USDCLP Collapses On Huge Chilean Rate Hike

Rates Hiked Above Market ForecastsIn stark contrast to the mammoth easing programs which remain in place across the majority of the G10, the Chilean central bank actioned its largest rate hike in 20 years overnight. The central bank, led by governor Mario Marcel, hiked rates by 0.75% to 1.5%. While a rate hike had been well signalled, the move was well above market forecasts of a 0.50% hike and has sent the Chilean Peso soaring against the Dollar, marking a reversal in the YTD rally which had seen USDCLP rising more than 15% from lows around 700 to highs just ahead of the 800 mark.Attempting to Control InflationIn the statement issued alongside the decision, the central bank cited “an accumulation of macroeconomic imbalances that, among other consequences, could lead to a more persistent increase in inflation,” as its central reasoning for the rate hike. The statement noted that “The board decided to intensify the withdrawal of monetary stimulus by increasing the policy rate by 75 basis points” after considering these factors.COVID Recovery & Commodities RallyThe central bank is clearly hoping that this latest policy move will help cool the current overheating in the Chilean economy. The country remains one of the best performing in Latin America with current consensus growth forecasts for the year ahead sitting around the 10% level. However, the rise in commodity prices, as well as the firm rebound in consumer demand, is seeing inflation running well above target and for a longer period than the central bank initially projected, threatening spiralling inflation if not brought under control.Inflation at 5-Year HighsThe Santiago base central bank noted that the ongoing global economic recovery was fuelling the rise in inflation there. With COVID vaccination optimism driving commodities prices higher once again, the country (which is the largest global copper producer) noted that inflation was becoming a key issue. The rise in in energy prices, particularly as transportation costs, was also fuelling the uptick in inflation. Last month, inflation peaked at 4.5%, marking its higher point since Q1 2016, after rising 0.8% on the month, well above forecasts for a 0.3% rise.Technical ViewsUSDCLPThe sell off has seen price pulling back below the 776.91 level after failing at a test of the channel top. With indicators turned lower, while below this level, there is room for a deeper correction towards the 758.42 level, with the rising channel low coming in just above. A break below there would then put 745.47 in view as deeper support.

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USDJPY – Moving within a triangle to start September

USDJPY, H4

Most of the Japanese economic data reports this week were better than expected, but did not stand out significantly. The most recent August manufacturing PMI was revised higher to 52.7 from 52.4 in the first reading and 53.0 for the previous month’s reading. This marks the seventh consecutive month of growth in the manufacturing sector amid the outbreak and restrictions of Covid-19.

When compared to US economic data that has been reported for this week, the reports are overall disappointing. However, the data on the US economic calendar for the rest of this week will become a key highlight of the market, starting tonight with the ADP and ISM-PMI Employment Figures, Manufacturing Sector Unemployment Claims tomorrow and the non-farm employment and the unemployment rate on Friday.

Japan and the United States, two major economies, are facing a major outbreak of the Delta variant. So far, more than an estimated one million Americans have taken a COVID booster, even though none have been authorized¹ , while Japan’s vaccination program has been struggling, with contaminants found in several batches of the Moderna vaccine. As for central bank moves in September, both the Fed and the BoJ will have a meeting to decide interest rates simultaneously on September 22.

As for the movement of the USDJPY pair, trading has started to gain momentum after a rather quiet Monday. In the H4 timeframe, a triangular pattern is visible within the high-low frame of August, and now the price is testing a two-week high zone. If broken, the next resistance will be at the August high zone at 110.80, while if the price continues to swing within the triangle there will be a first support at the MA50 and MA200 lines at 109.90. Overall this week, there is a bias towards the uptrend. This is because in the Day timeframe, the price is breaking above the MA50 line as it breaks into the positive zone of the MACD.

¹https://fortune.com/2021/08/12/covid-boosters-americans-cdc-the-capsule/

 

Click here to access our Economic Calendar

Chayut Vachirathanakit
Market Analyst – HF Educational Office – Thailand

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Investment Bank Outlook 01-09-2021

CitiG10 in focusNZD traded at 0.7038 at time of writing. Few local details to report as underpinning the mood. This suggests the rally is a product of positive off-shore risk sentiment alongside potentially month-end linked activity. CitiFX note several optimistic formations including: recent morning star, completed inverted head and shoulders, alongside triple momentum divergence seen the previous week’s close. Look out for resistance up ahead in the 0.7096-0.7116 range.Equities saw the S&P index close mildly weaker by -0.1% to 4522. Outflows were most notable in the energy sector, and correspond to crude prices -1.0% lower towards $68.50 as of writing. This appears to reflect mild position trimming ahead of the Wednesday OPEC+ meeting 16:00 BST. For levels to consider in the oil space. Over in the rates space, choppiness characterized early activity before Treasuries selling took hold over the afternoon. Consequently, we see the 10y sit roughly 3bps higher at 1.309% as of print.CIBCFX FlowsUSDCAD has been rather bid this morning, paying no attention to the price of oil futures. Oct futures contracts advanced to $68.73 while USDCAD firmed up. We think Aisa is doing a follow-through from last night especially after the GDP.Our head of FICC, Ian Pollick said, we are taking the opportunity to update our views on what we think this means for the BoC, as well as general market opportunities. The expenditure data for Q2-21 suggests the Bank’s Q3-21 estimate, of 7.3% SAAR, will be harder to achieve. What was also ignored this morning was the implied GDP deflator, which showed continued gains. We are seeing this national income increasingly being saved and not spent. What is likely to happen on the back of this data is one of two things, either: i) the Street raises 2022 growth figures to maintain hiking profiles, or; ii) pushes back the output gap closure and therefore pushes hike/s into 2023. We do not believe today’s data is enough in isolation to delay a tapering at the October Monetary Policy Report.We continue to expect a C$1.0bn reduction to the weekly pace of the Government Bond Purchase Program.With Canadian election set on September 20, Bipan said that as usual with each election, we’re fielding lots of questions as to whether this campaign will mean anything for CAD assets - including the Loonie. To summarize the main point of this note – it’s our view that this election is unlikely to mean much for the CAD. In fact, most election campaigns in Canada don’t really end moving the dial for the Loonie at all. That shouldn’t surprise anyone that is even remotely familiar with Canadian markets.

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Dollar Edges Off Three Week Lows; Payrolls in Focus

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Daily Market Outlook, September 1st, 2021

Daily Market Outlook, September 1st, 2021 Overnight Headlines Fed Reverse Repo Show No Sign Of Slowing Amid Imbalances US To Unveil Steps Aimed At Easing Housing Supply Shortage Biden Defend Afghan Exit Timing, Declaring It Saved US Lives China Factory Activity Contract In First Time Since April 2020 BoJ’s Deputy Governor Warns Against Premature Tightening Japanese PM Denies Dissolving Parliament Plans In Mid-Sept Australia’s Q2 Economy Slow Ahead Of Lockdown Downturn Australia’s Victoria Cases Rise As Lockdown Extension Looms New Zealanders Venture Out As Curbs Eased In Most Region SNB Warns Swiss Housing Correction As Bubble Risks Mount OPEC+ Meets With No Sign of Deviating From Planned Hikes Google Developing Own Processors For Chromebook Laptop The Day Ahead This morning’s UK and Eurozone manufacturing PMIs are final releases, and are expected to confirm earlier ‘flash’ estimates. The ‘flash’ UK manufacturing PMI fell slightly to 60.1 from 60.4 in July, driven by a marked fall in the output index to 54.1, as continued supply disruptions lead to lengthening supplier delivery times and backlogs of work. The picture is similar for the Eurozone, with the ‘flash’ manufacturing PMI falling to 61.5 from 62.8, led by output and total orders, mainly linked to supply chain constraints, but the pace of expansion remains strong by historical standards. The August results for Italy and Spain will be released for the first time this morning. Separately, the Eurozone jobless rate is forecast to fall to 7.6% from 7.7%. Yesterday saw the Eurozone August ‘flash’ CPI rise unexpectedly strongly to a 13-year high of 3.0%y/y. Meanwhile, Bundesbank President Jens Weidmann is scheduled to speak at 1pm. His comments could be interesting, given that he was reportedly not in favour of the ECB’s new forward guidance on interest rates, which basically raised the hurdle for the first increase. The afternoon session sees some important US releases. The August ISM manufacturing survey could fall to 58.5, which could be the lowest this year, affected by continuing issues with supply chain disruptions and recruitment. However, that would still be well above the 50 ‘expansion/ contraction’ level. There will also be interest in the survey’s business prices index which remains very elevated but may be showing some signs of easing. July construction spending figures are also due, which we see rising by 0.5%. Another key US release ahead of Friday’s official August employment report is the ‘unofficial’ ADP private sector jobs update. Last month, the US economy officially added 943k jobs, more than financial markets were expecting, with a significant proportion of those in leisure & hospitality reflecting the reopening of the economy. The ADP is not always a reliable guide to the official figures, look for an increase of 715k in today’s number.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby) USDJPY - 109.90/110.00 759m. 109.30/40 1.46bn (1.24bn P). 109.00 500m. EURUSD - 1.1840 594m. 1.1820 1.05bn (882m C). 1.1700/20 1.33bn (1.18bn P). 1.1650/70 877m. AUDUSD - 0.7230/40 404m. USDCAD - 1.2700/20 777m. 1.2630/40 918m. 1.2600 418m. 1.2370/80 485m. - Source: CT NewsTechnical & Trade ViewsEURUSD Bias: Bearish below 1.1850 Bullish above EUR/USD opened Asia 1.1809 and traded in a 1.1800/11 range Bias is for higher, but it needs to close above 55-day MA at 1.1816 Sellers are tipped ahead of 1.1850 to slow any progress higher Solid support is found at 1.1760 where the 10 & 21-day MAs converge A break below 1.1760 would ease upward pressure for the time being Market looking ahead to US non-farm payrolls - with ADP jobs out todayGBPUSD Bias: Bearish below 1.3830 Bullish above. Touch softer in a 1.3619-1.3641 range with plenty of morning interest UK house prices to climb on cheap cash, quest for space Charts; momentum studies fall, 5, 10 & 21 daily moving averages slide 21 day Bollinger bands expand - strong trending bearish setup 1.3661 falling lower 21 day Bollinger band suggests oversold short term Fall targets a test of 1.3572 July trend base, with 1.3452 2021 base below 1.3783/90 10 day moving average and 200 DMA are pivotal resistance UK retail sales lead data - polls - headline m/m +0.4%, ex fuel m/m +0.2%USDJPY Bias: Bullish above 109 Bearish below USD/JPY and JPY crosses better bid with focus squarely on global yields US, Australia and NZ yields up in Asia, US Tsy 10s 1.316% to 1.344% USD/JPY 109.99 to 110.23 EBS, moves above wafter-thin 110.09-11 Ichi cloud Move up today also takes it back above 110.15 55-DMA, to pre-Powell levels Up bias dependent on moves in US yields, resistance still pre-110.30 Number of daily highs to 110.80 on August 11 too Japanese exporter offers trail up from 110.25, talk retail offers too Option expiries today now below - 109.95-110.05 $744 mln, 109.30-40 $1.4 bln Tokyo risk-on, Nikkei +1.2% @28,437, E-Minis +0.3% @4533.5 EUR/JPY buoyant, 129.89-130.11, GBP/JPY steady, 151.21-46 AUD/JPY 80.38 to 80.67, NZD/JPY 77.44 to 77.68, just under key resistanceAUDUSD Bias: Bearish below 0.7320 Bullish above AUD/USD opened +0.26% at 0.7314 despite sluggish moves in risk assets It traded up to 0.7324 early Tokyo on AUD/JPY demand before Aus GDP It was trading at 0.7410 when Q2 Aus GDP came in better than expected It traded to 0.7318 before easing back to 0.7310/15 into the afternoon Market appeared to shrug off a 7% slide in Dalian iron ore futures Support is at yesterday's low at 0.7288 with buyers tipped at 0.7285 A break below 0.7285 targets the 10-day MA at 0.7249 Resistance is at the 55-day MA at 0.7395 and 38.2 fibo at 0.7406

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Market Update – September 1

Market News Today 

European bond markets and Eurozone peripherals in particular sold off yesterday, as more ECB officials flagged the possibility of a tapering announcement next week and it seems pretty certain now that ECB will start to take the foot off the accelerator as it revises its growth forecast upwards once again. Activity is now expected to reach pre-crisis levels already at the end of this year, and fiscal support should increase, which reduces the need for central bank support to some extent at least. Central bank officials will stress the very dovish guidance on the rate outlook though in order to avoid a taper tantrum

• Bonds in Australia and Zealand underperformed and sold off sharply as traders assess the economic outlook against the background of virus developments.
• Australia Q2 GDP beat most estimates. GDP numbers have prompted some to ditch expectations that the RBA will postpone planned moves
• Japan’s Markit manufacturing PMI was revised higher and continues to signal expansion.
• USD (USDIndex 92.75) strengthened.
• Equities are mixed as GER30 and UK100 futures are currently up 0.5%, alongside gains in U.S. futures, which is encouraging. China’s tech stocks shake off risks.
• EUR and Sterling are lower against the dollar, but it is the CHF that is mostly under pressure this morning.
• USOil is trading at $68.92 as traders assess the prospect for an easing of output restrictions ahead of the OPEC+ meeting today. (Saudi struggling to increase supply)
• Shrinking US stockpiles, a rebound in Indian demanf China’s Breakout
• Gold steadied to 1,810-1,817.

European Open –  German retail sales corrected -5.1% m/m in July, a much more pronounced correction than anticipated, largely related to the ebb and flow of virus developments and restrictions.

Today – Data releases today are unlikely to change the outlook and focus on final manufacturing PMI readings for the Eurozone and the UK. Eurozone unemployment data for July are also due. In US, we have ADP  and ISM data.

 

Biggest Mover @ (06:30 GMT) AUDJPY (+0.41%) Spikes to 2-week highs to 80.82 from 78.00 lows. Faster MA’s aligned higher. The MACD signal line & histogram rising strongly. RSI at 70 and rising. H1 ATR 0.096, Daily ATR 0.733.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Dollar Up, but Fed Asset Tapering Move Guessing Game Keeps Moves Small

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Dollar pinned near three-week low as U.S payrolls test looms

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Too embarrassed to ask: what is a drawdown?

Investing involves taking risks. When you put your money into a savings account in the bank, you can be confident that you’ll have the same amount there the next time you go to check on it. 

Investing isn’t like that. If you invest in shares, property, or any other financial asset, then the value of that asset can go down as well as up. 

If you invest your money in the stockmarket today, then it’s quite possible that you might come back next week, or next month, and find that you have less than you started with.

So why invest? Because in the long run – say, over a decade or more – history suggests that your money will almost certainly grow faster than if you had just left it in cash. The journey might be bumpier, with more ups and downs along the way, but you’ll end up in a much better destination.

However, that can mean navigating some scary moments. For example, during the coronavirus outbreak in 2020, some major stockmarkets lost as much as a third of their value in just a few weeks. This is what investors call a “drawdown” – that is, the amount an investment falls from peak to trough in a given time period.

Drawdowns are part of an investor’s life. Unless you need to pull all of your money out at the bottom of the market – what’s known as crystallising your loss – then over time, your portfolio will probably recover. 

However, it can be useful to get an idea of what a typical drawdown might look like for a given asset class or investment, so that you can understand how volatile it is likely to be. 

If you know what to expect, then you can make sure that your appetite for risk and your portfolio’s make-up are aligned, which should help you to avoid being panicked by any particularly nasty drawdowns. 

One way to minimise likely drawdowns and keep your portfolio’s volatility to a level you are comfortable with, is to diversify across different asset classes.

Historically, equities are the most volatile mainstream asset class – although cryptocurrencies take volatility to a whole new level – while bonds are less volatile. 

To learn more about diversification, subscribe to MoneyWeek magazine.

 

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Eurozone Inflation hits 10-year high, CAD GDP Disappoints

EURUSD, H1

Eurozone HICP inflation hit 3% in August, up from 2.2% y/y in the previous month and indeed a much higher number than anticipated. Excluding energy, prices lifted 1.7% y/y, after 0.9 y/y in July, while core inflation moved up to 1.6% y/y from 0.7% y/y. The highest annual rate in nearly 10 years, but much of the overshoot remains due to special factors, not just from energy prices, but also Germany’s temporary cut to the VAT rate last year and other virus related effects, including global supply chain disruptions, which have added to a mismatch between supply and demand that is likely to be temporary. The annual rate is expected to decelerate again, but against the background of the inflation jump and with activity expected to reach pre-crisis levels a tad earlier than initially anticipated, we expect the central bank to at least start taking the foot off the accelerator and scale back monthly purchase levels slightly.

EURUSD printed a 25-day high at 1.1844 and Cable made a two-week high at 1.3801 before reversing to 1.1820 and 1.3775 currently. This has come with the US T-note yield versus Bund yield differential narrowing by about 2 bp this week, even despite the advent of perky August inflation data out of the Eurozone.

The combination of buoyant global asset markets and an accommodative Fed is a Dollar negative circumstance. Fed Chairman Powell, to recap, refrained from signalling a policy tapering schedule at the keynote Jackson Hole address last Friday. While still acknowledging tapering could be “appropriate” this year, Powell downplayed the risks of inflation, seemingly pushing back against the increasingly vocal hawks who had been out in force last week. In the Eurozone, preliminary August inflation readings out of France, Spain and Germany have shown a renewed pick up in headline rates. ECB’s Villeroy yesterday stressed that there are no signs of underlying inflation running hot while dismissing price spikes as being temporary, though data will still support the more hawkish board members and fits our view that the ECB will scale back monthly QE purchase levels slightly at its September policy meeting before discussing the future of the emergency PEPP program at its December review. We still see longer-term risks remaining to the downside for EURUSD, given the favourable expected US growth rate and the associated larger fiscal stimulus levels compared to the Eurozone.

Canada’s GDP rose 0.7% in June following the -0.5% decline in May, in line with expectations. Statistics Canada’s preliminary estimate is for a 0.4% drop in July GDP. The separate Q2 GDP measure fell -1.1%, missing expectations, after a 5.5% growth pace in Q1. Consumption in Q2 rose 0.2% from a revised 2.6%. A lot of the weakness was in business fixed investment, which declined -2.2% after the 18.7% rate of growth in Q1, with residential structures contracting -12.4% versus the 42.1% Q1 surge. Exports of goods and services shrank -15.0% from the prior 6.0% (was 3.3%) gain.

USDCAD rallied to 1.2612 from near 1.2580 following the big miss in Canada Q2 GDP; the pairing had traded to a two-week low of 1.2569 earlier. EURCAD touched a 4-day high at 1.4925 up a single tick shy of a whole number from yesterday’s 5-day low at 1.4826.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Gabe Plotkin and the online mob’s unfinished business

Since the start of February, Gabe Plotkin’s Wall Street hedge fund, Melvin Capital, has put on 25% – a pretty respectable showing, says Hedge Buster. All the more so given its near-death experience during the GameStop trading furore in January, when Plotkin and his fund looked like being wiped out by what some have dubbed “the greatest short burn of history”. 

A stockmarket insurrection

It was certainly one the ugliest, says the Financial Times. In a few frenzied weeks, an army of amateur traders, coordinating their actions on the social-media platform Reddit, ruthlessly took their target down – piling into the languishing video-store chain’s stock (at one point up 120-fold in a year), putting a lethal squeeze on those who had bet big on its collapse. Melvin lost billions, forcing a desperate Plotkin to seek a bailout from peers. But what shocked Wall Street most was the implied violence. “Consider it the first head on a pike,” was one of the more printable quotes in a venomous outpouring which, as Plotkin later noted, was “laced with antisemitic slurs”. To some, the timing of the attack – barely a fortnight after the Trump-inspired march on Capitol Hill – seemed no coincidence, says Institutional Investor. According to one hedge funder, Plotkin’s tormentors were “the stock version” of the “insurrectionists”.  

The view from the other side was that a reckoning was way overdue, says The Sunday Times. Long before being cast as a “pantomime villain” in the GameStop saga, he was in the sights of Wall Street opponents due to his close connection with one of its most famous “Wolves” – the notoriously extravagant hedge-fund titan, Steve Cohen. Talked up as “a young man on the make” in the years before the financial crash, Cohen put Plotkin in charge of a $500m pot at SAC Capital, where he generated hundreds of millions in profits while recession “laid waste to the economy” – betting on, and often against, well-known stocks. 

In 2010, the SEC regulator opened an insider trader investigation against SAC. But while some traders were “perp-walked” into prison, Cohen paid $616m (barely a dent in his multi-billion fortune) to settle charges without admitting guilt – becoming, to many, a symbol of “Wall Street’s impunity”. Plotkin, though mentioned in the trial, also escaped charges. When he left to set up his own firm, Melvin Capital, in 2014, “Cohen wrote his protégé a $200m cheque to get him off the ground”. 

The fallout from the blow-up

Publicity-shy Plotkin named his firm in honour of his grandfather. It’s one of the few details about his private life on the public record beyond the bare bones that he was born in Portland, Maine, graduated in economics from Northwestern university and (together with his wife Yaara) is a keen supporter of Jewish causes, notably the Chabad Israel Centre. 

Ironically, it was a slip-up by the ultra-private Plotkin that led to the downfall of his $13bn fund, says Institutional Investor. He used “listed put options” to bet against GameStop which, unlike most short positions, must be disclosed on SEC filings. That was picked up by a Redditor called Stonksflyingup, who kickstarted the campaign last October by posting a video using an explosion scene from the TV show Chernobyl to show how Melvin would blow up. Within three months it had become a self-fulfilling prophecy.

Yet while his fund is still down by more than 40% this year (having more than halved in January), it appears that Plotkin is steadily clawing his way back, thanks in part to a $2.75bn rescue package involving Cohen’s Point72 firm and Ken Griffin’s Citadel fund. Indeed, that deal – which saw the pair receive a “three-year minority piece” of Melvin’s revenue, reports Bloomberg – already appears to be paying off. Citadel is now reportedly planning to withdraw about $500m of its original $2bn investment from Melvin and the cash infusion “has turned profitable”. 

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Worst Performing Major Currency Might Finally Get a Lifeline

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US NFP: Poised for Further Big Gains

All eyes will now be on the August jobs report, as if they weren’t already. After Powell reiterated the policy path will largely depent on the data and warned some numbers might not be as robust due to the spread of the Delta variant and ongoing mis-matches of supply and demand,brought the August jobs report into clear focus.

Fed Chair Powell left the door wide open for the Fed to start reducing asset purchases this year. He still sees “substantial slack remaining in the labor market and the pandemic continuing” he worries that an “ill-timed” policy mistake could be “particularly harmful.”  The Chair indicated the conflicting factors too, which we see as keeping the Fed on hold for now: indicating we have seen “more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks.” Amid the wait for Friday’s jobs report, today’s US markets are little changed with Treasuries fractionally weaker after the Powell rally ran out of steam.

Our August nonfarm payroll estimate sits at 800k, versus July’s 943k rise. The gain is consistent with our 7.0% Q3 GDP growth estimate, assuming an August workweek of 34.8 that leaves a solid 0.6% August rise for hours-worked, alongside a 0.3% hourly earnings gain that extends a 0.4% July rise, and a jobless rate drop to 5.2% from 5.4%. Claims data continue to tighten and producer sentiment remains robust despite some easing, though most consumer confidence measures have continued to fall from Q2 peaks.

Our 800k nonfarm payroll forecast assumes a 700k private jobs increase. The goods based employment increase is pegged at 60k, after a 44k increase in July. Construction employment is seen rising 20k after 11k in July and a -5k dip in June, while factory jobs rise 35k, after a 27k increase in July, and a 39k increase in June. We assume a private service job increase of 690k in August, after a 659k increase in July. We expect a 50k increase in government employment, with a August lift from the seasonal factors for education.

Seasonal Trends and Weather

The graph below shows the two-year average NSA payroll change for each month, pre-2020. The seasonal impact through the year on payroll changes is mostly positive, but is negative in December, January and July. Distortions of last year’s COVID-19 would have produced negative averages for March and April as well. The ’18/’19 NSA average rebounds to 453k in August from -1,111k in July, and 644k in June. The red bars show each month’s variance. After a first-half peak in February, variance decreases over the spring before reaching a second-half peak in September.

For disruptions to employment from weather as gauged in the household survey, the biggest disruptions occur in the winter months generally with the average peaking in February. There is an additional climb through the late-summer months due to disruptive hurricanes in some years. The ten-year average number of people not working as a result of weather rises to 31k in August from 10k in July, 24k in June, and 42k in May.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Record Downturn in China's Services Sector Could Spark a New Wave of Risk-off

After spending a day in consolidation, greenback could find enough buying interest and continued to fall in price on Tuesday. The US currency index tests support at 92.50 level. Long-term US bond yields continue to pull back in disappointment after a slight surge ahead of Powell's speech, 10-year bonds offer 1.28% to maturity on Tuesday, compared to 1.35% at their peak last week. Fears of inflation, to which long-term bonds are particularly sensitive, appear to be weakening, and there is a growing risk that the Non-Farm Payrolls report will surprise this week from the negative side.Sharp slowdown of activity in the Chinese services sector in August puts a deep dent on global recovery expectations. The corresponding official PMI gauge suddenly fell from healthy 53-56 points, landing in the depression zone at 47.5 points: The pace of MoM deceleration was only higher only in February 2020, when China hit the economy with the lockdown. The strong negative surprise will likely make investors doubt that global economy will be able to maintain current pace of expansion and market bets for extension of stimulus measures may rise. Strangely enough, the dollar's sell-off intensified after release of the Chinese data:Activity in the manufacturing sector also fell short of expectations, albeit to a much lesser extent: PMI has been declining for the fifth month in a row and in August it barely remained in the expansion zone at 50.1 points. The forecast was 50.2 points. Continuing at this pace, the index may find itself in depression zone as early as next month.Market participants associate the weak data with the dynamics of credit impulse in China, which has been weakening in the past few months entering contraction zone: Other fundamental factors include government crackdown on the tech and private tuition sectors (which should obviously suppress services sector activity), severe government response to the covid outbreak and reduced travel between provinces due to fears of being locked down in a non-hometown.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/record-downturn-in-chinas-services-sector-could-spark-a-new-wave-of-risk-off"
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