The USD Pulled-Back Against its Major Counterparts

The USD Pulled-Back Against its Major Counterparts

The USD Pulled-Back Against its Major Counterparts

Asian equities put in a mixed performance overnight with the Nikkei 225 lower amid a firmer JPY and disappointing CPI data

•             FX markets were relatively tentative overnight with the USD modestly pulling back ahead of today’s appearance by Yellen at Jackson Hole (1500BST/0900CDT)

•             Looking ahead, highlights include GDP from UK and US, US Trade Balance, U. of Michigan Sentiment and Fed Chair Yellen speaks at the Jackson Hole Symposium

ASIA

Asia equity markets traded mixed following the weak lead from Wall St. as participants remained tentative ahead of the Jackson Hole symposium. Nikkei 225 (-0.7%) underperformed with the index briefly declining below 16,400 on a firmer JPY and after poor CPI figures continued to suggest the ineffectiveness of Bank of Japan policy. Financials dragged the ASX 200 (-0.2%) lower, although a mild rebound in commodities has stemmed losses. Chinese markets bucked the downbeat trend with Hang Seng (+0.6%) buoyed by reports the HK-Shenzhen connect regulations will be announced today, while the Shanghai Comp (+0.4%) is underpinned by better than expected earnings including Big-4 China Construction Bank and the largest weekly interbank liquidity injection in nearly 3-months.

China's NDRC said there is plenty of room for China to guide interest rates lower.

Peoples Bank Of China set CNY mid-point at 6.6488 (Prev. 6.6602).

Peoples Bank Of China injected CNY 95bln via 7-day reverse repos and CNY 50bln in 14-day reverse repo for a net injection of 310bln vs. Prev. net injection CNY 15.5bln; which represents the largest weekly net injection in nearly 3-months. 

Japanese National CPI (Jul) Y/Y -0.40% vs. Exp. -0.40% (Prev. -0.40%)

  •          National CPI Ex Fresh Food (Jul) Y/Y -0.50% vs. Exp. -0.40% (Prev. -0.50%, Rev. -0.40%); 5th straight declines & over 3-yr low.
  •          National CPI Ex Fresh Food, Energy (Jul) Y/Y 0.30% vs. Exp. 0.40% (Prev. 0.50%).

Japanese Tokyo CPI (Aug) Y/Y -0.50% vs. Exp. -0.40% (Prev. -0.40%)

  •          Tokyo CPI Ex Fresh Food (Aug) Y/Y -0.40% vs. Exp. -0.40% (Prev. -0.40%)
  •          Tokyo CPI Ex Fresh Food (Aug) Y/Y -0.40% vs. Exp. -0.40% (Prev. -0.40%).

Europe and United Kingdom

G20 communique for upcoming September 4th-5th meeting in China is said to suggest that concerns regarding a Brexit has somewhat eased.

FX

USD pulled-back against its major counterparts as range-bound trade continued in the greenback ahead of the Jackson Hole symposium, with focus on Fed Chair Yellen’s opening remarks later. This also pressured USD/JPY at the open with safe-haven flows adding to the downside for the pair. CNY weakened against the greenback despite a firmer fix, amid comments from the NDRC that there was large room for China to guide rates lower, while commodity linked currencies have benefited following gains in crude with NZD/USD above the 0.7300 and USD/CAD in proximity to test a break below 1.2900.

COMMODITIES

WTI crude futures saw muted trade overnight with prices remaining above the USD 47/bbl and at yesterday’s highs. Gold (+0.1%) continued to nurse its recent declines with price action light ahead of Fed Chair Yellen commentary, while copper also benefited from the weakness in the USD and heightened appetite in China.

Saudi Energy Minister stated that they have had no discussions of any substance on an oil production freeze and that he does not believe any significant market intervention is necessary.

IMF stated that Russia increased it gold holdings by 7.3 tons to 1506 tons and China increased its gold holdings by 5.3 tons to 1828 tons.

United States

Fed's Vice Chair Fischer (Voter, Neutral) stated that the Fed is talking about overheating in the economy and are debating policy.

Fed’s George (Voter, Hawk) stated she would a hike in short-term rates to about 3% over next two or three years and added low rates risk cause financial system imbalances, including an overheating commercial real-estate market, which could undermine growth.

Fed's Kaplan (Non-Voter, Neutral) stated that progress on inflation has been frustratingly slow and they can afford to be patient on rate hikes. Kaplan also reiterated that Fed should increase rates in a gradual and patient matter.

Fed’s Williams (Non-Voter, Soft Hawk) stated the Fed will keep the economy running hot.

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