The USD has been on an easing path since last Thursday with the DXY slipping towards 101. Overnight, the BLS significantly revised down annual payrolls by 818k in its preliminary estimate, which amounts to 68k fewer jobs per month than initially reported. It is the largest downward benchmark revision to payrolls since 2009, and can only reinforce the case for a September rate cut. Also, FOMC minutes for the July meeting confirmed that the “vast majority” of members see a Sep cut as appropriate, with upside risks to inflation having diminished. With the US labour market not quite strong, and US CPI last week easing below 3%, Fed Chair Powell could well signal the start of a rate cut cycle in his Jackson Hole Economic Symposium speech tomorrow.
The JPY has seen broad gains this week, with both USD/JPY and EUR/JPY slipping to 145 and mid-161 levels. News of a buyout offer for a Japanese mega convenience store company by an overseas firm had likely bolstered JPY sentiment since Monday, with the deal possibly valued above USD40bn given its market cap. JPY traders may now pay more attention to the possibility of M&A deals for other Japanese firms, given the still large valuation differences between Japanese and overseas equities, and a historically cheap JPY. Meanwhile, BOJ’s Ueda will appear in a Diet hearing tomorrow with regards to the July monetary policy decision that shook global financial markets. With the Nikkei having largely recovered losses, Ueda may comfortably maintain his stance that further rate hikes could still be needed if forecasts are attained, while underscoring that financial stability will be a factor in policy considerations too.
The onshore USD/CNY, offshore USD/CNH, and CNY fixing have all converged to around 7.13 amid an alleviation of RMB depreciation pressures. We had argued that a softer USD will be conducive for RMB gains. That said, RMB could lag regional peers, as sentiment in China’s housing market remains drab, while concerns over LGFV debt have also returned amid short-term refinancing risks. While LPR rates were left unchanged this week, there is still scope for calibrated cuts going forward which should restrain against overt RMB gains.
Quote of the day
”To handle yourself, use your head. To handle others, use your heart.”
Eleanor Roosevelt
22 August in history
The first complete ring around Neptune was discovered in 1989.
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