A lack of fresh catalysts attracted pullbacks and potential profit-taking among the major assets on Wednesday.
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Headlines:
- Australia’s inflation is broadly cooler but still high in August
- BOJ core CPI remained at 1.8% y/y as expected in August
- Switzerland UBS economic expectations weakened from -3.4 to -8.8 in August
- BOE member Megan Greene favors a “gradual” approach to cutting interest rates as services inflation remains high and growth risks point to a higher long-term neutral rate
- China CB Leading Economic Index declined by 0.2% m/m in August after seeing steady growth in July; “headwinds to growth persist but have not worsened”
- U.S. new home sales for August: 716K (699K expected, 751K previous)
- EIA crude oil inventories fell by 4.5M barrels in the week ending September 20 (1.3M-barrel draw expected, 1.6M-barrel decrease previous)
- FOMC voting member Adriana Kugler “strongly supported” a 50bps September rate cut, and favors additional cuts as Fed rebalances its focus from inflation to growth
- PBOC cut its one-year medium-term lending facility (MLF) interest rates from 2.3% to 2.0%
- BOJ July meeting minutes showed that at least two of the nine members saw scope to raise interest rates further
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
The day started off steady enough, with Asian traders still digesting China’s latest monetary policy moves.
Volatility picked up in the London session, with markets doubting whether China’s monetary tweaks would have much impact without some serious fiscal stimulus. On top of that, reports of Israel potentially gearing up for a ground invasion in Lebanon likely put a damper on risk sentiment.
Meanwhile, investors already nervous about weak U.S. consumer confidence data and underwhelming European PMIs seemed to use the record-high asset prices as a chance to lock in profits before the quarter wraps up.
U.S. stocks ended the day mixed. The Nasdaq hit fresh two-month highs, while the Dow finished in the red. Bitcoin (BTC/USD) couldn’t push through its monthly highs, slipping from $64,800 to $63,200. Gold held steady just below yesterday’s close, and U.S. crude oil prices dropped from $71.50 to $69.75.
U.S. 10-year bond yields found support from global growth concerns and pullback from yesterday’s downswings. Yields jumped from a daily low of 3.73% and closed at 3.79%.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
A mix of global growth worries and profit-taking helped reverse some of the U.S. dollar’s earlier losses on Wednesday.
The Greenback saw modest gains during the Asian session after a dip in the previous U.S. session. However, demand for the safe-haven dollar picked up in the London session as traders grew more concerned about growth prospects in the U.S., Europe, and China.
By the time the U.S. session got underway, the dollar found fresh bullish momentum—likely as traders closed out their short USD positions ahead of Thursday’s initial jobless claims report and FOMC member speeches and Friday’s U.S. core PCE price index data.
The dollar did give up some of those gains after FOMC member Kugler voiced her support for more rate cuts. Still, the currency ended the day stronger against most of its major counterparts.
Upcoming Potential Catalysts on the Economic Calendar:
- Germany GfK consumer climate at 6:00 am GMT
- SNB’s policy decision at 7:30 am GMT, presser to follow at 8:00 am GMT
- ECB economic bulletin at 8:00 am GMT
- U.S. final GDP and GDP price index at 12:30 pm GMT
- U.S. initial jobless claims at 12:30 pm GMT
- U.S. core durable goods orders at 12:30 pm GMT
- A slew of FOMC voting members including Collins, Kugler, Bowman, Williams, Barr, Cook, and Chairman Powell will give speeches starting 1:10 pm GMT
- ECB President Lagarde to give a speech at 1:30 pm GMT
- U.S. pending home sales at 2:00 pm GMT
- U.S. Treasury Secretary Yellen to give a speech at 3:15 pm GMT
- Tokyo core CPI at 11:30 pm GMT
Central bankers will remain center stage today, starting with the SNB drops its September policy decision during the European session.
Later, a number of voting FOMC members (including JPow) are likely to defend their decision to cut interest rates by 50 basis points. ECB President Lagarde will also give an opening speech, which may move EUR pairs.
Meanwhile, mid-tier U.S. data releases scheduled later could either support or contradict growth concerns in the U.S. and possibly affect overall risk-taking.
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