FOREX: USD Stabilizes, Aided By Higher USD/CNH Levels
Softer USD sentiment from earlier has stabilized. The USD BBDXY index was last back above 1210.3, up from earlier lows near 1209. USD/CNH is up from fresh lows, while JPY and AUD have pared earlier gains. The AUD/NZD cross is still higher, holding above 1.1400 post the Q3 Australian CPI beat.
- USD/CNH has recovered some ground, with the market arguably looking for a lower USD/CNY fix (relative to mkt forecasts) to aid fresh downside. The pair was last back near 7.1000, with onshore spot also steady around 7.1000, another limit on CNH gains.
- US President Trump has spoken as travels to South Korea for the APEC summit (and meeting with China President Xi). He expressed confidence on the upcoming meeting with Xi and around lowering the tariff rate that China faces in relation to fentanyl. Market reaction has been limited though as the WSJ reported on such risks overnight. It stated tariff rates may come down to 10% from 20% (in relation to fentanyl), which would lower the average tariff rate China faces to around 45% from 55%.
- Elsewhere, AUD/USD is back under 0.6600 after spiking higher to 0.6607 post the stronger Q3 CPI print (which has seen RBA easing expectations move back close to flat). We were last 0.6590/95, but the A$ is outperforming versus NZD, the AUD/NZD cross back to 1.1415/20. NZD/USD was last under 0.5775
- USD/JPY got lows of 151.54, (which was still above the 20-day EMA) but last tracks around 151.95/00. US Tsy Bessent's earlier remarks aided the yen, as he stated the Japan government should give the BoJ the policy space it needs to keep inflation anchored and excessive FX volatility curbed.
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US STOCKS: Russell Index - Bounces Back From 2400, Payrolls This Week Is Key
The Russell 2000 overnight range was 2413.550 - 2434.32, closing +0.97%. The Russell 2000 found demand back towards 2400 and bounced nicely as the market reacted to benign US data. The Russell would be the biggest beneficiary of a new cutting cycle but with the market recalibrating its very dovish expectations the small cap exuberance is being tempered. CFTC data for last week show the leveraged fund community pulling back on their short holdings, the position remains significant so the risk of further scaling back remains. Payrolls this week if released will be very closely watched.
- MNI FED BRIEF: Fed's Barkin-Jobs Shakier, Inflation Less Troubling. The U.S. employment outlook has deteriorated following recent weakening in payroll growth and large downward revisions to past numbers, while inflation has not risen as much as had been feared due to tariffs.
- Bloomberg - “If the labor market data was to prove better than expected next week, it would certainly undermine the primary argument put forward by Fed Chair Powell to cut rates further and force the Fed to give more weight to the upside inflation risks,” said Derek Halpenny, head of global markets research at MUFG.”
- CFTC data shows leveraged funds reduced their shorts last week to -75850( previously -90215). This has been cut back from a high of around -117000 at the beginning of August.
- These shorts would most likely be held against longs in other sectors which have done remarkably well and so the losses would not be as acute, but a move through all-time highs might make some of these reconsider the position.
Fig 1: CFTC Russell Leveraged Funds Positioning
Source: MNI - Market News/Bloomberg Finance L.P
CHINA PRESS: Industrial Profits Return To Growth
Profits at industrial enterprises increased 20.4% y/y in August, reversing a decline of 1.5% in July, driven by efforts to combat aggressive price competition, coupled with a low base from the same period last year, Yicai.com reported citing data by National Bureau of Statistics on Saturday. For the first eight months, industrial profits grew by 0.9% y/y, reversing the continuous decline since May. Profits are expected to keep recovering moderately, with the support of anticipated additional pro-growth policies, and improving market order and more reasonable price transmission and cost distribution mechanisms, the newspaper said citing Wen Bin, chief economist of China Minsheng Bank.
CHINA PRESS: PBOC To Focus On Policy Implementation
The People’s Bank of China may continue prioritising “implementing existing policies” for now, as signaled by its Monetary Policy Committee at the Q3 meeting, 21st Century Business Herald reported. Compared with Q2, the Committee added a call to “ensure thorough implementation of various monetary policy measures to fully unleash policy effects,” while dropping reference to “stepping up efforts to implement additional policies,” though still stressing policy flexibility, the newspaper said.
