moving average for the first time since mid-July.
• Yesterday,
the Australian dollar posted its second outside down day in the past three
sessions. A firm GDP reading today (0.4% quarter-over-quarter) failed arrest
the downside correction. The Aussie took another leg lower today; to nearly
$0.7120 so far, where options for almost A$750 mln expire today. The next target is around $0.7100 and then
$0.7065. The hike by the Reserve Bank of New Zealand, which was widely
expected, has not protected the New Zealand dollar. Its1.5% loss today leads
the G10 currencies lower against the greenback (yet somehow, we are to believe
that the well-telegraphed BOJ hike would support the yen).
EM
• The
Mexican peso set a marginal new three day high before reversing lower. The US
dollar fell to almost MXN16.94 in the North American morning to extend the
decline that had begun in the European morning. The greenback settled little
changed, slightly below MXN17.00. The dollar has come back bid and is pushing
above MXN17.02 late in the European morning.
Last Friday’s high was near MXN17.0650. Latam currencies were the three
best performing emerging market currencies yesterday (Colombian peso, almost
2%, the Brazilian real, around 0.85%, and the Peruvian sol about 0.25%).
• The
dollar continues to drift in narrow ranges against the offshore yuan in the
trough it is forged for nearly two weeks now (~CNH6.7130-CNH6.7330). It
continues to trade on a CNH6.72 handle. The onshore yuan settled at a
three-year high on Monday. The fix has been between CNY6.7808 and CNY6.7920
since late July. The firmer dollar tone pointed to a higher fix today. It was
set at CNY6.7828 (CNY6.7809 yesterday).
• The
dollar traded quietly against the Indian rupee today. Intervention in the offshore and onshore
markets was reported. The greenback
traded between INR94.8425 and INR94.9775, inside yesterday’s range and settled
near session highs.
Other Markets
• Higher
oil prices and rising yields are weighing on what were seen as richly valued
equity markets and nervous investors.
Despite better-than-expected Dell earnings late yesterday, rising yields
proved too much for Asia Pacific equities.
The Nikkei fell by nearly 3%, South Korea’s Kospi was tagged for almost
4%. China’s CSI 300 fell by about 1.4% and Taiwan’s Taiex was off nearly 1.7%.
Europe’s Stoxx 600 is off more than 0.5% for the third consecutive
session. US Nasdaq and S&P 500
futures warn of the possibility of a gap lower open in the cash market.
• The
10-year US Treasury yield has risen by almost 14 bp in the past five sessions.
The 10-year Bund yield rose about 11 bp and the 10-year Gilt yield increased by
23 bp. The 10-year JGB yield rose by about 10 bp. Today, European yields are
5-7 bp higher. The 10-year JGB yield was
practically flat, and the US 10-year yield is up almost two basis points to
nearly 4.82%.
• Rising
yields dulled the yellow metal. No safe haven here. Gold fell to almost $4326
yesterday, and a little below $4283 today. its lowest level since August 17. It
settled below the 20-day moving average for the first time in nearly a month. The next retracement objective is near $4265.
The five-day moving average has crossed below the 20-day moving average for
both gold and silver. Silve has been sold to about $63.30 today. A break of $63
could signal another $2 decline.
• October
WTI jumped 5.2% yesterday and traded above $90 for the first time since May. A new contract high was set today near $92.30
before steadying. The upper Bollinger band is near $90.50 and that is where the
contract is hovering in late European morning activity.
Data
• ADP
provides its estimate of August’s change in private sector employment. Through July, it’s estimated that the US
private sector created an average of 72k jobs a month. The BLS estimate is
identical. The median forecast in
Bloomberg’s survey is for a 47k increase after 44k in July. Factory orders are
expected to rise 0.7% in July after a 0.3% contraction in June. The preliminary
estimate is that durable goods order rose 1.1% in July, the most since April.
Excluding aircraft orders and defense, they rose 0.2% after a 1.7% jump in June
(initially 1.2%).
• There
is little chance of a change in Bank of Canada’s monetary setting today. Its
overnight target rate is 2.5%. The swaps market has about a 65% chance of a
hike before year-end, which seems subjectively high to us. Past the central
bank meeting and the data highlight is the August employment report on Friday.
Through July, Canada created almost 10k jobs on average a month (recall the
economy is about 1/12 the size of the US) and an almost 12k average in the
first seven month of 2025.
• Mexico
reports August domestic auto sales. They tend not to move the market. Auto
sales have risen up about 6.2% in the first seven months of the year. For the
record, auto exports are running around twice as much as domestic sales.
• Australia’s GDP slowed from 0.9% in Q4 25 to 0.3% in Q1 26. It grew 0.4% in Q2, slightly better than many expected. Consumption rose by 0.4%, the same as in Q1. Trade and government spending improved but capex fell. The central bank does not meet until late this month, and the futures market is discounting a nearly 80% chance of a hike, up from a little more than 50% yesterday. It was about a 10% probability a week ago. Stronger than expected, July CPI and another strong monthly gain in household spending lifted expectations. The Reserve Bank of New Zealand delivered the expected quarter-point hike earlier today. The new cash rate target is 2.75%. The swaps market is discounting another hike fully before the end of the year.
Reviewed by Marc Chandler
on
September 02, 2026
Rating:
