Weaker US data boosts hopes of a pause

There was some relatively weak data out of the US yesterday, which boosted markets as hopes of a pause by the Fed heightened. The conference board consumer index dropped to 106.1 on the August reading, well below the consensus forecast of 116.0 and the (downwardly revised) July print of 114.0. The US consumer has held largely up to now despite high inflation and rising interest rates, but the survey suggested that this could come under pressure in the coming months, especially as the number of job openings in July fell back. The JOLTS survey showed there were 8.83mn open positions in July, the lowest reading since March 2021. This missed projections of 9.5mn and lower than June’s 9.2mn. Markets will now be watching for the ADP and NFP jobs numbers over the next several days.

China’s biggest state-owned banks are reportedly preparing to cut rates on their existing loans and mortgages in another bid by the government to boost markets, encourage spending, and stimulate flagging growth in the economy. It follows measures taken earlier in the week to support the stock market which included a cut on stamp duty and a pledge to reduce the number of IPOs. While the measure could only be for first homes, this covers the bulk of the mortgage market.

Today’s Economic Data and Events

• 16:00 Germany CPI inflation, % y/y, August. Forecast: 6.0%
• 16:15 US ADP employment change, August. Forecast: 195,000
• 16:30 US GDP q/q annualised, Q2 second reading. Forecast: 2.4%

Fixed Income

• US Treasuries rallied across the curve as a drop in US consumer confidence in August along with the lowest job openings print for the past two years gave more evidence of a cooling economy. The 2yr UST yield sank by 15bps to 4.8942%, its lowest level since mid-August, while the 10yr fell 8bps to 4.1197%. That contributed to roughly 7bps of bear steepening with the curve at -78bps. Market pricing for an additional hike by the end of this year has also faded.
• Bonds across Europe also closed stronger overnight with bund yields down 5bps to 2.506% and gilt yields falling 2bps to 4.416%. Emerging market bonds in our universe closed a little weaker with Turkey 10yr yields up 6bps at 20.44% and South African 10yr yields adding almost 2bps to 11.605%.
• ADCB has mandated banks for a USD benchmark 5yr green bond.

FX

• The plunge in US Treasury yields helped to firm up currencies against the dollar overnight. EURUSD spiked to nearly 1.09 on the release of the softer US data before settling at 1.088, up 0.6% on the day. GBPUSD showed more muted gains but managed to rise by 0.3% to 1.2644 while USDJPY reversed some mid-day losses for the yen, having at one point risen to almost 147.50, to pull back and close 0.5% lower at 145.88.
• Commodity currencies pulled stronger as a rule. USDCAD dipped by 0.4% in favour of the loonie to settle at 1.3552 while AUDUSD gained 0.8% to 0.6481 and NZDUSD rallied more than 1% to 0.5972.

Equities

• Chinese equities headed higher yesterday as traders looked ahead to furhter economic stimulus measures from the government; the Shanghai Composite closed up 1.2% while the Hang Seng gained 2.0%. In Japan, the Nikkei added a more modest 0.2%.
• In Europe, the FTSE 100 was playing catchup yesterday after being closed for the August Bank Holiday at the start of the week: it closed up 1.7% while the CAC and the DAX gained 0.7% and 0.9% respectively.
• In the US, the relatively weak economic data saw strong gains in equities, as the NASDAQ closed up 1.7%. The Dow Jones added 0.9% and the S&P 500 1.5%.
• Locally, the DFM ended the day 0.4% lower while the ADX added 0.1%.

Commodities

• Oil prices rose about 1.3% each in Brent and WTI futures, settling at USD 85.49/b and USD 81.16/b respectively. Data from the API showed an 11.5m bbl draw in US crude stocks last week, offset to a degree by builds in gasoline and distillate stockpiles.