Global Markets: US Treasury yields were quite volatile last week, dropping on Wednesday before rising on Thursday ahead of Chairman Jerome Powell's long-awaited (and perhaps over-hyped) speech in Jackson Hole. The 2-year yield rose 7.3 basis points yesterday, while the 10-year yield rose 5.1 basis points to 3.852%. The market is pricing in a 25 basis point cut at the September FOMC meeting, with a roughly 25% chance of a 50 basis point cut, so there is still room for today's speech to either excite or disappoint the market. However, since the decision to deviate from market prices is based on as yet unknown data, it is unlikely that Chairman Powell will be able to promise more than some easing in September. And even then, unless the data is wrong. EURUSD fell slightly yesterday to 1.1116, while AUD was pushed back to just over 67 cents. The Singapore dollar was steady at 1.3095, while the Japanese yen also weakened slightly, rising to 146.12 ahead of Bank of Japan Governor Ueda's testimony before Congress on recent market volatility. Asian currencies mainly weakened against the U.S. dollar on Thursday. The Philippines is closed today, so the Philippine peso has not yet reflected the dollar's overall strength. The Indonesian rupiah supported Asian currencies on Thursday as tensions rose over some proposed changes that were later withdrawn. The South Korean won also weakened after the Bank of Korea hinted at upcoming interest rate cuts at a meeting.
US stocks were weak on Thursday, with the S&P 500 down 0.89% and the NASDAQ down 1.67%, while Chinese stocks fared better, with the CSI down 0.26% and the Hang Seng Index up 1.44%.
G7 Macro: Yesterday was quiet on the G7 macro front. There was a lot of PMI data released, mostly on a more upbeat note. However, the Olympics may have had an impact on the European PMIs. The US PMIs were more mixed with weak manufacturing indicators but stronger services indicators. Jobless claims rose slightly but not significantly. Eurozone inflation expectations numbers are due for release today. The ECB is trying its best not to make any pre-commitments, but this could help push them over the line and cut rates again in September.
U.S. July new home sales figures are unlikely to receive much attention given Chairman Powell's Jackson Hole speech scheduled for later today.
Japan: Japan's consumer price index rose for the third consecutive month to 2.8% y/y in July, slightly above the market consensus of 2.7%. Excluding fresh food, core inflation rose to 2.7% y/y, in line with market consensus, accelerating since April 2024. The most notable increase was in energy prices (12.0%), mainly due to the end of the energy subsidy scheme. However, the subsidy scheme will be resumed for three months from August, adding noise to the data in the coming months. The strength of core inflation will continue to support the Bank of Japan's policy normalization. However, the rate of increase in services prices slowed to 1.4% in July (1.7% in June), which could be a reason for the Bank of Japan to ease the pace of normalization. Today, Governor Ueda will explain the Bank of Japan's monetary policy in the Diet. The Governor is expected to tone down the hawkish message and ease market concerns about rapid policy changes. We have postponed the BOJ's next rate hike from October to December as the bank is likely to keep rates on hold until the market has digested the Fed's cut. With inflation remaining solid and consumption and wage recoveries expected to strengthen, we believe the macro environment remains supportive of the BOJ's rate hikes.
