DXY was dumped then pumped Friday night:
AUD popped and dropped:
CFTC remains very short:
CNY is wearing concrete boots:
Brent is consolidating. Gold screwed:
Oil infected some dirt:
Societe General has the wrap:
US-Japanese yield differentials, real or nominal, five or ten years, are wider today than they were when USD/JPY spiked briefly above 150, 11 months ago. Only fear of a policy reaction is holding the yen here. A break would complicate things, adding downward pressure to the yuan (which the Chinese authorities are resisting vigorously) and the rest of the Asia/Pacific currencies as well. And if the Japanese start intervening in earnest, that will add to upward pressure on US yields too, as it highlights again the fact that two of the biggest holders of US debt are out of action at a time of considerable supply. Of course, a US debt ceiling-inspired shutdown can complicate matters significantly (especially if it were to last for more than a few weeks) but two conclusions jump out of the charts below.
The first is that USD/JPY will probably break 150 in October and the next week or so and the second is that this morning’s small AUD bounce is unlikely to represent a low. Last October we saw a break below 0.62 shortly after USD/JPY reached 150 and we expect a repeat this year.
Two market moves dominate today: A further rise in longer-dated Treasury yields, which has taken 10s to 4.64%at the time of writing, and a further rise in oil prices after yesterday’s US inventory data, which saw Brent flirt with USD 97. Neither of these bits of news is good for risk assets/sentiment, but both are dollar supportive. In other bits of data, Spanish core CPI inflation dropped from 6.1% to 5.8%, and we’re waiting for German data (but won’t get a core reading). The EU Economic Confidence index came in 93.3, down from 93.6 but that was revised up from 93.3. The PMI data do seem to overstate Europe’s economic woes, but this is still the lowest level since 2020s o it won’t do anything to keep the euro up.
The LNG oil, short bonds trade is very overstretched. I expect a period of consolidation before one more run in it to push oil above $100 and begin demand destruction in earnest.
That ought to finish off the global business cycle as the Fed if forced to chase it.
AUD is still going lower.