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Daily Pivots: (S1) 184.42; (P) 184.88; (R1) 185.40; More...

Intraday bias in GBP/JPY remains on the upside for the moment. Current up trend should extend to 61.8% projection of 158.24 to 183.99 from 176.29 at 192.20. On the downside, below 183.44 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, up trend from 123.94 (2020 low) is in progress. Next target is 195.86 (2015 high). This will now remain the favored case as long as 176.29 support holds, even in case of deeper pull back.

Daily Pivots: (S1) 0.8569; (P) 0.8589; (R1) 0.8605; More...

EUR/GBP dips mildly mildly today but stays in established range. Outlook is unchanged. On the downside, below 0.8543 will target a test on 0.8502 low. Decisive break there will resume larger decline from 0.8977. On the upside firm break of 0.8717 resistance will suggest larger reversal and target 0.8874 resistance next.

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). Firm break of 0.8717 support turned resistance will argue that it has completed with three waves down to 0.8502. Further break of 0.8977 will bring retest of 0.9267 high. Nevertheless, rejection by 0.8717, followed by break of 0.8502 will resume the decline towards 0.8201 (2022 low).

In the wake of UK CPI data, Sterling slightly higher, but lacks clear buying momentum. As BoE had anticipated, headline inflation demonstrated pronounced deceleration. Concurrently, the evident surge in services inflation dovetails seamlessly with the week's unprecedented data on wage growth. Given these dynamics, BoE is primed for another rate hike in the coming month, with indicators suggesting a consistent tightening trajectory. Nonetheless, pinpointing the exact juncture for the peak rate remains a matter of speculation.

Globally, Dollar, although exhibiting a subdued tone today, is firmly positioned as one of the week's frontrunners, second only to the Pound. On the other end of the spectrum, Australian Dollar finds itself grappling with the week's underwhelming performance. This downturn is attributed to an amalgamation of bearish trends emerging from China and a continued dip in Copper prices. On the other hand, New Zealand Dollar is mixed, with help from today's post-RBNZ recovery. In the meantime, Canadian Dollar and Yen are charting the next in line for weaker performances, with Euro and Swiss Franc portraying a mixed picture for the time being.

Technically, WTI crude oil is in notable pull back this week. With D MACD crossed below signal line, a short term top should be in place at 84.91, after hitting 161.8% projection of 63.67 to 74.74 from 66.94 at 84.85. Break of 78.72 support will likely bring deeper pull back through 55 D EMA (now at 77.09) to 74.74 resistance turned support. Such a pronounced dip in WTI might resonate with a broader risk-off sentiment, possibly in tandem with a significant dip in equities. Such a scenario could pave the way for an invigorated US Dollar.

In Asia, Nikkei closed down -1.46%. Hong Kong HSI is down -1.38%. China Shanghai SSE is down -0.64%. Singapore Strait Times is down -0.66%. Japan 10-year JGB yield dropped -0.0094 to 0.622. Overnight, DOW dropped -1.02%. S&P 500 dropped -1.16%. NASDAQ dropped -1.14%. 10-year yield rose 0.037 to 4.221.

UK CPI slowed to 6.8% in Jul, services inflation hit highest since 1992

July saw a marked deceleration in UK's CPI, falling from 7.9% yoy to 6.8% yoy , precisely in line with market expectations. Core CPI, which strips out variables like energy, food, alcohol, and tobacco, stood unchanged at 6.9% yoy, above the expected 6.8%.

CPI figures pertaining to goods showed a noticeable slowdown, dropping from 8.5% yoy to 6.1% yoy. On the flip side, CPI services ramped up from 7.2% yoy to 7.4% yoy , registering its peak since the staggering 9.5% yoy rate observed in March 1992.

On a month-to-month analysis for July, CPI receded by -0.4%, a figure slightly above than forecasted decline of -0.5%. Core CPI saw a monthly rise of 0.3% mom. While the CPI for goods plunged by -1.7% mom. , services CPI exhibited an increase, registering growth of 1.0% mom. .

Office for National Statistics remarked, "The slowdown in the annual CPI rate into July 2023 was driven by downward contributions to change from 8 of the 12 divisions."

Notably, housing and household services emerged as the primary sectors applying downward pressure. Expanding on this, ONS stated, "Within this division, the downward effect came mainly from gas and electricity."

RBNZ on hold, OCR to stay high for longer

RBNZ has decided to maintain OCR unchanged at 5.50% again, aligning with broad market expectations. Making its stance clear, the bank asserted that the "OCR needs to stay at restrictive levels for the foreseeable future."

Reflecting a neutral stance, the central bank emphasized its confidence in the current monetary policy, "that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1 to 3% per annum, while supporting maximum sustainable employment."

Adding depth to its economic perspective, "The nominal neutral OCR has increased by 25 basis points to 2.25% within the projections," the Committee noted. They were in consensus that the existing OCR level was contractionary, asserting that it's effectively curbing domestic spending as intended.

Shifting the lens to future projections, the forecasts in the Monetary Policy Statement hint at the OCR potentially reaching a peak of 5.6% in the first quarter of 2024. This marks a slight shift from the earlier prediction of 5.5% in Q3 2023, hinting at the possibility of an additional rate hike. As for subsequent rate cut expectations are now set for the second quarter of 2025, a slight delay from the previously anticipated period between Q4 2024 and Q1 2025.

Australia's Westpac leading index ticks up, but below-par growth set to persist

Australia's Westpac Leading Index figures reveals that growth rate has shown a marginal uptick, moving from -0.67% to -0.60% in July. But alarmingly, this marks the twelfth consecutive month in red, representing the longest stretch of such negative prints in a span of seven years, barring the COVID-affected period.

The subdued, below-par growth momentum witnessed throughout 2023 seems set to persist into the subsequent year. Westpac predicts deceleration in GDP growth to a mere 1% for the current year. Any potential rebound is anticipated to be minimal, with projections indicating a slight rise to 1.4% annually in 2024 – with the bulk of this growth concentrated towards the year-end.

Regarding RBA meeting on September 5, Westpac sets its expectations clear. The institution foresees cash rate remaining stable at 4.10%, denoting the zenith of this current tightening phase.

Referring the recent remarks of RBA Governor before the House of Representatives Standing Committee on Economics, the note emphasized, "Policy is now in a 'calibration' phase with small adjustments still possible if the data starts to show clear risks of a slower return to low inflation."

Nevertheless, given the evident frailty in growth momentum – as underscored by the most recent Leading Index update – coupled with the broader dynamics of price and wage inflation aligning with RBA's forecasts, "the threshold for additional tightening is high and unlikely to be met."

Looking ahead

Eurozone GDP revision and industrial production will be released in European session. Later in the day, housing data from Canada and US will be release. US will also release industrial production, and FOMC minutes.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8569; (P) 0.8589; (R1) 0.8605; More...

EUR/GBP dips mildly mildly today but stays in established range. Outlook is unchanged. On the downside, below 0.8543 will target a test on 0.8502 low. Decisive break there will resume larger decline from 0.8977. On the upside firm break of 0.8717 resistance will suggest larger reversal and target 0.8874 resistance next.

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). Firm break of 0.8717 support turned resistance will argue that it has completed with three waves down to 0.8502. Further break of 0.8977 will bring retest of 0.9267 high. Nevertheless, rejection by 0.8717, followed by break of 0.8502 will resume the decline towards 0.8201 (2022 low).

Economic Indicators Update

The Americans continue spending and that’s bad news for the entire world. Announced yesterday the July retail sales data came in better-than-expected in the US. Sales grew 0.7% on a monthly basis and more than 3% on a yearly basis - the biggest figure since January, when sales soared by 3% as well. Amazon’s Prime day apparently helped boost online sales, while demand for bigger items including furniture and auto parts declined. But all in all, the American consumer spent 3% more compared to a year ago, Home Depot reported small earnings beat yesterday and its CEO confirmed that ‘fears of a recession have largely subsided, and the consumer is generally healthy... while adding that ‘uncertainties remain’. Uncertainties remain, yes, but the resilience of the US consumer spending sapped investor sentiment by fueling inflation expectations and Federal Reserve (Fed) hawks, yet again. The US 2-year yield spiked above the 5% mark, but bounced lower, certainly helped by a big drop in Empire State manufacturing in August, the 10-year yield flirted with 4.30%, while major stock indices fell. The S&P500 closed below the 50-DMA, which stands at 4446, Nasdaq 100 remained offered below its own 50-DMA, at 15175, while Russell 200 slipped below the 50-DMA.

In the FX, the strength of the US consumer spending is reflected as a stronger US dollar across the board. The US dollar index remains bid, while Cable bulls resist to the bears around the 1.27, and above the 200-DMA, which stands near 1.2620, as the data released yesterday showed that wages in Britain accelerated at a record pace. Happily, this morning’s inflation data poured some cold water on the fire, as the CPI fell from 7.9% to 6.8% in July, as expected, yet core inflation remained steady at 6.9%, while the core PPI came in higher than expected. On the food front, grocery prices also fell more than 2 percentage points to 12.7%. But 12.7% is still a very high number. As a result, odds for a 50bp hike at the Bank of England’s (BoE) September meeting is given a 1 over 3 chance, the 2-year gilt yield is back above 5%, and looks like it’s there to stay, as the peak BoE rate is seen at 6%.

Across the Channel, the 10-year bund yield is also pushing higher near a decade high, and all eyes are on the European GDP and industrial production data this morning. The European economy is weakening due to the rising rates, tightening credit conditions and high energy prices, but the fact that the labour market remains tight in Europe as well remains a major concern for inflation expectations for the European Central Bank (ECB), which will let the economy sink further if it doesn’t take further control over inflation. Therefore, the EURUSD will certainly react negatively to a weak European data set today, and the pair could re-test the minor 23.6% Fibonacci retracement level, at 1.0870, but figures more or less in line with expectations should not change the ECB’s hawkish tilt. The problem is, there is nothing the ECB could do - other than restricting financial conditions - regarding the energy and gas prices – which move parallel to completely external factors like the Ukrainian war and labour strikes in Australia. In this sense, the Dutch TTF futures were again up by 12% yesterday, while US crude tanked near the $80pb level, pressured lower by 1. the surprise Chinese rate cut’s inability to spark interest in risk assets, 2. news that China’s imports of sanctioned Iranian hit a record high of 1.5mbpd this month - that oil trading at around $10 discount to Brent and 3. the latest data from the API hinting at an almost 7mio barrel decline in US crude inventories last week. The more official EIA data is due today, and the consensus is a 2.4 mio barrel fall. US crude could well slip below the $80pb on slow growth concerns, but Saudis will fight to keep the price above $80pb in the medium run.

Back to the inflation talk, the recent rise in energy and food prices is concerning for the euro area’s inflation in the next readings. Therefore, the falling inflation trend remains in jeopardy, as the discussion of an ECB pause on rate increases.

The Reserve Bank of New Zealand (RBNZ) held its cash rate unchanged for the 2nd consecutive month but warned that there is a risk that activity and inflation measures do not slow as much as expected, and that they won’t be cutting rates until the Q1 of 2025. The kiwi extended losses against the greenback, but the selloff remained contained.

Due today, the FOMC minutes will likely show that the Fed officials remain cautious despite the latest fall in inflation numbers, for the same reasons: rising energy and food prices that are sometimes driven by geopolitical events and that the Fed could only watch and adopt. The Fed is expected to hold fire on its rates in the September meeting, but nothing is less guaranteed than the end of the tightening cycle before the year end.

Market movers today

Following up on yesterday's inflation data from Sweden which came in well in line with expectations, this morning the Prospera inflation expectations survey is due.

In the UK, consensus expects inflation to moderate from 7.9% y/y in June to 6.7% in July.

In the US, we get housing data and industrial production for July, but main focus will be on the FOMC minutes released this evening.

There, the focus will naturally be on how the participants saw the balance of risks regarding the potential future rate hikes.

The 60 second overview

US: July retail sales data surprised to the upside, as nominal sales rose by 0.7% m/m (consensus 0.4%) and control group sales (excl. cars, gasoline, food services and building materials) were up by 1.0% m/m (consensus 0.5%). Amazon Prime Day in mid-July likely contributed to the pick-up, as non-store sales rose by 1.9% m/m, while demand for 'big ticket' items such as cars, furniture and electronics declined. Overall, this could reflect still resilient but slightly more cautious consumer demand. On the leading data front, NY Fed's Empire manufacturing survey and NAHB housing market index declined after strong readings earlier in summer. While the former has been very volatile over the past year, it is among the first manufacturing indicators released for August. Nevertheless, in the evening, the Fed's Kashkari was not ready to close the door for further rates hikes, even if he did caution that there 'could be more slowdown still in the pipeline'. We stick to our view that the Fed is already done hiking for now.

China: Following the latest string of weak macro releases, data published overnight showed that Chinese housing prices had declined by 0.2% m/m (-0.1% y/y) in July. Housing sales volumes have remained low this year, in line with broader economic activity, and despite the central government's efforts to stimulate the economy. Catch up with our latest thoughts on China in China holiday wrap-up - part 3 - Risks of a financial crisis resurface, 14 August.

RBNZ: The Reserve Bank of New Zealand kept the Official Cash Rate unchanged at 5.50% in its meeting overnight, in line with market expectations. New Zealand's core inflation pressures moderated in the latest Q2 reading, and yesterday's Q3 households' expectation survey showed a clear downtick in 1-2 year inflation expectations. In line with earlier communication, RBNZ continued to signal that rates would be maintained at the current level for now, although the rate path was adjusted slightly higher. The updated path now points towards a slight risk of another hike, and a later turn towards cutting rates (early 2025, compared to late 2024), which supported NZD/USD modestly overnight.

Equities: Chinese growth worries lingered into the session and overshadowed strong US retail sales data. Equities were pulled -1% lower in Europe and US in a risk-off session. All sectors were lower but value cyclicals suffered the most; such as banks, materials or energy. The latter with a clear connection to China worries. The underperformance of banks related to cautious comments from Fitch on the sector's credit rating. Little distinction between small caps or large caps, value or growth. VIX rose to 16.5 which is a low level but the highest obtained since summer. US futures are unchanged this morning.

FI: Global yields rose during most of yesterday's session, though some of the move was reversed in the afternoon. Yields promptly surged following the release of the stronger-than-expected US retail sales figures for July, briefly pushing the 2Y US treasury yield above 5%. However, the move quickly reversed without a clear trigger, probably partly explained by some short covering activity in markets. The 10Y US Treasury yield ended up by 2bp, while the 10Y German yield rose 4bp throughout the day. In both markets, the 2s10s curve bear steepened throughout the day.

FX: Scandies remained under pressure yesterday on the back of weak global risk sentiment. USD was about unchanged vis-à-vis majors following stronger-than expected US retail sales. The sell-off in CNH continues to grab attention. USD/CNH rose above the 7.30 yesterday after PBOC cut rates.

Credit: The general risk-off tone we have seen in August continued yesterday with Xover closing at the widest level for the month so far, being out some 6.7bp to 411bp. ITraxx main widened 1.5bp to 71.7bp. In spite of this, the Nordic primary markets are showing signs of awakening post the summer lull with deals announced from both Wallenius Wilhelmsen, Sparebanken Sogn & Fjordane and Sparebanken Øst.

Nordic macro

Sweden: In Sweden, we get the monthly Prospera inflation expectations survey at 8.00 CET. This is the smaller survey where only money market participants respond, but is still important input for the Riksbank. The trend over the recent months has been a steady decline for the 1y horizon (CPIF 4.1% in July, down from a peak of 5.6% in Sep 2022) while the 2y and 5y horizons have remained more stable closer to 2% (2y 2.4% and 5y 2.2% in July). We would expect a similar pattern in this print, with the 1y horizon dropping further while 2y and 5y remain anchored close to the 2% target.

July saw a marked deceleration in UK's CPI, falling from 7.9% yoy to 6.8% yoy , precisely in line with market expectations. Core CPI, which strips out variables like energy, food, alcohol, and tobacco, stood unchanged at 6.9% yoy, above the expected 6.8%.

CPI figures pertaining to goods showed a noticeable slowdown, dropping from 8.5% yoy to 6.1% yoy. On the flip side, CPI services ramped up from 7.2% yoy to 7.4% yoy , registering its peak since the staggering 9.5% yoy rate observed in March 1992.

On a month-to-month analysis for July, CPI receded by -0.4%, a figure slightly above than forecasted decline of -0.5%. Core CPI saw a monthly rise of 0.3% mom. While the CPI for goods plunged by -1.7% mom. , services CPI exhibited an increase, registering growth of 1.0% mom. .

Office for National Statistics remarked, "The slowdown in the annual CPI rate into July 2023 was driven by downward contributions to change from 8 of the 12 divisions."

Notably, housing and household services emerged as the primary sectors applying downward pressure. Expanding on this, ONS stated, "Within this division, the downward effect came mainly from gas and electricity."

Full UK CPI release here.

Daily Pivots: (S1) 1.0884; (P) 1.0919; (R1) 1.0939; More...

Intraday bias in EUR/USD stays on the downside for 1.0832 support. Decisive break there will extend the decline from 1.1274 to 1.0609/34 cluster support. On the upside, break of 1.1064 resistance is needed to indicate completion of the fall. Otherwise, outlook will stay cautiously bearish in case of recovery.

In the bigger picture, a medium term top could be formed at 1.1274, after failing to break through 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 decisively, on bearish divergence condition in D MACD. Sustained trading below 55 D EMA (now at 1.0966) will bring deeper correction 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 set the range for consolidation.

Daily Pivots: (S1) 0.8754; (P) 0.8775; (R1) 0.8807; More....

Intraday bias in USD/CHF remains neutral and outlook is unchanged. On the upside, sustained trading above 0.8818 support turned resistance will carry larger bullish implication. Further rally should then be seen to 0.9146 cluster resistance next. However, break of 0.8688 support will indicate rejection by 0.8818, and turn bias back to the downside for retesting 0.8551 low.

In the bigger picture, a medium term bottom could be in place at 0.8551 already, on bullish convergence condition in D MACD. Sustained trading above 0.8818 will bring further rise to 0.9146 cluster resistance (38.2% retracement of 1.0146 to 0.8551 at 0.9160), even as a correction. Nevertheless, break of 0.8851 will resume the down trend from 1.0146 instead.

Daily Pivots: (S1) 145.17; (P) 145.52; (R1) 145.93; More...

USD/JPY is losing upside momentum as seen in 4H MACD. But with 144.62 minor support intact, intraday bias stays on the upside. . Current rise from 127.20 is in progress for 61.8% projection of 129.62 to 145.06 from 137.22 at 146.76. On the downside, below 144.62 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

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) 0.6431; (P) 0.6476; (R1) 0.6501; More...

AUD/USD's break of 0.6457 support confirms resumption of whole decline from 0.7156. Intraday bias is back on the downside for 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195. On the upside, above 0.6521 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another fall.

In the bigger picture, the down trend from 0.8006 (2021 high) could still be in progress. Break of 0.6457 will affirm this bearish case. Further break of 0.6169 will target 61.8% projection of 0.8006 to 0.6169 to 0.7156 at 0.6021. This will now remain the favored case as long as 0.6894, in case of strong rebound.