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GE 10y yield

The ECB cut policy rates by 25 bps in June. Stubborn inflation (core, services) make follow-up moves less evident. Markets nevertheless price in two to three more cuts for 2024 as disappointing US and unconvincing EMU activity data rolled in, dragging the long end of the curve down. The move accelerated during the early August market meltdown.

US 10y yield

The Fed in its July meeting paved the way for a first cut in September. It turned attentive to risks to the both sides of its dual mandate as the economy is moving to a better in to balance. The pivot weakened the technical picture in US yields. A string of weak eco data and a risk-off market climate pushed and kept the 10-yr sub 4%. We think we could be up to three 50 bps rate cuts this year.

EUR/USD

EUR/USD moved above the 1.09 resistance area as the dollar lost interest rate support at stealth pace. US recession risks and bets on fast and large rate cuts trumped traditional safe haven flows into USD. EUR/USD 1.1276 (2023 top) serves as next technical references.

EUR/GBP

The BoE delivered a hawkish cut in August. Policy restrictiveness will be further unwound gradually on a pace determined by a broad range of data. The strategy similar to the ECB’s balances out EUR/GBP in a monetary perspective. Recent better UK activity data and a cautious assessment of BoE’s Bailey at Jackson Hole are pushing EUR/GBP lower in the 0.84/0.086 range.

Source: ACTIONFOREX

The Malaysian Competition Commission (MyCC) and the Turkish competition authority, the Turkish Competition Authority (TCA), signed a memorandum of understanding (MOU) on Tuesday (Sept 10), aimed at strengthening cooperation in facing challenges in competition law enforcement.

Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali said it was the first MOU signed by the MyCC with another national competition agency.

“The main focus of this cooperation is to increase the agility of enforcement, especially in dealing with dynamic anti-competition cases, as well as expanding the exchange of information and expertise in various aspects of competition law.

“This MOU is also an important step to strengthen MyCC’s role in helping the government fight cartel and monopoly issues, and we can also ensure a more competitive, innovative market and give the people more choices through healthy competition,” he said in a statement on Wednesday.

Earlier in Türkiye, Armizan paid a courtesy call on Türkiye Trade Minister Prof Dr Omer Bolat and various matters were discussed, including aspects of responsibility between the two ministries such as domestic trade, consumer protection, competition legislation, and cost of living issues.

Armizan said the MyCC has played an important role in ensuring fair and open competition in Malaysia.

Since its inception, the MyCC has investigated more than 100 companies related to various cases of anti-competitive violations, such as cartels and problematic monopolies.

According to Armizan, his ministry is committed to continue to ensure a balanced economic development and protect the interests of consumers.

“The ministry will continue to strive to create a fair and open market, where healthy competition can benefit all walks of life,” he said.

Source: Theedgemarkets

USD/JPY loses ground for the second consecutive day, trading around 141.20 during the Asian hours on Wednesday. The Japanese Yen (JPY) remains solid following the remarks from Bank of Japan (BoJ) board member Junko Nagakawa.

BoJ board member Nagakawa stated that the central bank may adjust the extent of its monetary easing if the economy and prices align with its projections. Despite the rate hike in July, real interest rates remain deeply negative, and accommodative monetary conditions persist. Should long-term rates surge, the BoJ may reconsider its tapering plan during its policy meetings, as necessary.

The downside of the USD/JPY pair is also driven by the contrasting monetary policies of the Bank of Japan and the US Federal Reserve, which has been encouraging the unwinding of carry trades and boosting demand for the Japanese. BoJ Governor Kazuo Ueda reiterated the central bank's commitment to continue raising interest rates, provided the Japanese economy meets the bank’s forecasts through FY2025.

US Dollar (USD) remains subdued as the Treasury yields continue to decline ahead of the US Consumer Price Index (CPI) data scheduled to be released later in the North American hours. The upcoming inflation report may offer fresh cues regarding the potential magnitude of the Federal Reserve's (Fed) interest rate cut in September. Moreover, the recent US labor market report has cast doubt on the possibility of an aggressive Fed interest rate cut.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has slightly decreased to 31.0%, down from 38.0% a week ago.

Source: FXSTREET

The GBP/USD pair builds on the overnight modest bounce from the 1.3050-1.3045 region, or over a three-week trough and gains some follow-through positive traction for the second successive day on Wednesday. Spot prices, however, struggle to capitalize on the move beyond the 1.3100 mark and retreat a few pips in the last hour following the release of the UK macro data.

The UK Office for National Statistics reported that the economic growth remained flat for the second straight month in July as compared to expectations for a modest 0.2% growth. Moreover, the UK Industrial and Manufacturing Production unexpectedly shrank during the reported month. This comes on top of a slowdown in the UK wage growth, which lifts bets for more interest rate cuts by the Bank of England (BoE) and undermines the British Pound (GBP). 

The US Dollar (USD), on the other hand, attracts some sellers and for now, seems to have snapped a three-day winning streak back closer to the monthly peak amid dovish Federal Reserve (Fed) expectations. This, in turn, offers some support to the GBP/USD pair and helps limit the downside for the GBP/USD pair. Traders also seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the release of the US consumer inflation figures.

The crucial US Consumer Price Index (CPI) report should influence market expectations about the size of the rate cut by the Fed at its upcoming policy meeting on September 17-18. This, in turn, will play a key role in driving the USD demand in the near term and provide some meaningful impetus to the GBP/USD pair. Nevertheless, the aforementioned fundamental backdrop warrants some caution before positioning for a further appreciating move for the currency pair.

Source: FXSTREET

The barrel of US crude tumbled almost 4% to nearly $65pb level, as Brent crude slipped below the $70pb mark after OPEC – which is normally optimistic – lowered its demand forecast for the second time in two months. The API data also showed that the US oil inventories fell by another 2.79 mio barrels last week.

As such, US crude has now hit the oversold market conditions, and the rapid selloff suggests that a minor correction would be healthy at the current levels. But the short-term outlook remains comfortably bearish, as the demand worries outweigh the supply side of the story. The price supportive factors like the geopolitical tensions, OPEC’s decision to delay the end of the production restrictions and a hurricane in the Gulf of Mexico go totally unheard. Little need to say that the energy sector had a rough session, yesterday.

Elsewhere, the debate between Trump and Harris went quite well for Harris, which saw her victory odds climbed to 55, and the latter sent Bitcoin 2.50% lower.

Big banks and big tech

Yesterday’s news suggested that US regulators would scale back the increase in capital requirements from 19% to 9%. But news were eclipsed by a conference where the big bank heads gave weak revenue prospects and gloomy outlook. JP Morgan’s CEO said that the $90bn estimate for its net interest income ‘is not very reasonable’ for next year. BoFA said that results for its investment banking will be lower than the Wall Street expectations. Goldman Sach’s CEO said that the bank’s trading revenue will likely drop 10% in the current quarter and Ally Financial warned that ‘credit challenges have intensified’ due to increasing auto loan delinquencies as borrowers faced higher borrowing costs. As a result, JP Morgan saw its share price drop more than 5%, and Invesco’s KBW bank ETF fell 1.83%.

Elsewhere, the European top court told Apple to pay Ireland €13bn in unpaid taxes – putting an end to an eight-year dispute, and Google lost its chance to overturn a €2.4bn fine for abusing its market dominance of its shopping comparison service. Google’s Alphabet didn’t really react to the news – its stock price gained 0.31%, while Apple lost 0.36%, but most of it was probably due to the unimpressive product reveal and insufficient AI promises that the company gave the day before. On the brighter side, Taiwan’s exports rose to a new record of $43.6bn in August thanks to the growing demand for AI chips – and the country’s finance ministry said that the exports should continue to rise steadily in the H2 thanks to robust AI demand. Nvidia advanced some 1.5% yesterday, but TSM gave no reaction to the news. To me, it looked like the continuation of the AI fatigue story.

Overall, the S&P500 still gained 0.45% yesterday, Nasdaq 100 jumped 0.90%, while the Dow Jones index closed with losses due to the bank selloff. The US 2-year yield plunged to 3.56% on rising worries regarding the economic strength and the US dollar gave back most of its advance since Monday. The USDJPY fell to the lowest levels since January as a Bank of Japan (BoJ) member said that the central bank will continue to adjust its degree of easing. Because the expectation is that the BoJ will likely wait until December or January to announce another rate hike, there is room for hawkish readjustment, but the 140 level will likely act as a decent support in the absence of a concrete action.

All eyes on US CPI

Today, all eyes are on the US CPI data. Adobe’s Digital price index printed the biggest drop on record in August for online grocery prices. According to their calculation, the online food prices fell 3.7% in August from a month earlier. Food consumption stands for about 8.6% for of the official inflation measure and is left outside of the core measure, but the decent drop fits the slowing economy and slowing inflation narrative. Combined with the falling oil prices, I would say that the direction for consumer prices looks somewhat clear.

In numbers, core inflation – that excludes food and energy prices – is expected to have steadied near the 3.2% level but headline inflation which includes food and energy is expected to have eased from 2.9% to 2.5%. If that’s the case, we will see the headline inflation drop significantly below the 3% level for the first time since last summer. That would be another reason for the Federal Reserve (Fed) to stop worrying about inflation and to worry more about the weakening jobs market. Would that justify a 50bp cut instead of a 25bp cut in September? Hardly. Because announcing a 50bp cut in September would suggest that the Fed accepts to have fallen behind the curve, and they probably want to avoid that.