Powell lights the rate-cut fuse Friday night – Asia continues the theme on Monday
|General trend
- On Friday night Asia time US Fed Chair Powell gave the markets the message they had been waiting and wanting to hear at Jackson Hole; that US inflation is on a sustainable path to target (2%) and the time has come for policy to adjust. Data will determine timing and pace of rate cuts.
- USD index hit an 8-month low that night, while stocks and currencies rose (JPY +1.3%), along with Gold and Bitcoin.
- Likely to be an increased focus on US jobs going forward as Powell indicated that the dual mandate of the Fed was now squarely in play.
- Following through in Asia today bonds ticked higher in tandem with the rest of the world, while equities were mixed. The Nikkei under-performed -1.3% as the Yen strengthened. Automakers along with other Japanese exporters sold off during the morning in Tokyo.
- Currencies were slightly further up against USD, continuing Friday night’s post-Powell theme, led by JPY +0.3% (was up as much as +0.7%, well into the 143 handle during the Asian morning).
- Over the weekend Robert F. Kennedy Jr suspended his Presidential campaign and endorsed Donald Trump; By taking his name off the ballots in 10 battleground states he likely gives the Trump campaign a boost in the toss-up states that will decide the election, given his appeal to independent voters and some moderate Republicans and Democrats. The magnitude of such a boost is yet to be determined by how many supporters follow him to support the Trump campaign.
- China PBOC left MLF rates unchanged (at 2.3%) on their new monthly MLF operations date of the 25th (delayed one day today due to weekend), with a larger injection than expected. PBOC also injected a further 471B Yuan in regular 7 day reverse repo ops.
- US equity FUTs -0.1% during Asian trading.
Looking ahead (Asian time zone)
- Mon Aug 26th (Mon eve DE Ifo Aug Business Climate, Mon night US July Durable Goods).
- Tue Aug 27th N/A.
- Wed Aug 28th AU July CPI (Wed eve DE GfK Consumer Conf).
- Thu Aug 29th (Thu night DE prelim Aug CPI, US Q2 GDP 2nd est).
- Friday Aug 30th, JP July Industrial Production & Retail Sales, AU Retail Sales, JP Aug Consumer Conf (Friday eve various European prelim Aug CPI, Fri night India Q2 GDP, CA Q2 GDP, US Core PCE, Michigan Consumer Sentiment).
- Sat Aug 31st CN Aug National PMIs.
Holidays in Asia this week
- Mon Aug 26th Philippines.
Headlines/economic data
Australia/New Zealand
- ASX 200 opens +0.1% at 8,030.
- Australia Treasurer Chalmers could visit China ‘within weeks in early Sept’ [would be the first such trip to China in 7 years] – AFR [update].
- Follow up: NZ PM Luxon: We have an energy security crisis; Govt to reverse ban on offshore oil and gas exploration and allow electricity line companies to own generation - financial press.
China/Hong Kong
- Hang Seng opens +0.6% at 17,709; Shanghai Composite opens flat at 2,855.
- AI engineers in China said to be secretly accessing banned Nvidia chips via remote access - WSJ.
- Follow up: China govt said to urge local govts to accelerate special bond sales - Chinese press.
- China bond trading ‘collapses’ amid PBOC crackdown; cites data from CFETS – US financial press [update].
- China PBOC Gov Pan Gongsheng reiterated overall financial system is stable – Press interview [update].
- China PBOC said to be carrying out stress-tests on financial institutions for bond risks - report by PBOC-backed Financial News.
- (US) White House National Security Adviser Sullivan will visit China Aug 27-29th and will meet with Chinese diplomat Wang Yi in China – press [weekend update].
- US govt adds 123 new entities to its 'entity list', includes 63 in Russia and 42 in China [weekend update].
- China Pres Xi: China and UK should strengthen dialogue and cooperation - follows 1st call with UK PM Starmer [weekend update].
- China PBOC conducts CNY300B V CNY275BE in 1-year medium term lending facility (MLF) monthly setting at 2.30% VS. 2.30% prior.
- China PBOC sets Yuan reference rate: 7.1139 v 7.1358 prior (strongest since Jun 13th).
- China PBOC Open Market Operation (OMO): Sells CNY471B in 7-day reverse repos; Net injects CNY419B v net injects CNY242B prior.
Japan
- Nikkei 225 opens -0.5% at 38,156.
- Japan Jun Final Leading Index CI: 109.0 v 108.6 prelim; Coincident Index: 113.2 v 113.7 prelim.
- Japan ruling party LDP's Kono confirms candidacy for leadership contest on Sept 27th - press conference.
- Ishiba is leading in the polling for the LDP leadership elections - ANN Poll; Ishiba and Koizumi are both leading according to an Asahi poll [consistent with prior polls].
South Korea
- Kospi opens +0.6% at 2,716.
- South Korea Central Bank (BOK) Study: South Korean exports would be hit by Trump tariffs on China - Financial press.
- Bank of Korea (BOK) official said the Aug rate decision was ‘difficult’ – Press [update].
- Follow Up: South Korea is planning KRW40T in consumption supporting measures before Chuseok holiday (Sept 16-18th) - Press.
Other Asia
- Singapore July Industrial Production M/M: 10.1% v 5.0%e; Y/Y: +1.8% v -0.5%e.
- World Bank: Forecasts Vietnam 2024 GDP 6.1%; 2024 inflation 4.5%.
North America
- *(US) Fed Chair Powell: Confidence has grown that inflation is on sustainable path to 2%; time has come for policy to adjust - Jackson Hole Symposium [weekend update].
- Robert F. Kennedy Jr (Independent) suspends Presidential campaign and endorses Donald Trump; To take his name off ballots in 10 battleground states [weekend update].
- NSC Reaches tentative five-year collective agreements with four labor unions - financial press [weekend update].
Europe
- (EU) ECB’s Holzmann (Austria, dissenter): Sept rate cut is not foregone conclusion – Press [update].
- (IL) Axios' reporter Barak Ravid: Israeli negotiating team for talks on the hostage deal has returned to Israel from Cairo.
- (EU) ECB's Lane (Ireland, chief economist): The return of inflation to 2% target is not yet secure; Policy must remain restrictive as long as necessary - Jackson Hole (update).
- (UK) BOE Gov Bailey: Second round inflation effects appear to be smaller than we expected, but it is too early to declare victory - Jackson Hole speech [weekend update].
- (EU) ECB’s Centeno (Portugal, dove): We always look at data as a whole; Sept is an easy decision - TV interview [weekend update].
- (EU) ECB’s Centeno (Portugal, dove): We always look at data as a whole; Sept is an easy decision - TV interview [weekend update].
Levels as of 01:20 ET
- Nikkei 225 -1.1%; ASX 200 +0.7%; Hang Seng +0.7%; Shanghai Composite -0.3%; Kospi -0.5%.
- Equity S&P500 FUTs -0.1%; Nasdaq100 FUTs -0.1%, Dax -0.4%; FTSE100 -0.2%.
- EUR 1.1181-1.1202: JPY 143.45-144.37; AUD 0.6773-0.6798; NZD 0.6113-0.6133.
- Gold flat at $2,546/oz; Crude Oil +0.6% at $75.31/brl; Copper -0.1% at $4.2553/lb.
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