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Investors could not shake off rate hike fears from the Fed’s Jackson Hole Symposium. Dow, S&P 500 and Nasdaq Composite fell 0.6%, 0.7% and 1% respectively. The US Treasury 10Y yield firmed 6.2 bps to 3.102%; 2Y rose 2.7 bps to 3.423%. Although consensus favours a 50 bps hike at the FOMC meeting on 21 September, the bond market is not ruling out a third 75 bps hike. The outcome will still depend on how US data pan out before the meeting. Today, Bloomberg consensus expects a recovery in US consumer confidence to 98 in August from 95.7 in July. We will consider the headline number disappointing if driven by better expectations against a further slide in present situation. US nonfarm payrolls this Friday and US CPI data on 13 September are still the key data ahead of the FOMC.
There was no broad-based flight to safety into the USD. DXY depreciated slightly to 108.74 from 108.80 last Friday. The monetary policy divergences story that favoured the USD has eroded on two fronts. First, markets do not view Fed hikes positively after Fed Chair Jerome Powell prioritized inflation over the economy. Second, other central banks have also joined the Fed to control inflation. EUR and CAD appreciated 0.3% and 0.2% respectively. European Central Bank officials have sounded determined too, keeping the door open for a 50-75 bps hike at the governing council meeting on 8 September. EU 2Y and 10Y bond yields firmed more than 11 bps each, faster than their US counterparts. EUR has been bobbing around parity since 22 August. Meanwhile, the Bank of Canada is known to parallel Fed hikes. Consensus has pencilled in a 75 bps hike at the 7 September meeting. USD/CAD has been pivoting around 1.30 since mid-August. JPY depreciated most by 0.8% on Monday but selling stalled at 139 against the USD.
Commodity currencies also did not succumb to risk aversion. NZD, CAD and AUD appreciated by 0.3%, 0.2% and 0.1% respectively. The Reserve Bank of Australia can afford a fourth 50 bps hike at its meeting on 6 September. The AU 2Y bond yield ended Monday at 3.10%, with the 10Y higher at 3.67%. Unlike the US, the AU yield curve is not inverted. Although AUD bounced off 0.6850, it has yet to close above its 50-day moving average (MA) around 0.6913. Similarly, NZD rebounded from a low of 0.61 to 0.6154, with room to test its 50d MA around 0.6240. The Reserve Bank of New Zealand meets on 5 October to decide on monetary policy. It has the highest policy rate at 3%.
Quote of the day
“Contradiction is not a sign of falsity, nor the lack of contradiction a sign of truth.”
Blaise Pascal
30 August in history
Belgium started compulsory Roman Catholic education in 1895.
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