The softening in US August core PCE inflation (3.9% YoY vs earlier 4.3%, 0.1% MoM vs earlier 0.2%) didn’t drive a sustained rebound in Wall Avenue final Friday, as Treasury yields stayed agency regardless of some paring in charge hike bets. Whereas additional progress on the core inflation entrance might supply room for the Federal Reserve (Fed) to carry off on its final charge hike, still-resilient private earnings and spending (each 0.4% MoM), together with higher-than-expected closing shopper inflation expectations, may have strengthened the narrative for high-for-longer charges.
Into the brand new week, a brief decision within the US authorities shutdown state of affairs might present some respite, which can enable sentiments to shift its focus onto upcoming US financial knowledge, such because the US Institute for Provide Administration (ISM) manufacturing buying managers index (PMI) launch right now. Key focus across the knowledge might revolve round employment, the place the fourth straight month of contraction is predicted, whereas manufacturing costs is predicted to indicate a lesser extent of contraction. Additional feedback from Fed Chair Jerome Powell might also be on the radar right now, though his script could also be unlikely to shift too considerably from the latest Fed assembly.
Following some profit-taking from oversold technical circumstances, elevated Treasury yields proceed to be supportive of the US greenback, with the formation of a bullish pin bar final Friday reflecting consumers nonetheless in management. The following resistance on the 106.84 degree stays on watch to beat, with its weekly Transferring Common Convergence/Divergence (MACD) crossing above zero for the primary time this yr. On the draw back, the 105.00 degree serves as quick assist to carry. The newest Commodity Futures Buying and selling Fee (CFTC) figures present that the US greenback’s web combination positioning in opposition to G10 currencies has crossed into net-long territory for the second straight week.
Supply: IG charts
Asia Open
Asian shares look set for a blended open, with Nikkei +1.54%, ASX -0.16% and NZX -0.36% on the time of writing. China and Hong Kong markets are closed for Nationwide Day right now. There are some outperformance in Japan’s 3Q 2023 Tankan survey, extra notably in giant corporations, however constructive sentiments across the Nikkei 225 index might revolve across the Financial institution of Japan (BoJ) minutes.
Significantly, a continued dovish stance is displayed, whereby “even when the Financial institution had been to terminate its damaging rate of interest coverage, this may be thought of as continuation of financial easing if actual rates of interest stay damaging”. There are additionally extra readability on a possible coverage pivot guided to be round January-March subsequent yr, whereby the central financial institution could possibly decide if its “2% sustainable inflation” situation has been met.
The minutes appear to be well-received by the Nikkei, with the index shifting increased to retest the Ichimoku cloud resistance on the day by day chart. Extra constructive follow-through could also be wanted, with a transfer again above the cloud might present larger conviction for consumers. For now, its day by day MACD has crossed beneath the zero mark as a mirrored image of broad downward momentum, whereas its RSI remains to be buying and selling beneath the important thing 50 degree, each of which can should be overturned by consumers.
Supply: IG charts
On one other entrance, PMI knowledge from China launched over the weekend have been largely blended. There have been additional indicators of stabilising within the official knowledge (52 vs earlier 51.3), because the manufacturing learn heads into expansionary territory for the primary time since March 2023 (50.2 vs earlier 49.7) whereas the providers sector reversed increased for the primary time (51.7 vs earlier 51.0) since March this yr as effectively. The resilience, nevertheless, was not mirrored within the Caixin composite readings (50.9 vs earlier 51.7), which tracks sentiments from the small and medium-sized enterprises.
On the watchlist: AUD/USD on watch forward of RBA rate of interest determination this week
This week will convey concerning the Reserve Financial institution of Australia (RBA) charge determination on Tuesday, with market contributors largely anticipating the central financial institution to maintain its money charge on maintain for the fourth straight assembly however are nonetheless unconvinced that the height charge has been seen simply but. A lot might rely upon whether or not latest uptick in Australia’s August inflation is adequate to immediate a extra hawkish stance from the RBA.
The AUD/USD continues to commerce in a spread since August this yr, with a retest of the higher sure on the 0.650 degree final week failing to search out any profitable break. For now, its day by day RSI continues to hold round its key 50 degree as a sign of near-term indecision, awaiting cues from the RBA to offer extra conviction strikes. On the draw back, the 0.636 degree stays a key assist to carry, failing which can pave the way in which to retest its October 2022 backside on the 0.620 degree subsequent.
Supply: IG charts
Friday: DJIA -0.47%; S&P 500 -0.27%; Nasdaq +0.14%, DAX +0.41%, FTSE +0.08%
