US equities were mixed overnight despite the 0.6% rebound in the Nikkei 225 Index. The Dow declined 0.4%, the S&P 500 was flat, and the Nasdaq Composite rose 0.2%. The VIX Volatility Index initially fell below 19 but ended the session at 20.71, above last Friday’s 20.37 close. Brent crude oil prices rose a fifth session by 3.3% to USD 82.30 per barrel on fears of spiralling tensions in the Middle East. The leaders of the US, the UK, France, Germany, and Italy issued a joint statement calling on Iran to stand down its ongoing threat of a military attack against Israel over the latter’s assassination of a Hamas political leader in Tehran on July 31. The US, Egypt, and Qatar have scheduled urgent talks to reach an Israel-Hamas ceasefire and hostage release deal on August 15 in Doha or Cairo. The US has sent a guided missile submarine and an aircraft strike group to the Middle East as a deterrent.
The US Treasury 2Y and 10Y yields declined by 3.6 bps each to 4.02% and 3.90%, respectively. The New York Fed’s 1Y inflation expectations measure fell to 2.97% in July, below 3% for the first time since November 2020. The futures market is looking past the higher US CPI inflation expected tomorrow, believing that the higher unemployment rate will fuel recession fears and push the Fed to deliver a larger 50 bps cut to 4.75-5.00% in September. Speaking today, Atlanta Fed President Raphael Bostic will likely join his colleagues in advocating a 25 bps rate reduction on a soft landing scenario instead.
The DXY Index consolidated in a tight 103-103.3 range in the past four sessions following the market’s capitulation from the unwinding of yen carry trades on August 5. USD/JPY failed to break above 148, though it held above the 146.50 level it fell from on August 5. USD/CHF ended around 0.8650 after retracing its two-day plunge from 0.87 to 0.8430 triggered by the US jobless rate on August 2. JPY and CHF are torn between reprising their haven roles on Middle East risks or upside surprises in tomorrow’s US CPI inflation. EUR/USD consolidated in a tight 1.09-1.0950 range in the past five sessions, while GBP/USD did not deviate far from 1.2760 in the past two sessions. Amidst the subsiding risk aversion, the commodity-led AUD and NZD currencies recovered to above the 0.6550 and 0.5985 levels they fell from after the US monthly jobs report on August 2.
Quote of the day
”When I let go of what I am, I become what I might be.”
Lao Tzu
13 August in history
Barbed Wire Sunday in 1961. East Germany closed the border between the eastern and western sectors of Berlin.
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