DXY is back and that was bad for everything else:
AUD was comprehensively smashed:
Oddly, shorts are falling on CFTC:
Oil was bashed despite mooted OPEC cuts:
Metals and miners rolled over:
Em stocks are nasty:
Junk too:
The Treasury curve inverted some more:
Stocks plunged through June lows:
Credit Agricole wrapped it:
King USD continues to reign supreme over FX markets as the currency continues to attract inflows from investors spooked by the worsening twin sell-off in the global bond and stock markets. The sell-off has transformed USD cash into the ultimate safe asset, further boosted by the rise of US real rates and yields on the back of the Fed’s credible commitment to bring down inflation. That said, US rates investors further think that most of the Fed tightening is behind us, expecting the Fed funds rate to peak at 4.5% in March 2023. Underpinning the expectation is the view that US core inflation will ease from its current lofty levels. Today’s core PCE data could put the latter view to the test, with our US economist expecting the Fed’s preferred inflation measure to re-accelerate in August to 4.8% YoY (consensus 4.7%) from 4.6% previously. If confirmed, the data will suggest that US core inflation remains below the lofty levels from earlier this year but that it remains stubbornly high and thus necessitates further aggressive Fed tightening. The reaction in FX markets will be driven by the response of the US fixed income markets as well as the resilience of the broad risk sentiment in the wake of the data. To the extent that we do not see further aggressive front-loading of Fed hikes and/or deterioration of risk sentiment, the USD may struggle to extend its recent gains, with FX investors turning their attention to the upcoming US data next week, ie, Non-farm payrolls and ISMs. In addition, it remains to be seen whether the overbought and overvalued USD can receive a sustained boost from the month end rebalancing flows that are predicted by our model to be supportive for the currency. It is also worth highlighting that, in FX technical terms, the USD index has formed a weekly shooting star so far this week, which can further herald a period of range trading for USD-crosses in the near term.
PCE inflation did come in strong. Core lifted month-on-month to 5.1% annualised and quarterly bounced to 4.47 annualised:
Moreover, GDPNow also bounced:
When coupled with still very strong wages growth, this is clearly too high for the Fed’s comfort.
Another 75bps hike is coming and probably two of them.
AUD down!
