Stock investors make a show
Most major US stock market averages were green on Wednesday, leaving the S&P 500 up 0.5% and the Nasdaq 100 up 0.2%. This gave dip-buyers a chance to make a comeback after consecutive losses, with the S&P also delivering a textbook daily bullish engulfing candle.
Ultimately, despite some ‘chop’ on the Nasdaq since June, US equities remain entrenched within their longer-term uptrends. The read-through into Asia, however, was broadly mixed across regional indices, with European and US equity index futures also modestly in the red ahead of the cash open.
Yen back in the spotlight
In FX, the JPY was thrust back into the limelight. Heading into the US session yesterday, USD/JPY fell about 0.7% in three minutes, sparking speculation of further intervention. However, with no official confirmation and given the scale of the move compared with past ‘rate checks’, I am sceptical.
The BoJ meets on 18 September. Will we see a rate hike? Will we see more than 25 bps, as one BoJ board member floated? Will we see further intervention? These are the questions.
Bond picture remains unchanged
For fixed income, we saw a bid across bonds, but the overall picture remains largely unchanged and is being driven by a number of factors. These include government deficits, AI build-outs, and the inflation picture.
Interestingly, although year-end market pricing fully discounts at least one Fed rate hike, New York Fed governor John Williams recently said there is evidence that inflation is trending lower and that he is not seeing second-round effects.
More of the same in the Middle East
Over in the Middle East, tensions between the US and Iran remain elevated, with President Trump saying the US hit Iran ‘very hard’ and is prepared to do more. However, he also said the attacks would be short-lived, which largely pulled oil prices lower yesterday after three days of gains.
But this is just more of the same; this is the same President who said the conflict would be four weeks, which is now in its sixth month. Consequently, the market’s response is a little surprising to me – perhaps just cautious profit-taking – given Trump’s history regarding mixed messaging, which, let’s face it, has been the case since the beginning of the war.
Day ahead
The BoC once again kept its overnight rate unchanged at 2.25%. This should not have surprised, with Canadian inflationary pressures well contained and annualised Q2 26 GDP coming in strong at 3.3%. Following the accompanying rate statement, which explicitly stated that ‘upside risks to inflation have increased, while new tariffs make growth prospects more uncertain’, this prompted a hawkish repricing in rates markets. Investors are now all but fully pricing in a BoC rate hike by year-end, and, as a result, the CAD caught a bid against the USD.
The day ahead centres on US data: weekly unemployment claims for the week ending 29 August at 12:30 pm GMT, and the August ISM services PMI at 2:00 pm.
Although my focus – and pretty much the entire market – is on Friday’s US and Canadian jobs data, I will be watching the ISM release closely today, given that services make up a large share of the country’s output. While the headline number is expected to tick slightly higher to 54.2 from 54.1 in July (est. range is between 52.8 and 57.1), focus will largely be centred on the prices paid and employment subcomponents. Rising prices and slower employment could result in a messy USD reaction, though the two rising (falling) in unison could provide a tailwind (headwind) for the buck.
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