Markets quiet, awaiting plethora of US data

Headlines

* Dollar eases after hitting highest in two weeks amid light volumes

* Yen forecasters chart path past 140 as global rate tracks emerge

* Hedge funds bet against banks, insurance and property, says Goldman Sachs

* Gold dips to one-week low as US jobs data awaited

FX: USD unsurprisingly printed an inside day as markets were relatively quiet trading in narrow ranges. A major Fib retracement level of this year’s move higher sits at 1.3471. Last week’s low is 1.3436. There is a lot of US data this week ahead of Friday’s NFP including ISMs, JOLTs, ADP and initial jobless claims.

EUR has found support at 1.1071. Germany saw the first state election win for an extreme right-wing party since WW2. The main fall-out, however, will be felt by the very poor results of the ruling federal coalition and whether they have any plans to boost spending into federal elections next year. None are expected, which leaves the German economy in a malaise as the manufacturing sector continues to stagnate.

GBP found some buyers after three straight days of selling. Last week’s high was 1.3266. UBS, an investment bank, was touting GBP rates due to inflation dynamics. It said UK yields could be the highest in the G10 by year end. The bank expects cable to rise to 1.33 by December and 1.38 by June 2025.

USD/JPY picked up again for a fourth consecutive day of buying. Tokyo CPI surprised to the upside and accelerated, including the BoJ core component (which excludes fresh food and energy). This put policy normalisation and an earlier rate hike in October on the table.

AUD looks to have found support around 0.6759. Last Thursday’s top is 0.6823. Eyes are on Australia Q2 GDP data released on Wednesday. USD/CAD is trading around support at a retracement level (61.8%) of the 2024 move up at 1.3471. The BoC meeting is fully priced to deliver a third 25bps rate cut in a row, with Canada jobs data published on Friday at the same time as US NFP.

US Stocks: Closed for US Labor Day holiday.

Asian stocks: Futures are in the green. Asian stocks traded mostly lower with sentiment muted due to lower China manufacturing PMI. The ASX 200 declined as gold miners suffered after physical gold losses at the end of last week. The Nikkei 225 saw its gains fade after initially moving higher on the weaker yen. The Hang Seng lagged with New World tanking after posting its first annual loss in two decades. The Shanghai Composite sold off after mixed PMI data.  

Gold trade in a narrow range and closed very marginally below $2500. Attention is squarely on Friday’s NFP data.

Day Review –US ISM Manufacturing

Consensus looks for a rise to 47.8 in August, up from the unexpectedly soft 46.8 in July. This would be in the middle of the range of readings since late 2022. For comparison, S&P Global’s flash PMI data for August signalled a deterioration in business conditions for a second straight month, and the steepest rate of decline since December. The report noted that all five components of the PMI weakened in August.

Some economists believe this report is providing a distorted view of conditions in the manufacturing sector, where production has been trending sideways for some time now despite sub-50 readings for the composite. In any event, these indicators are likely to be overshadowed by this week’s employment data.

Chart of the Day – FTSE 100 close to record highs

The UK’s FTSE 100 has lagged its European peers recently with new all-time highs on the continent not yet seen in the UK’s major index. The benchmark has risen just over 8% this year compared to the German Dax up more than 12% and the Euro Stoxx 50 enjoying gains of close to 10%. But sentiment is turning towards the UK with improved political uncertainty and the UK’s lower tech weighting reducing recent volatiltiy after Nvidia’s recent downturn.

It remains unclear over the pace of UK rate cuts though optimism has been boosted by the relatively strong pound. The record high is at 8474 from May. First major support is 8175.

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