The dollar is trading slightly higher at the start of the US session, driven by stronger than expected durable goods order data. But he is overwhelmed by both the pound sterling and the aussie. Commodity currencies are firmer on the “stable” market sentiment, but there is no follow-up buy yet, including the Canadian dollar. On the other hand, the euro and the Swiss franc are the weakest so far, along with the yen. Euro reacts little to news that Germany’s Social Democrats won Sunday’s election and is preparing for a three-party coalition government with Greens and Free Liberal Democrats, without Angela Merkel’s conservative CDU / CSU bloc .
Technically, the breakout of resistance at USD / JPY 110.79 confirms the near term bullish view that the consolidation from 111.65 is over. A larger rise should be seen thereafter to retest this high of 111.65. We will also keep an eye out for EUR / USD to fall to a temporary low of 1.1682, as well as support at 1.1663 to signal the broad buy of the dollar underlying.
In Europe, as of this writing, the FTSE is up 0.01%. The DAX is up 0.27%. The ACC is up 0.23%. The German 10-year rate is up 0.0197 to -0.205. Earlier in Asia, Nikkei fell -0.02%. Hong Kong’s HSI rose 0.07%. China Shanghai SSE fell -0.84%. Singapore Strait Times rose 1.27%. The Japanese 10-year JGB yield increased from 0.0010 to 0.056.
Durable goods orders in the United States rose 1.8% in August, orders excluding transportation rose 0.2%
Durable goods orders in the United States rose 1.8 percent mo to US $ 263.5 billion in August, well above expectations of 0.6 percent mo. Non-transportation orders were up 0.2% month-on-month, below expectations of 0.5% month-on-month. Ex-defense orders rose 2.4% month-on-month. Transportation equipment rose 5.5 percent month-on-month to $ 80.8 billion.
Fed Evans more worried about not generating enough inflation in 2023 and 2024
In a speech, Chicago Fed Chairman Charles Evans said for the record that the economy was on the verge of meeting the “substantial further progress” standard to start reducing asset purchases. “If the flow of employment improvements continues, it seems likely that these conditions will soon be met and the reduction can begin,” he added.
Regarding inflation, said Evans, “long-term inflation expectations are probably still slightly below target,” because “breakeven inflation rates in financial markets over the five-year horizon at ten years are still below the levels we observed in 2012 and 2013 – a period when they were arguably better aligned with PCE inflation of 2%. And, “a nominal ten-year Treasury rate in the range we’ve seen recently just can’t accommodate a lot of long-term inflation expectations.”
“Overall, I’m more worried that we won’t generate enough inflation in 2023 and 2024 than the possibility that we are living with too much,” he said. “My concern is that when the plight of Covid finally subsides widely around the world, we will not have been freed from the downward inflation bias imparted by the ELB.”
ECB Lagarde expects continued strong growth in H2
During the hearing of the European Parliament’s Committee on Economic and Monetary Affairs, ECB President Christine Lagarde declared: “it is obvious that the economic recovery in the euro area is increasingly advanced”. Policymakers expected “continued strong growth” in the second half of the year, “allowing euro area output to rise above its pre-pandemic level by the end of the year.” GDP growth is expected to reach 5.0% in 2021, then 4.6% in 2022 and 2.21% in 2023. The risks weighing on growth are “broadly balanced”.
Inflation in the euro zone, at 3% in August, should “increase further this fall”. But Lagarde reiterated, “we continue to view this recovery as largely temporary”. ECB projections forecast annual inflation of 2.2% in 2021, 1.7% in 2022 and 1.5% in 2023. Certain factors could lead to stronger-than-expected price pressures, inflationary shortages of materials and equipment and salary requirements higher than expected. She said: “But we are seeing limited signs of this risk so far, which means our baseline scenario continues to predict that inflation will remain below our medium-term target.
Bundesbank: Inflation at 4-5% temporarily possible until the end of the year
In the monthly report, the Bundesbank said the German economy continued to recover at a “faster pace” in the summer. economic output is “likely to grow more vigorously in the third quarter than in the spring.” But, due to difficulties on the supply side, production had not yet reached pre-pandemic level.
The level of production “continued to lag behind strong demand” due to supply bottlenecks. In July, demand for industrial production already exceeded the pre-pandemic level by 18%. But production remained -3.5% below pre-pandemic levels. The labor market “has recovered extraordinarily strongly since June” and unemployment is expected to continue to decline sharply over the next three months.
Regarding inflation, said the Bundesbank, “rates between 4% and 5% are temporarily possible from September until the end of the year”. One of the reasons for this is the basic effect of the temporary VAT reduction in the previous year. Economists assume that inflation will come down significantly in early 2022, but will still be above 2% by the middle of the year.
Exiting the euro zone, M3 money supply increased 7.9% yoy in August, above expectations of 7.7% yoy.
BoJ Kuroda: Must continue to focus on pandemic response
BoJ Governor Haruhiko Kuroda admitted: “It is true that the Japanese economy has been held back by successive waves of COVID-19.” “While the financing conditions for companies have improved for some time, those for companies offering face-to-face services remain tough,” he added.
“Given the high uncertainty over the outlook due to the spread of the Delta variant, the BOJ must continue to focus on the pandemic response for now,” he said.
Meanwhile, Kuroda is not concerned about the supply shortages manufacturers are facing. “This will only be temporary, and in a more or less long term perspective, exports and production should continue on an upward trend, partly supported by the restocking of stocks and a resumption of production after the drop caused. by supply. constraints, ”he said.
In Japan, the business services price index rose 1.0% yoy in August, compared to an expectation of 1.2% yoy.
USD / JPY Midday Outlook
Daily Pivots: (S1) 110.40; (P) 110.60; (R1) 110.93; Following…
USD / JPY continues to climb to 111.05 so far today and the intraday bias remains bullish. Current development claims that the 11.65 consolidation pattern is already complete. Further upside should be seen to re-test this high, along with key resistance at 111.71. On the downside, however, minor support below 110.30 will disrupt the short-term outlook and return to neutral.
Overall, the medium term outlook remains neutral with resistance at 111.71 intact. The 101.18 pattern could expand further with another lower leg. Sustained trading below the 55 day EMA will cause a deeper fall to support at 107.47 and below. Nonetheless, a strong breakout of resistance at 111.71 will confirm the completion of the corrective decline from 118.65 (2016 high). A further rise should then be observed to 114.54 then to 118.65 resistance.
Update of economic indicators
|23:50||JPY||Business Services Price Index Y / Y August||1.00%||1.20%||1.10%|
|08:00||EUR||Euro zone M3 money supply Y / Y August||7.90%||7.70%||7.60%|
|12:30 p.m.||USD||Durable goods orders August||1.80%||0.60%||-0.10%|
|12:30 p.m.||USD||Durable goods orders excluding transport August||0.20%||0.50%||0.80%|