FOREX: Asia FX Wrap - PPI Gives The USD A Reprieve
The BBDXY has had a range of 1204.29 - 1205.94 in the Asia-Pac session, it is currently trading around 1204, -0.15%. The USD again found some solid demand just below 1200 and the PPI print then gave it a lift off the lows. Is this just a stay of execution for the USD or can it gain some traction as it makes yet another higher low. The market is clearly more comfortable selling the USD but the longer it fails to extend below 1200 the higher the chances of a pullback. Alexander Stahel on X: "Say after me: stagflation. US wholesale inflation (PPI demand) up 0.9% mom & 3.3% yoy in July -> big -> Same ex energy & food -> companies pass on higher import costs related to tariffs. Sucks for Fed. If they do 25bps in Sept it’s on hold thereafter unless the jobs report blows up.” See Fig.1 Below.
- EUR/USD - Asian range 1.1646 - 1.1665, Asia is currently trading 1.1665. The market moved very quickly back to 1.1700 where it stalled on its first attempt to challenge this area. The pair's momentum higher was extinguished by the data overnight, look for some consolidation while the market looks for some direction.
- GBP/USD - Asian range 1.3526 - 1.3551, Asia is currently dealing around 1.3550. GBP stalled back towards 1.3600 overnight, first support seen now back towards 1.3400/1.3500.
- USD/CNH - Asian range 7.1786-7.1865, the USD/CNY fix printed 7.1371, Asia is currently dealing around 7.1840. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
- Cross asset : SPX +0.20%, Gold $3345, US 10-Year 4.27%, BBDXY 1204, Crude Oil $63.87
Fig 1: US Wholesale Inflation
Source: MNI - Market News/Bloomberg Finance L.P/@BurggrabenH
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US TSYS: Asia Wrap - Quiet Session As Bonds Consolidate Overnight Move
The TYU5 range has been 110-08+ to 110-12+ during the Asia-Pacific session. It last changed hands at 110-11+, up 0-02 from the previous close.
- The US 2-year yield is trading around 3.94%.
- The US 10-year yield is trading around 4.477%.
- The 10-year yield has broken above 4.45% in response to the CPI Data, this implies price is likely to turn its focus back to 4.65% and could see further paring back of longs. Support is now back towards the 4.35/40% area which has been the pivot in the larger 4.10% - 4.65% range.
- (Bloomberg) -- “I think it sort of is,” President Donald Trump says when asked whether the renovations at the central bank were a fireable offense for Federal Reserve Chair Jerome Powell.
- “LOGAN: BASE CASE CALLS FOR CONTINUED RESTRICTIVE POLICY, HAVE BEEN DISAPPOINTED BEFORE AFTER STREAKS OF LOW INFL. ALSO POSSIBLE SOFTER LABOR MKT COULD REQUIRE CUTS SOON.” - BBG
- Bloomberg - “Term premium has been rising in several government bond markets, especially the UK, Japan and France. All three have large legacy debt loads, significant fiscal deficits and mushrooming interest payment costs. Even the US facing a mini-fiscal crisis cannot be completely ruled out, given its enormous borrowing and falling revenues relative to its deficit.”
Fig 1: 10-Year US Yield Hourly Chart
Source: MNI - Market News/Bloomberg Finance L.P
ASIA STOCKS: Taiwan, Indonesia Firmer, Philippines Down, Modest Shifts Elsewhere
Asian equities are trading in a mixed fashion so far in Wednesday trade. There is a modestly negative bias for US and EU futures as markets digest Tuesday's US CPI data. US Tsy yields are little changed so far today though. The best performer in the region has been Taiwan, while the Philippines bourse has fallen but close to 1.8%.
- China and Hong Kong markets are mixed. The CSI 3000 is down modestly, but still above 4000 at this stage. Sell-side analysts are upgrading their full year China growth projection after yesterday's Q2 GDP beat. Still, concerns around retail spend and the property sector is likely tempering optimism.
- The Hong Kong's HSI is marginally higher, last under 24700, which marked earlier highs for the index and coincided with highs back in March. We may need to see a fresh positive catalyst from here to propel sentiment higher.
- Japan markets are little changed, while Taiwan's Taiex has risen through 23000, last up nearly 1%. Broader tech optimism is aiding sentiment. Still, the Kospi is struggling so far today, the index back under 3200.
- In SEA, the Philippines market is off by around 1.8%, having failed to hold above 6500 in recent session. The firmer US yield backdrop, coupled with uncertainty around Fed easing timing, has pushed most USD/Asia pairs higher, which could also be weighing on market sentiment in the Philippines.
- Other trends are mixed, with Indonesian stocks up around 0.60%, aided by the 19% tariff deal with the US (which is lower than tariff rates in some other parts of the region).
CHINA: Bond Futures Mixed in Morning Session
- China's key bond futures are moving in opposite directions in a quiet morning session.
- Having finished yesterday higher by +0.19, the 10yr future is lower by just -0.02 today at 108.865.
- The 10yr remains between the 50-day EMA of 108.90 and the 100-day EMA of 108.80
source: Bloomberg Finance LP / MNI
- The 2yr future is lower by -0.01 today at 102.42, having finished yesterday higher by +0.03.
- The 2yr future remains below all major moving averages with the 20-day above at 102.45.
- The CGB 10yr is at 1.66%
