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US Senate approved Joe Biden's $550 billion worth historical infrastructure plan, which will be submitted to a House vote along with a larger $3.5 trillion spending plan.

The Dow gained 0.46%, the S&P500 was flat, while Nasdaq fell on Biden's infrastructure victory, as investors focused on the flip side of the coin: the huge infrastructure spending would boost the already-high inflationary pressures and may encourage the Federal Reserve (Fed) to dial back its massive bond purchases sooner and quicker to compensate for the massive half a trillion money that's about to rain on the US economy.

The major event on today's economic calendar is the US consumer price inflation report. A consensus of analyst expectations hint that the US consumer prices may be stabilizing near the 5.4% level printed last month. But we don't rule out the possibility of a surprise soft print, as oil prices which account for more than half of the CPI rise fell near 20% during the month of July and may have eased the upside pressure on the consumer-end prices last month. Still, it's uncertain how second-hand vehicle prices evolved, while the bottlenecks on disrupted supply chains and the global chip shortage may have kept the pressure high on consumer prices.

A CPI print in line with last month's 5.4% should, in theory, keep the US indices on track for consolidation near the all-time highs. A softer figure will be a sigh of relief for the market and policymakers and take some of the tightening pressure off of the Fed's shoulders - which will still remain on track for policy normalization, but with less pressure on the timeline. Yet a stronger figure will likely boost the Fed hawks and bring the expectations of bond tapering forward to ‘this fall' as suggested by Bostic and Rosengren earlier this week.

A hawkish shift in Fed expectations could send the stock prices lower. Nasdaq could slid 3% lower towards its 50-day moving average.

How about gold?

Gold missed its chance to shine over the past months. What would've made gold prices shine was soaring inflation expectations and falling US yields. But investors preferred piling into the stock markets, and to the cryptocurrencies, leaving gold behind the global risk rally. Now that the US yields are preparing to rebound, and inflation expected to soften, gold will likely lose its major bullish pillars, and dive deeper. One thing that could save gold from falling more is an eventual equity selloff, a moody market, less risk appetite and the urge to liquidate the long equity positions with the fear of seeing a global market plunge triggered by either the delta contagion crisis, or the tighter Fed expectations, or a combination of both.

And finally, there are some encouraging news for oil traders. Yesterday's API data revealed that the oil inventories in the US fell 816'000 barrels last week. The more official EIA data is due today, and a decline in oil inventories could encourage oil bulls to test the $70 mark. Yet, buyers will likely become rare above that level, with news of rising Covid cases that just started shrinking the economic activity globally.

General trend

• Financials trade generally higher after US gains and rise in 10-yr Treasury yields.
• Nikkei is higher and currently near the opening level [Autos, Financials and Transports trade higher; Softbank weighs on Topix Information & Communication index]; Companies due to report earnings include Rakuten, Japan Post Bank, Japan Post Holdings, Japan Post Insurance, Dentsu.
• Hang Seng rebounded from the opening decline [Property and Financial firms rise]; Earnings in focus [HKEX, Cathay Pacific, Lenovo].
• Shanghai Composite ended morning trading modestly higher after the lower open [Property index rose over 4.5%; Financials also gain; Liquor firms drop amid regulatory concerns].
• S&P ASX 200 has remained higher [Financials supported by results from CBA; Energy and Resources indices also rise].
• Companies due to report during the NY morning include FTC Solar, Canada Goose, Perrigo, Wendy’s.
• NZ Q3 Inflation Expectation data is due on Thursday (Aug 12th).

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened +0.2%.
• CBA.AU Reports FY21 (A$) Cash profit 8.7B v 7.3B y/y; Rev 24.4B v 23.8B y/y, launches off market A$6.0B share buyback.
• (NZ) Reserve Bank of New Zealand (RBNZ) comments on new RBNZ Act: Key changes include the appointment of a new statutory Governance Board, whose work will start in mid-2022. The Board will be responsible for all decision-making except those related to the Monetary Policy Committee (MPC). The Governor remains chair of the MPC and will also sit on the future board.
• IAG.AU Reports FY21 (A$) Cash profit 747M v 279M y/y, Rev 18.9B v 18.6B y/y.
• (AU) Reserve Bank of Australia (RBA): Excess cash at exchange settlement (ES) accounts at A$354.9B v A$351.6B prior (record high).
• (AU) Australia sells A$300M v A$300M indicated in 3.25% Jun 2039 bonds, avg yield 1.7723%, bid to cover: 3.10x.

Japan

• Nikkei 225 opened +0.6%.
• (JP) Japan MoF sells ¥900B v ¥900B indicated in 0.7% 30-year JGBs, avg yield 0.6470% v 0.6800% prior, bid to cover: 3.07x v 3.63x prior.
• 2503.JP Reports Q2 Net ¥23.8B v ¥33.3B y/y, Pretax ¥56.5B v ¥56.0B y/y, Rev ¥864.0B v ¥872.5B y/y; Cuts FY guidance (after the close).
• 9984.JP Reports Q3 Net ¥761.5B v ¥1.26T y/y, Pretax ¥1.29T v ¥834.1B y/y, Rev ¥1.48T v ¥1.28T y/y (after the close).
• 5108.JP Reports Q2 Net +¥352.3B v -¥22.0B y/y, Op ¥169.7B v ¥9.2B y/y, Rev ¥1.57T v ¥1.26T y/y, raises FY guidance (after the close).

Korea

• Kospi opened -0.2%.
• (KR) South Korea July Unemployment Rate: 3.3% v 3.8%e (lowest since Aug 2020).
• (KR) South Korea Fin Min Hong: Govt jobs program helped to boost labor market in July, fiscal spending should continue to support jobs; COVID resurgence impact to be seen from August.
• (KR) North Korea: Will make the US and South Korea feel massive security crisis every minute; also fails to answer hotline with South for second day – KCNA.
• (KR) South Korea Aug 1-10 Imports Y/Y: 63.1% v 33.3% prior; Exports Y/Y: 46.4% v 14.1% prior; Chip Exports y/y: 44.6% v 15.6% prior.
• (KR) South Korea confirms total 2,223 additional coronavirus cases (record high).

China/Hong Kong

• Hang Seng opened -0.4%; Shanghai Composite opened -0.1%.
• (CN) China Securities Daily: China Analyst has proposed a wider band on CNY trading.
• (CN) Private school owners forced to relinquish control of institutions to the China state – FT.
• (CN) China Education Supervision Committee Office of the State Council to establish semi-monthly notification system, effective Aug 30th.
• (CN) China PBOC sets Yuan reference rate: 6.4831 v 6.4842 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net CNY0B v Net CNY0B prior.

Other

• (SG) SINGAPORE FINAL Q2 GDP Q/Q: -1.8% V -2.0%E; Y/Y: 14.7% V 14.2%E; Raises 2021 GDP outlook to 6-7% (prior 4-6%).
• (SG) Monetary Authority of Singapore (MAS): Current monetary policy is appropriate for now.

North America

• (US) Fed's Evans (dove, voter): Would like to see a few more employment reports ahead of decision to taper the Fed's asset purchases; A difference of a month or two in the decision will not matter.
• FUBO Reports Q2 -$0.38 v -$0.54e, Rev $130.9M v $121Me; Fubo Sportsbook with real-money wagering remains on track for Q4 launch.
• T Affirm F21 Capex $17B; Confirms HBO will cease to be offered as a subscription on Amazon Channels during Q3; Supply chain disruptions leading to slower than expected ramp of fiber ecosystem, Raises FY21 services Rev +3% (prior: 2%).

Levels as of 01:15ET

• Hang Seng -0.0%; Shanghai Composite +0.2%; Kospi -0.6%; Nikkei225 +0.5%; ASX 200 +0.3%.
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.0%, Dax -0.1%; FTSE100 +0.1%.
• EUR 1.1726-1.1712; JPY 110.69-110.51; AUD 0.7351-0.7335; NZD 0.7013-0.6996.
• Commodity Futures: Gold +0.1% at $1,733/oz; Crude Oil -0.3% at $68.11/brl; Copper -0.4% at $4.33/lb.

Market movers today

• The key focus today is the US July CPI inflation release. Market consensus is expecting monthly inflation pressures to ease both for core and headline inflation. However, the inflation print for June surprised to the upside and if the same thing happens today, this would give further momentum for US yields and dollar as it stirs more hawkish expectations to the Fed.

The 60 second overview

US infrastructure package: The US Senate last night finally passed the USD 1tn infrastructure bill adding USD 550bn to infrastructure spending. It represents the biggest spending on infrastructure in several decades. The vote was 69-30 in the Senate underlining that Biden managed to get relatively broad bipartisan support for the package as 19 Republicans supported the bill. The plan is not fully financed and the Congressional Budget Office estimates that the package would add USD 256bn to the deficit over the next 10 years. The package now has be to cleared in the House, which could also pose a lot of challenges for Biden as many Democrats among other things wish to link the infrastructure bill with a separate USD 3.5tn budget bill that contains social programmes and climate initiatives among other things.

NFIB: The US small business confidence indicator fell slightly more than expected from 102.5 in June to 99.7 in July. A growing number of smaller firms reported persistent supply chain and hiring difficulties. The number of companies with vacant jobs and plans to raising wages and prices remains at or close to decade highs. Some of the hiring difficulties are expected to ease as unemployment benefits run out over the coming months and as children return to school making it easier for parents to have a full-time jobs.

Delta variant: Real-time activity data such as the Google mobility data, flight capacity in China and manufacturing and sentiment data in Asia shows that activity is being hurt. If the Delta variant continues to spread and government restricts production further it could very well extend the current supply and bottleneck problems seen globally in manufacturing. For now, markets are calm and Asian markets are overall in green this morning except the South Korean Kospi, which is in red after the country for the first time recorded more than 2,000 new daily infections. Only 16% of South Koreans are fully vaccinated.

Fed comments: Several Fed members have communicated their views on bond tapering the last couple of days and last night it was time for Chicago Fed President Evans. Contrary to many of his colleagues Evans seemed less eager to announce the start of tapering as early as next month. He wanted to see a 'few more' job reports, which would push any decision to November. Evans also said that the economy had made 'good' progress, but he stepped short of using the keyword 'substantial'. Despite the softer rhetoric from Evans US 10Y treasury yields continued to edge higher and at 1.35% yields are up 20bp from the low a week ago. The infrastructure bill also weighed on the US treasury market.

Equities ended Tuesday slightly higher, while the comeback of value plays continued. Cyclicals outperformed defensives with financials and industrials among the winners, along with energy and materials as commodity market rebounded. Rates sensitive tech and bond-proxy real estate lagged. In the US, Dow closed up 0.5%, S&P 500 0.1%, Nasdaq -0.5% and Russell 2000 0.2%. This morning we see all Asian markets higher with value intense Japan leading. Futures in US point to a muted opening.

FI: US Treasury yields rose modestly yesterday ahead of the US inflation data released today. The US inflation data for July is today's main event. US inflation is expected to ease as the m/m rise is expected to decline to 0.5% m/m relative to 0.9% m/m in June. However, the risk is clearly on the upside.

FX: Overview: USD rose against most currencies yesterday supported by a further rise in US interest rates. Commodity currencies AUD, CAD, NZD and NOK gained yesterday as commodity prices and in particular oil prices rebounded.

Credit: While European equities closed in green, credit remained under slight pressure with iTraxx Xover widening 2bp (to 235½bp) and Main 0.2bp (to 46½bp). HY bonds widened 2bp and IG 1bp.

Daily Pivots: (S1) 1.2500; (P) 1.2544; (R1) 1.2568; More...

Intraday bias in USD/CAD remains neutral as consolidation from 1.2421 is extending. As long as 1.2605 resistance holds, further decline is expected. On the downside, break of 1.2421 will resume the fall from 1.2805 to 1.2301 cluster support (61.8% retracement of 1.2005 to 1.2805 at 1.2311). On the upside, break of 1.2605 will turn bias back to the upside for retesting 1.2805 high instead.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). It should have completed after hitting 1.2061 (2017 low) and 50% retracement of 0.9406 to 1.4689 at 1.2048. Sustained break of 38.2% retracement of 1.4667 to 1.2005 at 1.3022 will pave the way to 61.8% retracement at 1.3650 and above. Overall, medium term outlook remains neutral at worst with 1.2048/61 support zone intact.

Daily Pivots: (S1) 0.7324; (P) 0.7340; (R1) 0.7364; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.7288 is extending. Outlook stays bearish as long as 0.7443 resistance holds. On the downside, break of 0.7288 will resume the fall from 0.8006 to 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. On the upside, break of 0.7443 will bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We'd look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

Daily Pivots: (S1) 1.1706; (P) 1.1724; (R1) 1.1739; More...

Intraday bias in EUR/USD remains on the downside as fall from 1.2265 is in progress. 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) 1.3819; (P) 1.3846; (R1) 1.3863; More...

GBP/USD is still bounded in range of 1.3766/3982 and intraday bias remains neutral or the moment. 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) 0.9205; (P) 0.9219; (R1) 0.9244; More....

Intraday bias in USD/CHF stays on the upside, as rise form 0.9017 is targeting a test on 0.9273 resistance. Sustained break there will resume rise from 0.8925 to 100% projection of 0.8925 to 0.9273 from 0.9017 at 0.9365. On the downside, break of 0.9193 minor support will mixed up the outlook and turn intraday bias neutral first.

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.

Daily Pivots: (S1) 110.37; (P) 110.49; (R1) 110.69; More...

USD/JPY's rally continues today and hits as high as 110.67 so far. The break of 110.58 resistance should confirm that corrective fall from 111.65 has completed with three waves down to 108.71. Intraday bias stays on the upside for retesting 111.65 high. On the downside, though, below 110.01 minor support will mix up the near term outlook and turn intraday bias neutral first.

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.

Dollar's rally continues in Asian session today, in particular against Euro, Swiss Franc and Yen. Though, cautious comments from Fed Evans is not giving any particular boost elsewhere. Commodity currencies are still resilient, as supported by overall optimistic sentiment, with DOW closing at new record high. Main focus will now turn to US consumer inflation data.

Technically, USD/JPY's break of 110.58 resistance is a positive development for the Dollar. Yet, we'd still need to see break of 1.3766 support in GBP/USD, 0.7288 low in AUD/USD, and 1.2605 resistance in USD/CAD, to confirm Dollar's underlying bullish momentum.

In Asia, at the time of writing, Nikkei is up 0.47%. Hong Kong HSI is up 0.21%. China Shanghai SSE is up 0.27%. Singapore Strait Times is down -0.68%. Japan 10-year JGB yield up 0.0109 at 0.036. Overnight, DOW rose 0.46%. S&P 500 rose 0.10%. NASDAQ dropped -0.49%. 10-year yield rose 0.025 to 1.342.

Fed Evans wants to see a few more employment reports before tapering

Chicago Fed President Charles Evans sounded more cautious than some of his FOMC colleagues in the topic of tapering. He acknowledged that the US is "making progress" and "well on our way" to substantial further progress. But, "I'd like to see a few more employment reports," before making the decision.

"Everybody is wondering about September, November, December, January," as possible dates to start scaling back asset purchases, Evans said. "I don't think that one meeting on either side is going to have an important effect."

"We should not preemptively end a strong improvement in the labor market because somebody is getting nervous about inflation," he said. "I am going to be very regretful if we sort of claim victory on averaging 2% and then find ourselves in 2023 with about a 1.8% inflation rate ... That would be a challenge for our long run framework."

Australia Westpac consumer sentiment dropped -4.4%, still reasonably confident

Australia Westpac-MI consumer sentiment dropped -4.4% to 104.1 in August, down from July's 108.8. It's now at the lowest point in a year, but was well above the pandemic trough, and even above the levels over the twelve months prior to the pandemic.

Westpac said: "The virus situation locally is clearly troubling, but consumers appear reasonably confident that it will come back under control, and that once it does, the economy will see a return to robust growth."

Westpac expects RBA to leave policy unchanged at next meeting on September 7. It added, "given its decision to sit pat in August despite a sharp deterioration to the near-term outlook, the hurdle for RBA action looks to be very high". It also maintain the forecast that RBA would start raising the case rate in Q1 of 2023.

Looking ahead

Germany CPI final will be released in European session. US CPI will be the major focuses later in the day.

USD/JPY Daily Outlook

Daily Pivots: (S1) 110.37; (P) 110.49; (R1) 110.69; More...

USD/JPY's rally continues today and hits as high as 110.67 so far. The break of 110.58 resistance should confirm that corrective fall from 111.65 has completed with three waves down to 108.71. Intraday bias stays on the upside for retesting 111.65 high. On the downside, though, below 110.01 minor support will mix up the near term outlook and turn intraday bias neutral first.

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