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Markets:

It feels like the day after on markets. The CPI print stopped the rally higher in US yields and the dollar, but didn’t spark a big countermove neither. Now we’re stuck in no one’s land just below the recent best levels. A second tier eco calendar couldn’t inspire. The chorus of (regional) US central bank governors is known by now. US Treasuries still marginally underperform German Bunds in the run-up to tonight’s $27bn 30-yr Bond sale which wraps up the US Treasury’s mid-month refinancing operation after a solid 3-yr and a stellar 10-yr Note sale. US yields add 0.2 bps (2-yr) to 2 bps (20-yr) in a daily perspective. German yields add 0.4 bps (2-yr) to 1.6 bps (10-yr). 10-yr yield spreads vs Germany narrow by 2 bps.

Main FX markets showed a similar fatigue. EUR/USD traded in a 1.1725-1.1745 trading range after bouncing off 1.1704 support yesterday. If anything, the balance is tipping in favour of the greenback at the start of US dealings. We hold our view that the dollar will likely remain strong in the run-up to the Jackson Hole Symposium at the end of the month. EUR/GBP trades in a similar slim trading range (0.8460-0.8480). UK Q2 GDP (4.8% Q/Q) printed bang in line with expectations and failed to give sterling fresh momentum. The post BoE move stranded near EUR/GBP 0.8470 support for now. An intense test is ongoing, but the support zone still holds.

News Headlines:

The Turkish central bank kept its policy rate for fifth month running unchanged at 19%. The CTRB thereby withstood pressure from Turkish president Erdogan who wanted to see a rate cut in July or August. The central bank had no other choice since Turkish inflation spiked to 18.95% Y/Y in July while the CTRB vowed to keep real rates positive. The policy statement gave no hints whatsoever on the next rate move. However, if base effects fade towards the end of the year and inflation tops out, political pressure will probably leave the central bank with no other option but to deliver some policy easing. Disobeying Turkish President Erdogan over the past years turned out to be reading your own exit as central bank governor. Short term, the Turkish lira profited from the CTRB’s perseverance. EUR/TRY trades at 10.06, compared with yesterday’s close near 10.14.

The International Energy Agency cut its 2021 global oil demand forecasts by 100k barrels a day while upgrading its 2022 forecast by 200k barrels a day. Oil demand will then return to pre-pandemic highs in H2 2022. The near-term downgrade is due to the economic impact of the Covid-19 Delta variant and rebounding output. The combination suggests that global demand will no longer significantly outstrip supply. OPEC – in a separate report – upgraded supply growth estimates for non-cartel counterparts for both 2021 and 2022 (+840k barrels/day). Brent crude hovers north of $71/b. Oil prices yesterday dipped briefly after the US called on OPEC+ to more rapidly return oil to the market.

US producer price inflation surged by 1% M/M and 7.8% Y/Y, the fastest yearly pace in slightly over a decade. High commodity prices, transport costs and supply bottlenecks thus remain a problem which adds to the cost pressure at companies. Almost 75% of the spike in the July PPI reflected a record 1.1% increase in services. Core PPI, excluding volatile components like food, energy and trade, surged by 0.9% M/M and 6.1% Y/Y. US weekly jobless claims fell back to 375k last week, slightly above the 368k, but confirming the upbeat news coming from last month’s payrolls. Continuing claims declined to 2866k, the lowest level since mid-March last year.

UK NIESR said, "with catch-up potential still evident in consumer-facing services and the continued effects of reopening, we expect growth in July of 1 per cent, and 2.4 per cent for the third quarter of 2021 overall." But that reflected the assumption that Covid-19 cases will "continue to wane and remaining domestic restrictions imposed by governments and businesses will be lifted over the course of the third quarter."

"GDP increased by 4.8 per cent in the second quarter of 2021, in line with our GDP tracker a month ago. More frequent visits to GPs meant that the health and social work sector was the largest contributor to June growth, while construction continued to slow after a strong start to the year. We expect growth to slow in the third quarter but still remain high by historical standards on the assumption of waning Covid-19 cases and lifting of all domestic restrictions by the end of the third quarter. It will be important to monitor the underlying growth rate of the economy as the opening-up effects dissipate." Dr Hande Küçük Deputy Director - Macroeconomic Policy.

Full release here.

Daily Pivots: (S1) 1.1714; (P) 1.1733; (R1) 1.1761; More..

Intraday bias in EUR/USD stays neutral for the moment. We'd continue to look for strong support from 1.1602/1703 support zone to bring rebound. On the upside, above 1.1768 minor resistance will turn bias back to the upside for 1.1907 resistance first. However, sustained break of 1.1602 will argue that it's already reversing the trend from 1.1603, and target 61.8% retracement of 1.1603 to 1.2348 at 1.1289.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Daily Pivots: (S1) 1.3816; (P) 1.3852; (R1) 1.3901; More...

GBP/USD is staying in consolidation from 1.3982 temporary top and intraday bias remains neutral first. Outlook is unchanged that corrective pattern from 1.4240 could have completed with three waves down to 1.3570. On the upside, break of 1.3982 will resume the rise from 1.3570 to retest 1.4248 high. However, break of 1.3766 support will dampen this bullish view and bring retest of 1.3570.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed. GBP/USD would then be seen in another leg of long term range pattern between 1.1409 and 1.4376. Deeper fall could then be seen to 61.8% retracement of 1.1409 to 1.4248 at 1.2493, and even below.

Daily Pivots: (S1) 0.9200; (P) 0.9221; (R1) 0.9239; More....

USD/CHF is staying in consolidation from 0.9241 temporary top. Outlook is unchanged that corrective fall from 0.9273 should have completed at 0.9017. Above 0.9241 will target 0.9273 resistance. Firm break there will resume rise from 0.8925 to 100% projection of 0.8925 to 0.9273 from 0.9017 at 0.9365. However, break of 0.9128 will dampen this bullish view and turn bias back to the downside for 0.9017 support.

In the bigger picture, the failure to sustain above 55 week EMA (now at 0.9184) retains medium term bearish in USD/CHF. Break of 0.8925 support should resume the whole decline form 1.0342 (2016 high) through 0.8756 low. However, break of 0.9273 resistance and sustained trading above 55 week EMA will be an early sign of bullish trend reversal. Focus will then turn to 0.9471 resistance for confirmation.

Dollar is trying to regain some ground in early US session after stronger than expected PPI. Both initial and continuing jobless claims also continued to trend lower. The greenback is followed by Euro and Yen while Aussie and Kiwi are softest. Though, major pairs and crosses are staying inside yesterday's range for now. As for the week, Canadian Dollar is currently the strongest, , followed by Kiwi and Dollar. Swiss Franc, Euro and Yen are the weakest.

Technically, it looks like Dollar has just turned into sideway trading with yesterday's retreat. For now, more sideway trading is likely. We'll keep an eye on 110.01 minor support in USD/JPY and 1.1768 minor resistance in EUR/USD. The greenback's rally would be in favor to resume as long as these levels holds. But break will indicate that deeper pull back is underway.

In Europe, at the time of writing, FTSE is down -0.20%. DAX is up 0.46%. CAC is up 0.39%. Germany 10-year yield is up 0.0149 at -0.444. Earlier in Asia, Nikkei dropped -0.20%. Hong Kong HSI dropped -0.53%. China Shanghai SSE dropped -0.22%. Singapore Strait Times rose 0.09%. Japan 10-year JGB yield dropped -0.0178 to 0.024.

US initial jobless claims dropped to 375k, above expectation

US initial jobless claims dropped -12k to 375k in the week ending August 7, above expectation of 367k. Four-week moving average of initial claims rose 1.75k to 396k.

Continuing claims dropped -114k to 2866k in the week ending July 31, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -100k to 3101k, lowest since March 21, 2020.

US PPI rose 1.0% mom in Jul, accelerated to 7.8% yoy

US PPI for final demand rose 1.0% mom in July, above expectation of 0.6% mom. Over that last 12 months, PPI accelerated to 7.8% yoy, up from 7.3% yoy, above expectation of 7.4% yoy. That's the largest yoy rate since November 2010.

PPI for final demand less foods, energy and trade services rose 0.9% mom, largest rise since January. Over the last 12 months, PPI for final demand less foods, energy and trade services rose 6.1% yoy, highest since August 2014.

Fed Daly: Talking about tapering later this year or early next year is where I'm at

San Francisco Fed President said in an FT interview that she remained "very optimistic and positive". She added, "it's appropriate to start discussing dialling back the level of accommodation that we're giving the economy on a regular basis

"The starting point for that is of course asset purchases," she said. "Talking about potentially tapering those later this year or early next year is where I'm at."

On the employment markets, she said "we're really adding enough jobs to see that we're making progress towards our full employment goal." While "we're not there yet... we're chipping away at the hole that was dug by Covid."

Eurozone industrial production dropped -0.3% mom in Jun, EU down -0.2% mom

Eurozone industrial production dropped -0.3% mom in June, matched expectations. Production of capital goods fell by -1.5% and energy by -0.6%, while production of durable consumer goods and intermediate goods both rose by 0.1% and non-durable consumer goods by 1.6%.

EU industrial production dropped -0.2% mom. Among Member States for which data are available, the largest decreases were registered in Ireland (-4.4%), Portugal (-2.6%) and Denmark (-2.3%). The highest increases were observed in Malta (+5.2%), the Netherlands (+3.3%) and Estonia (+3.2%).

UK GDP grew 1.0% mom in June, 4.8% qoq in Q2

UK GDP grew 1.0% mom in June, matched expectations. That's the fifth consecutive month of growth, GDP remained -2.2% below it's pre-pandemic level in February 2020. Services was the main contributor, growing 1.5% mom. Production, on the other hand, dropped -0.7% mom while contraction also dropped -1.3% mom.

For Q2 as a whole, GDP grew 4.8% qoq, still -4.4% below the pre-pandemic level in Q4, 2019. ONS said, "there were increases in nearly all main components of expenditure apart from "trade", with the largest contribution from household consumption".

Industrial production came in at -0.7% mom, 8.3% yoy in June, versus expectation of 0.3% mom, 9.2% yoy. Manufacturing production was at 0.2% mom, 13.9% yoy, versus expectation of 0.4% mom, 29.5% yoy. Goods trade deficit widened to GBP -12.0B, versus expectation of GBP -10.1B.

Fitch affirms Japan rating at A with negative outlook

Fitch affirmed Japan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A' with a "negative" outlook. The ratings "balance the strengths of an advanced and wealthy economy, with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt". The negative outlook reflected "uncertainty about the medium-term macroeconomic and fiscal outlook from the continuing pandemic".

The rating agency expects economic growth of 22.5% in 2021 and 3.0% in 2022. But risks are to the downside, as the ongoing fifth Covid-19 wave may further delay recovery. Inflation is likely to "remain subdued", averaging 0.3% in 2021 and 0.7% in 2022. Fitch also said BoJ is likely to  maintain its current monetary policy settings over the "next few years".

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.23; (P) 110.52; (R1) 110.72; More...

USD/JPY is staying in consolidation from 110.79 temporary top and intraday bias remains neutral. Outlook is unchanged that corrective fall from 111.65 should have completed with three waves down to 108.71. Another rise is in favor with 110.01 support intact. Break of 110.79 will turn bias to the upside for retesting 111.65 high. However, break of 110.01 will dampen this bullish view, and turn bias to the downside for 108.71 support.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

Economic Indicators Update

Daily Pivots: (S1) 110.23; (P) 110.52; (R1) 110.72; More...

USD/JPY is staying in consolidation from 110.79 temporary top and intraday bias remains neutral. Outlook is unchanged that corrective fall from 111.65 should have completed with three waves down to 108.71. Another rise is in favor with 110.01 support intact. Break of 110.79 will turn bias to the upside for retesting 111.65 high. However, break of 110.01 will dampen this bullish view, and turn bias to the downside for 108.71 support.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

US PPI for final demand rose 1.0% mom in July, above expectation of 0.6% mom. Over that last 12 months, PPI accelerated to 7.8% yoy, up from 7.3% yoy, above expectation of 7.4% yoy. That's the largest yoy rate since November 2010.

PPI for final demand less foods, energy and trade services rose 0.9% mom, largest rise since January. Over the last 12 months, PPI for final demand less foods, energy and trade services rose 6.1% yoy, highest since August 2014.

Full release here.

US initial jobless claims dropped -12k to 375k in the week ending August 7, above expectation of 367k. Four-week moving average of initial claims rose 1.75k to 396k.

Continuing claims dropped -114k to 2866k in the week ending July 31, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -100k to 3101k, lowest since March 21, 2020.

Full release here.