FX Daily: Treading cautiously into September


Monitoring risk appetite via data, equities and bond yields
Philip Wee01 Sep 2021
    Photo credit: Unsplash Photo


    Investors have reasons to be cautious about September. Major US stock indices did not end August at new record highs. Dow and S&P 500 fell 0.1% each; Nasdaq Composite was flat. US consumer confidence slipped to a six-month low of 113.8 in August. Consensus had expected a drop to 123.0 from 125.1 (revised down from 129.1) a month earlier. Although US consumers did not worry about finding or switching jobs, they were concerned with rising Delta-variant infection cases and higher inflation. Supply shortages worries will increase if ISM manufacturing PMI disappoints; consensus is looking for a slower reading of 58.5 in August vs 59.5 in July. This would further dampen the US growth outlook in 3Q which has already moderated to 5% from 6% over the past month as per the Atlanta Fed GDPNow.

     

    Still, the most important data release is still Friday’s nonfarm payrolls. The ADP National Employment report today will provide a preview of Friday’s nonfarm payrolls. ADP is expected to show the private sector adding 638k jobs in August, making up for the disappointing 330k in July. The prospect of the Fed tapering asset purchases in late 2021 matters to investors as reflected by the fall in US and European stocks on a rise in the US treasury yield above 1.30% again.

     

    Against this cautious background, the market’s attempt to dump the USD on last day of August did not go as planned. DXY bottomed at 92.4 and returned to 92.7, the level it started on Tuesday. A higher-than-expected EU CPI estimate in August 3.0% yoy actual vs 2.7% consensus) initially lifted EUR to 1.1840 which later fell back to 1.18, a level it held close to since Friday. However, the impact from the higher US long bond yield was felt most by JPY and CHF. Best not to rush in yet and let the data, stock markets and bond yields tell us if risk appetite will hold up or buckle (as it traditionally did) in September.

     


    Philip Wee

    FX Strategist - G3 & Asia
    philipwee@dbs.com
     

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