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Yesterday, even without an explicit trigger, the US dollar rallied quite a bit, with EUR/USD falling below 1.095 and USD/JPY targeting 150 again, Commerzbank’s FX analyst Michael Pfister notes.

Inflation figures are likely to be quite acceptable

“At the same time, the market is now pricing in just around 42 basis points (bp) of Fed rate cuts by the end of the year (almost 20bp less than a week ago), which would not even be equivalent to a 25bp cut at each of the two remaining meetings. Looking further ahead, the market has priced out another 20bp, meaning that expectations for next September are now almost 40bp lower than before the payrolls.”

“Meanwhile, the question is whether the market has gone a little too far in its correction. Yesterday's minutes of the September decision showed that there was certainly opposition to the 50bp cut, and recent comments from officials often suggest that they are not unhappy with the current state of the economy. Nevertheless, it seems unlikely that the Fed will pause at either of its next two meetings after cutting rates by 50 basis points. Moreover, payrolls are still trending slightly lower and last week's figure is likely to be revised several times. Therefore, the baseline scenario remains a 25 basis point cut at the next meetings.”

“Although today's inflation figures are likely to be quite acceptable, there is a risk that the figure for the core rate in particular will be close to the rounding limit upwards. The market would likely take this as another sign that the Fed is slowing its rate cuts. So while there is much to be said for a somewhat weaker dollar in the medium term, the odds of this happening in the short term are not quite so good, at least not today.”

Source: FXSTREET

Proposals under the National Housing Policy, including the provision of long-term housing loans, will be discussed by the Finance Ministry with Bank Negara Malaysia (BNM) and the Housing and Local Government Ministry.

Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi said this was among the matters agreed upon during the Executive Committee Meeting of the National Action Council on Cost of Living (Naccol) held here Thursday.

“This is to ensure that lower-income individuals and households can own homes without being burdened by the rising house prices,” he said in a statement after the meeting.

Ahmad Zahid, who is also Naccol executive committee chairman, said the meeting also discussed the household debt-to-GDP ratio, which increased from 67.2% in 2002 to 81.2% in 2022.

He added that the residential property sector now dominates household loans, with housing credit climbing from 36% in 1997 to 59.7% in 2022, which has a significant impact on disposable income levels, and as such, the meeting agreed to look into the matter.

During the meeting, the Department of Statistics Malaysia presented the status of the Cost of Living Indicators 2023, developed to provide insights into the expenses required for households to meet a decent standard of living, including social participation.

Zahid said that Prime Minister Datuk Seri Anwar Ibrahim is scheduled to launch the indicator on Nov 2, adding that it is expected to add value to the government’s policymaking on cost-of-living issues, particularly in implementing targeted aid to target groups.

Another topic discussed was the co-payment features for Medical and Health Insurance and Takaful (MHIT), with the meeting informed that this approach could provide consumers with more options and encourage healthy competition among insurers and takaful operators to offer products suited to consumers’ financial capacities.

“According to BNM, the co-payment feature can offer prices that are 19 to 68 per cent lower compared to products without co-payment, demonstrating a good balance between supply and demand in the country’s healthcare sector,” said Ahmad Zahid.

The meeting also discussed the implementation of two co-payment features, namely deductibles and co-insurance/takaful, which could create a conducive and sustainable healthcare ecosystem through transparent medical billing and policyholder involvement.

Source: The edge markets

Silver (XAG/USD) lacks any firm intraday direction on Thursday and oscillates in a narrow trading band around mid-$30.00s through the first half of the European session. The white metal remains within the striking distance of a nearly three-week low touched on Tuesday and seems vulnerable to prolonging its rejection slide from the $33.0 neighborhood, or the highest level since December 2012 set last week.

The recent repeated failures to capitalize on momentum beyond the $32.00 mark constitute the formation of a bearish multiple-tops on the daily chart. Moreover, oscillators on the daily chart have started gaining negative traction and add credence to the near-term bearish outlook for the XAG/USD. That said, it will still be prudent to wait for a sustained break and acceptance below the $30.00 psychological mark before positioning for any further depreciating move.

The subsequent downfall could drag the XAG/USD to the $29.75-$29.60 confluence support – comprising the 100-day Simple Moving Average (SMA) and the 50-day SMA. A convincing break below the latter should pave the way for a fall towards the $29.00 mark en route to the next relevant support near the $28.60-$28.50 zone. 

On the flip side, any attempted positive move now seems to confront resistance near the $31.00 horizontal support breakpoint. Some follow-through buying, however, might trigger a short-covering rally and allow the XAG/USD to reclaim the $32.00 mark, with some intermediate hurdle near the $31.55 area and the $31.75-$31.80 region. The momentum could extend further towards the $32.25 supply zone en route to the multi-year peak, just ahead of the $33.00 round figure.

Silver daily chart

Source: FXSTREET

“Sell Japan’s currency” is becoming an ever-more popular rallying cry as investors prepare for monthly US inflation data that threaten to roil financial markets.

The Asian nation’s biggest banks are almost unanimous in saying the yen is set to keep weakening as traders trim bets on Federal Reserve interest-rate cuts, bolstering the dollar and Treasury yields. The outlook for further yen losses is emboldening traders to reload bearish positions on one of the easiest currencies to sell in the event of a hot US inflation number.

“‘Sell the yen’ is by far the most popular trade — the carry still works for hedge funds shorting the currency,” said Nick Twidale, chief analyst at ATFX Global Markets in Sydney, who’s traded the yen for a quarter of a century. “Given doubt on the size of Fed rate cuts, it’s just easier for investors to be biased short yen right this moment.”

Japan’s currency is the third-most traded in the world behind the dollar and euro, and the ample liquidity makes it easy for investors to buy and sell. The yen has already weakened for three straight years as the nation’s relatively low interest rates have made it an ideal target for so-called carry trades, where investors borrow in low-yielding currencies to fund purchases of higher-yielding assets elsewhere.

Mizuho Securities Co, Nomura Securities and MUFG Bank Ltd are among those saying there’s a risk the yen will weaken to 150 per dollar or beyond, raising the threat of renewed intervention from the authorities. The currency’s 4.5% decline over the past month is already putting officials — and yen traders — on high alert.

If US CPI beats forecasts, there’s a risk of a general rise in the dollar, Yujiro Goto, head of foreign-exchange strategy at Nomura Securities in Tokyo, wrote in a research note. “There’s also a high possibility that the dollar will attempt to recover to the ¥150 level.”

Signs of unease from Tokyo are growing. Japan’s chief currency official Atsushi Mimura told reporters Monday he was monitoring the currency market with a sense of urgency. Sudden yen moves can have a negative impact on business activity and citizens’ lives, newly appointed finance minister Katsunobu Kato said the same day.

The yen was little changed at 149.13 per dollar Thursday in Tokyo after earlier weakening to an almost two-month low of 149.55. The currency last traded at 150 on Aug 1.

Much of the yen selling pressure is being driven by the prospect of a stronger dollar.

“It’s not just the yen, I think is the simple answer — so, very much a US dollar focus rather than yen focus at the moment,” said David Sokulsky, chief investment officer at hedge fund Carrara Capital in Sydney. “The easiest trade is to be short yen.”

Economists predict key measures of US inflation may have slowed in September, even as price pressures build in some categories of goods such as used cars. The expectations for a subdued reading leaves an even greater room for an upside surprise.

“Stronger-than-expected US jobs data have helped create a favorable environment for yen carry trades to resume,” said Taro Kimura, senior Japan economist for Bloomberg Economics.

The yen “will probably suddenly go to the 150 level” if the CPI data is very strong, said Tsutomu Soma, a bond and currency trader at Monex Inc. in Tokyo. “But I think it’ll come back down quickly because of the sense of caution about intervention.”

In Singapore, hedge fund Blue Edge Advisors is also eyeing further yen weakness into the US data.

“Until all of that positioning washes out or data softens, the path of least resistance, although volatile, is higher US rates,” said Calvin Yeoh, who helps manage the Merlion Fund. “And that means it’s about a stronger dollar, weaker yen.”

Source: The edge markets

Strong job-creation data spurred a selloff in the bond market late last week, pushing yields higher as investors ditched bets that policymakers will deliver another half-point rate reduction this year. With concern over US employment subsiding, investors are now looking to Thursday’s inflation reading for signs price pressures are under control. 

While Kim Rupert, an economist at Action Economics, expects a “tame” reading, “that’s not to say we can’t be surprised. And clearly, an upside surprise can add to the bearish reaction following the payroll report”.

Treasuries were little changed on Thursday, with two-year yields slightly lower near 4%, while the long end ticked higher. Money markets implied an 80% chance of a quarter-point cut from the Fed next month.

A consensus of forecasts compiled by Bloomberg predicts that, excluding the food and energy components, consumer prices rose an annualised 3.2% last month. That’s still above the Fed’s 2% target. 

Citadel Securities’ Michael de Pass said on Bloomberg Television he expects only one more quarter-point cut this year from the Fed given persistent inflation and US economic resilience.

“We end up in a world where inflation remains sticky, above target, and the pace of easing slows down relative to what the market has priced in,” de Pass said. 

Since last Friday’s labour-market report, traders in the futures market linked to the Secured Overnight Financing Rate have been unwinding their long positions. At the same time, some short positions have emerged as market expectations fade for aggressive Fed cuts. 

Pricing in the swaps market implies traders no longer see another half-point reduction coming in the remainder of 2024. In the options market, new positions have been skewed towards hedging a scenario where the central bank eases just 25 basis points at the November meeting before holding the policy rate in December.

Minutes from the central bank’s September gathering, released on Wednesday, showed Fed chair Jerome Powell received some pushback on a half-point interest-rate cut, with some officials preferring a quarter-point reduction.

US Treasuries have slid 1.3% so far in October, set to snap a five-month gaining streak, according to a Bloomberg gauge. Also on Thursday, the market will have to digest a third round of Treasury coupon-bearing debt sales, with an auction of 30-year bonds. That follows a US$39 billion (RM166.97 billion) sale of 10-year debt on Wednesday and US$58 billion of three-year notes a day earlier.

Source: The edge markets