CHINA PRESS: China's August Logistics Prosperity Index Rises To 50.9%

The BBDXY range Friday night was 1209.31 - 1224.64, Asia is currently trading around 1210. The USD rejected the testing of the 1220/1230 area on Friday and had a knee-jerk reaction lower to the huge move in US rates as the markets view on growth and interest rate cuts is re-evaluated. With US Equities now beginning to look vulnerable to a potential reappraisal of the growth outlook, the USD’s utilisation as a safe haven will again come back into the conversation. While the USD has fallen over 10% this year its role as a safe haven has come squarely into question, should the correction lower in risk begin to expand this premise will again be sorely tested. First support now seen around the 1205 area.

• Otavio Costa on X: “ The yen just recorded its biggest one-day gain against the US dollar since December 2022, when the BoJ loosened its yield curve control and allowed 10-year yields to rise. This isn’t just a one-off move, in my view, it’s part of a broader fiscal survival response. The reality is that both the US dollar and interest rates must come down, in my opinion. This kind of fiscal and monetary adjustment isn’t optional — it’s the last viable path to avoid the US economy hitting a debt wall.”
• Robin Brooks on X: “Friday's revisions to payrolls were huge. Chart shows cumulative 2 month revisions (vertical) vs new "first print" data (horizontal). Revisions removed a June spike in state & local gov't hiring that no one took seriously in the first place. So the Dollar will rebound Monday...” See Fig.1 Below
• Daily Chartbook on X: “In July, retail investors' allocation to stocks rose to the highest (68.3%) since January while bond (15.7%) and cash (16.0%) allocations fell to 4- and 7-month lows, respectively.” 
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.

Fig 1: NFP Print Vs Cumulative 2 Month revision

Source: MNI - Market News/Bloomberg Finance L.P/@robin_j_brooks

The Melbourne Institute headline inflation gauge for July showed a material increase to 2.9% y/y from 2.4% in June as it rose 0.9% m/m. Its trimmed mean measure rose 0.8% m/m to be up 1.9% y/y from 1.2%, the highest since January. This can lead the monthly CPI trimmed mean by up to 6 months and thus could be signalling that it troughed in June around the bottom of the RBA’s 2-3% target band and may rise in coming months. The headline inflation gauge has less signal to it. Currently the RBA remains focussed on quarterly CPI data but a more complete monthly series will be released in November. 

Australia trimmed mean inflation y/y%

At the end of last week, only Taiwan saw positive inflows into local equities from offshore investors. South Korea saw a very sharp drop in the Kospi on Friday, down 3.88%. We are higher today, last around +1% for the index. Near term focus remains on local government tax shifts. The ruling party will reportedly make its position on capital gains tax known soon: "South Korea’s ruling Democratic Party chief Jung Chung-rae said the party will determine its position on capital gains tax as quickly as possible and inform the public." (via BBG a short while ago). 

• More broadly inflow sentiment may be dictated by global equity trends. Friday's NFP report and ISM dip cast a shadow over the US equity market outlook. Futures are are higher in the first part of trade today, with Eminis up around 0.25%.
• Taiwan inflows remained positive, albeit with the 5-day rolling sum of inflows cooler that what we saw through parts of July.
• Indian outflow momentum remained strong to the end of last month. Higher tariff rates have likely weighed on sentiment. The Nifty is back at levels from mid June.
• Thailand also saw outflows on Friday, unwinding some of the recent positive inflows seen. 

Table 1: Asian Markets Net Equity Flows 

Source: Bloombegr Finance L.P./MNI