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USD/CAD tests major ceiling

The US dollar remains firm as traders expect resilient data later this week. On the daily chart, the price is probing last May’s double top near 1.3650, a major ceiling that so far has capped the greenback’s advance. Its breach would signal that the bulls are back in the game and stronger than ever, with October 2022’s peak of 1.3900 as a potential target later on. As the daily RSI shows an overextension, a pullback would be a test of the bulls’ resolve with 1.3570 as the first support and 1.3500 on the 20-day SMA as a second layer.

AUD/USD seeks to bottom out

The Australian dollar clawed back some losses after July’s retail sales exceeded expectations. The pair is looking to stabilise around its 9-month lows near 0.6370 with a preliminary bounce above 0.6480 pushing a few short interests out of the way. The former demand zone 0.6490-0.6500 from May’s low coincides with the 20-day SMA and is a major resistance to lift to instil confidence and open the door to a broader rebound to 0te.6610. On the flip side, a slip below 0.6370 would trigger a new round of sell-off towards 0.6200.

UK 100 probes resistance

The FTSE 100 recoups some losses as commodity prices register some upticks. The index so far has found support in the demand zone near the July low of 7240, offering the bulls some relief. Still, they are not out of the woods yet as the latest bounce could be due to short-term sellers’ profit-taking with support of a little bargain hunting. The demand-turned-supply zone of 7420 next to the 20-day SMA would be their first real test and a bullish breakout may extend gains to 7550. But a fall below 7300 may cause a reversal to 7000.

Markets

With little economic data in the way, the first trading session post-Jackson Hole mainly yielded order-driven and technically inspired trading. Fed Chair Powell reiterating the ‘higher for longer mantra’ didn’t change investors’ assessment in any profound way. At the short end of the curve, the US 2-y touched 5.10% at the start of US dealings, but the cycle top (5.1175%) was left intact. Bonds gradually rebounded. The intra-day price dynamics was reinforced by a solid $ 46 bln 2-y US Treasury action. The subsequent 5-y note auction was ok. At the end of the day, US yields ceded between 3.75 bps (5-y) and 0.7 bps (30-y). German yields added between 3.1 bps (2-y) and 0.3 bps (10-y). ECB Holzmann advocated a front-loading approach to reach the peak cycle rate sooner rather than later. However, his comments had limited impact on trading. EMU inflation data to be published later this week will be key to guide the debate whether or not the ECB should consider a pause in its hiking cycle at the September 14 meeting. Equity investors apparently felt comfortable with the post-Jackson Hole status quo on interest rate markets. The S&P500 gained 0.63%. After a poor post-PMI performance last week, the Eurostoxx 50 yesterday even outperformed, gaining 1.36%. On FX markets, the dollar is taking a breather on its protracted rally since mid-July. The DXY index yesterday closed just north of the 104 big figure (open 104.17). For now, a real attack/break of the 104.7 end May top apparently is difficult without additional strong US data and/or markets pricing in a bigger chance for a 25 bps September 21 Fed rate hike than is currently the case (+/-25%). EUR/USD (1.0819) succeeded a close north of 1.08 after testing the 1.0766 area last week. Still the picture remains fragile. The yen for now still isn’t able to profit from any USD softness with USD/JPY still closing at 146.54 after setting a minor YTD top earlier yesterday. London markets were closed.

Asian equity markets mostly trade in positive territory joining yesterday’s WS rebound. Measures to support markets announced in China yesterday maybe also still play a role. US Treasuries show a tentative bid. Dollar is losing slightly (DXY 103.94; EUR/USD 1.0825). The calendar in Europe still only contains second tier data. The US is more interesting with house price data, JOLTS job openings, consumer confidence (Conference Board) and a $35 bln 7-y Treasury auction. We don’t expect markets to break any important levels with key US data (ADP, payrolls, manufacturing ISM) and EMU inflation data to be published later this week. 4.89% is first support for the US 2-y yield. On FX the picture stays USD constructive as long as the DXY 103 area holds. Also keep an eye at the ongoing topside test in USD/JPY.

News and views

The British Retail Consortium-Nielsen’s shop price index eased further in August. Prices rose 6.9% y/y, down from 7.6% in July and the 9% series high in May this year. Food led the decline, in particular meat, potatoes and cooking oils. While grocery prices still rose 11.5%, it was less than the 13.4% last month and the slowest since September 2022. “The unpredictable weather of recent weeks has dampened consumer demand with some high street retailers increasing promotional activity and food retailers continuing to extend price cuts,” head of retailer and business insight at NielsenIQ Mike Watkins said. Today’s numbers are a welcome development for the Bank of England though offer no room for complacency with official inflation still being well over triple the 2% target. UK money markets currently price in at least two more hikes to 5.75%. Sterling this morning ekes out a small gain (EUR/GBP 0.8575).

The Japanese government in its annual economic white paper said the country finds itself at an “inflection point” in its battle with 25 years of deflation. It referred to signs of broadening price and wage rises in an echo of the Bank of Japan, which said that price- and wage-setting behaviour was changing. In last year’s edition, the government said inflation was modest except for some food and energy-related goods. Now, it pointed to a “still moderate pace” of service price increases while at the same time highlighting the importance of it since they reflect domestic demand and wages more than goods prices do. Official Japanese inflation numbers hit 3.1-4.3% depending on the gauge in July, the highest in four decades. For the government to officially declare an end to the in 2001 introduced state of deflation, it not only needs to see underlying price rises but also clear signs that Japan won’t return to periods of price drops.

Euro is trading lower across the board today, additionally dragged down by weaker-than-expected consumer sentiment data out of Germany. This latest indicator has added fuel to concerns that Eurozone's largest economy may become a drag on the broader region, heightening risk of a looming recession. Meanwhile, Dollar and Swiss Franc also demonstrated weakness, but this appears to be more related to a mildly positive risk sentiment permeating the market.

In contrast, Australian and New Zealand Dollars are holding their ground as relatively better performers, followed by British Pound. Yen displayed mixed performance; although Japan's unemployment rate rose, the currency hasn't shown any clear recovery momentum.

Market participants should expect subdued trading conditions to continue for the day, particularly due to an empty economic calendar in Europe. However, upcoming US consumer confidence data could serve as a potential catalyst to awaken market activity.

On the technical side, Gold is attempting to build momentum for an extension of its rebound from 1884.83. For now, further upside appears likely as long as 1902.57 minor support holds. Sustained trading above falling trendline resistance (now at 1949) would strengthen the case that whole correction from 2062.95 has completed, and bring further rally to 1987.22 resistance confirmation.

Based on current market developments, extended rally in Gold might not necessarily mean selloff in Dollar. But that could still be seen as a sign of capped momentum for the greenback.

In Asia, Nikkei closed up 0.18%. Hong Kong HSI is up 2.00%. China Shanghai SSE is up 1.12%. Singapore Strait Times is up 0.34%. Japan 10-year JGB yield is down -0.0139 at 0.654. Overnight, DOW rose 0.62%. S&P 500 rose 0.63%. NASDAQ rose 0.84%. 10-year yield dropped -0.0027 to 4.212.

German consumer sentiment slides to -25.5, dashing hopes for a late-year recovery

Consumer sentiment in Germany continues to languish as the GfK Consumer Sentiment Index for September slipped to -25.5, missing market expectations of -24.3 and marking a decline from last month's -24.6.

"The consumer sentiment is currently not showing a clear trend, neither downward nor upward – and that at a very low level overall," stated Rolf Bürkl, consumer expert at GfK.

Adding to the gloom, Bürkl warned, "The chances that consumer sentiment can sustainably recover before the end of this year are dwindling more and more."

He cited "persistently high inflation rates, especially for food and energy supplies," as the main obstacles hindering any meaningful advance in consumer sentiment.

The sub-components of the index painted an equally disheartening picture. Economic expectations in August plummeted from 3.7 to a worrying -6.2, marking the lowest level since last December's -10.3. Meanwhile, income expectations saw a significant drop from -5.1 to -11.5. The propensity to buy, another crucial sub-index, also declined, falling from -14.3 to -17.0.

Japan's unemployment rate up to 2.7%, first rise in four months

Japan's job market showed unexpected signs of weakening in July, as the unemployment rate rose to 2.7%, defying expectations of remaining steady at June's 2.5% level. This marks the first uptick in unemployment in four months. The data reveals that the number of employed workers decreased by -100k during the month, while the ranks of those without jobs swelled by 110k.

Adding to the concern, jobs-to-applicants ratio—a leading indicator of labor market health—dipped to 1.29 in July from 1.30. This is the third consecutive monthly decline, counter to median economist forecasts that predicted the ratio would remain flat. These figures indicate that there were only 129 job openings for every 100 applicants, a metric that is closely watched for signs of labor market tightness or slack.

Looking ahead

US house price index and consumer confidence will be released later in the day.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8548; (P) 0.8573; (R1) 0.8586; More...

Intraday bias in EUR/GBP is turned neutral first with 4H MACD crossed below signal line. Overall outlook stays bearish with 0.8667 resistance holds. On the downside, below 0.8559 minors support will turn bias to the downside for retesting 0.8491 low first. Firm break there will resume larger down trend.

In the bigger picture, the down trend from 0.9267 (2022 high) is seen as part of the long term range pattern from 0.9499 (2020 high). Further decline is in favor as long as 0.8667 resistance holds. Break of 0.8502 will resume the fall towards 0.8201 (2022 low).

Economic Indicators Update

The week started in a relatively good mood. The S&P 500 posted its first back-to-back gains this month, even though the US 2-year yield advanced to a fresh high since July with the 2 and 5-year treasury auctions hitting the highest yields since before the 2008 crisis. One would think that the Chinese stimulus measures have lifted up the sentiment across global equities, but the CSI 300 closed yesterday just around 1% higher. In this sense, yesterday was just another day the Chinese stimulus measures didn’t get the attention Chinese officials were hoping for. And that’s the new normal. Before 2020, any stimulus news from China would move oceans, but now, China can cut rates, inject liquidity, half stamp duty, prevent big names from becoming net sellers… nothing is enough to bring investors back apart from a massive fiscal stimulus. And the chances are that, China won’t do that, because Xi doesn’t want to explode the national debt levels – which are already alarmingly high – to kick start another unsustainable growth in China. That’s not bad in the long run, but it sure costs China a lot of investment. MSCI’s EM ex-China ETF has outperformed the MSCI China since the beginning of the year and the trend in Chinese equities, and the latest surveys hint at around 5% growth in 2023, in line with the government’s growth target, but not enough to bring money on board.

Focus on US growth and jobs data

The softer US dollar gave some breathing room to other currencies yesterday. The EURUSD bulls won a battle near the 200-DMA, and the pair is slightly above that level this morning, while the USDJPY is steady around 146.50. Crude oil steadied above the $80pb with the news that the tropical storm Idalia could interrupt crude production in the Gulf Coast and put an additional short-term pressure on oil prices. Gold is better bid above the $1900 thanks to a retreat in the US 10-year yield.

Today, the US JOLTS data is expected to post a third month below 10mio job openings. A number lower than expectations would point to loosening jobs market and could soften the hawkish Federal Reserve (Fed) expectations, while a strong figure will keep the economists and the Fed officials in a state of confusion. It is now increasingly certain that the Covid disruption in jobs market has largely passed, which means that the fact that the jobs figures remain resilient to rate hikes is due to another reason! And that reason could be the aging population. Looking at the CBO projections, the participation rate in the US is not at shocking levels compared to the long-term projections. On the contrary, the actual participation rate (62.6%) is even higher than the long-term projection (62.4%).

Strong jobs figures have potential to boost Fed hawks as tightness of the jobs market means people ask for more money for doing the same job than they would otherwise.

Market movers today

We get some interesting US data today. The JOLTS data will provide more key information on the labour market and so will the consumer confidence numbers from Conference Board, which contain the jobs plentiful vs. hard to get indices.

US house prices are also due and have been surprisingly strong lately. However, we may see prices cool down again following the recent sharp increases in mortgage rates.

In the Nordics we get Swedish GDP (see more below).

The 60 second overview

Markets. While this week will bring plenty of key data releases - most notably the US non-farm labour market report on Friday and Eurozone inflation on Thursday - markets have been off to a slow start since the weekend. Stabilisation in Chinese markets on the back of a stamp duty reduction seems to have calmed global risk appetite. That said, global equity indices still look set for the worst calendar-month this year.

Overnight most Asian equity indices are trading in green while US yields have come a little lower leaving 2Y treasury yields now just below 5.00%. Japanese unemployment showed a slightly surprising increase although from very low levels. The Japanese labour market remains very tight and we still think Japanese authorities underestimate the underlying inflation pressures.

In the near-term, we expect US activity data to perform better than those in the Eurozone. Markets will hope for a sweet spot in economic releases. That is, on the one hand, the global economy must not do too well as this is likely to trigger additional monetary tightening. On the other hand, it must also avoid an outright recession or sharp growth slowdown for risky assets not to suffer. Following last week's PMI releases the balance of risk for now seems skewed towards a higher recession probability.

We maintain the call that we have seen the peak in US policy rates whilst we still lean - not much more than that - towards a final 25bp rate hike from the ECB in September.

Equities: Investors continued in a buoyant manner on Monday. Jackson Hole lingered in focus, as the macro agenda was thin and hence the drivers were the same as Friday. Equities grinded higher in US and Europe caught up. S&P500 rose 0.6%, Stoxx 600 0.9% and Nordics bounced a full 1.4%, on track to recoup some of last months' losses. It was a risk-on session, with growth, cyclicals and small caps outperforming. In the Nordics, this translated into EQT, Volvo and Sandvik being the stocks on top, after being the worst performing stocks the last month. Asian markets are a notch higher this morning and US futures indicate a mildly positive opening too.

FI: US Treasury yields ended Monday with a modest decline in yields across the yield curve. This has continued this morning in the Asian trade and the 2Y US Treasury yield is now below 5%. There was also a modest decline in the longer-dated European government bond yields, where the periphery outperformed the core-EU government bonds.

FX: Yesterday's session was dominated by a relief rally to China and industrials exposed currencies such as SEK, AUD and EUR. EUR/USD rebounded slightly above 1.08 while EUR/SEK dropped back below the 11.90 mark. EUR/NOK remains in the 11.50s range while EUR/GBP keeps hovering around the 0.858-mark. USD/JPY remains at yearly highs just above 146.

Credit: Credit markets started the week with a significant number of new primary deals announced throughout Europe. In Scandi space Danske Bank acted as lead manager on Länsförsäkringar Bank AB's new Senior Non-Preferred Green bond as well as on Lifco AB's Senior Unsecured issue. Overall, we expect a continued busy primary market in the coming days. Due to the high primary activity the secondary market was relatively muted with iTraxx Main 1bp tighter at 74bp while iTraxx Xover was 2bp tighter at 413bp.

Nordic macro

Sweden: Today focus is on Q2 GDP (released 08.00 CET) and market expectations are very depressed (-1.3 % qoq sa) which is very close to the reading of the (non-official) GDP indicator (-1.5 % qoq sa). We expect a less negative -0.5 % as consumption appears to have bottomed out and employment has continued its upward trend. As shown in the most recent issue of Reading the Markets Sweden, 25 August, the GDP indicator is very volatile and often revised significantly. We also find it strange that Sweden should deviate to such an extent form positive GDP reading in other Nordic and export markets. To be sure, residential construction remains a severe drag on growth. July trade balance and retail sales are also released this time.

Deputy Governor Bunge speaks about the economic outlook and monetary policy 09.30 CET. Expect a similar message as Flodén's yesterday, i.e. more hikes coming (we anticipate one more though).

Consumer sentiment in Germany continues to languish as the GfK Consumer Sentiment Index for September slipped to -25.5, missing market expectations of -24.3 and marking a decline from last month's -24.6.

"The consumer sentiment is currently not showing a clear trend, neither downward nor upward – and that at a very low level overall," stated Rolf Bürkl, consumer expert at GfK.

Adding to the gloom, Bürkl warned, "The chances that consumer sentiment can sustainably recover before the end of this year are dwindling more and more."

He cited "persistently high inflation rates, especially for food and energy supplies," as the main obstacles hindering any meaningful advance in consumer sentiment.

The sub-components of the index painted an equally disheartening picture. Economic expectations in August plummeted from 3.7 to a worrying -6.2, marking the lowest level since last December's -10.3. Meanwhile, income expectations saw a significant drop from -5.1 to -11.5. The propensity to buy, another crucial sub-index, also declined, falling from -14.3 to -17.0.

Full Germany Gfk consumer sentiment release here.

Daily Pivots: (S1) 1.0773; (P) 1.0801; (R1) 1.0812; More...

Intraday bias in EUR/USD is turned neutral with current recovery, and some more consolidations could be seen. But outlook stays mildly bearish as long as 1.0929 resistance holds. Below 1.0764 will resume the fall from 1.1274 to 1.0609/34 cluster support next.

In the bigger picture, fall from 1.1274 medium term top is seen as a correction to up trend from 0.9534 (2022 low). Deeper decline would be seen to 1.0634 cluster support (38.2% retracement of 0.9534 to 1.1274 at 1.0609). Strong support could be seen there, at least on first attempt, to bring rebound. Yet, medium term outlook will be neutral for now, as long as 1.1274 resistance holds.

Daily Pivots: (S1) 145.83; (P) 146.30; (R1) 146.52; More...

Further rise is expected in USD/JPY despite loss of upside momentum. On the upside, sustained break of 61.8% projection of 129.62 to 145.06 from 137.22 at 146.76 will pave the way to retest 151.93 high. For now, outlook will stays cautiously bullish as long as 144.52 support holds, in case of retreat.

In the bigger picture, overall price actions from 151.93 (2022 high) are views as a corrective pattern. Rise from 127.20 is seen as the second leg of the pattern and could still be in progress. But even in case of extended rise, strong resistance should be seen from 151.93 to limit upside. Meanwhile, break of 137.22 support should confirm the start of the third leg to 127.20 (2023 low) and below.

Daily Pivots: (S1) 1.2531; (P) 1.2576; (R1) 1.2593; More...

GBP/USD is staying in consolidation above 1.2546 and intraday bias stays neutral. Near term outlook remains mildly bearish as long as 1.2799 resistance holds. On the downside, break of 1.2546 will resume whole fall from 1.3141 to 61.8% projection of 1.3141 to 1.2618 from 1.2799 at 1.2476. Firm break there could prompt downside acceleration to 100% projection at 1.2276.

In the bigger picture, for now, fall from 1.3141 medium term top is seen as a correction to up trend from 1.0351 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.0351 to 1.3141 at 1.2075. Strong support would be seen there to bring rebound on first attempt. But outlook will be neutral at best as long as 1.3141 resistance holds, and consolidation from there is set to extend, until further development.

Daily Pivots: (S1) 0.8779; (P) 0.8819; (R1) 0.8839; More....

USD/CHF is staying in consolidation below 0.8874 and intraday bias remains neutral for the moment. Further rally is expected as long as 0.8758 support holds. On the upside, break of 0.8874 will resume the rise from 0.8551 to 0.9146 cluster resistance next.

In the bigger picture, rebound from 0.8551 medium term bottom is currently seen as a correction to the downtrend from 1.0146 (2022 high). Further rally would be seen to 0.9146 cluster resistance (38.2% retracement of 1.0146 to 0.8551 at 0.9160). Strong resistance could be seen there to limit upside, at least on first attempt. Nevertheless, medium term outlook is neutral at best as long as 0.8551 holds, until further developments.