Japanese Officials Won't be Able to Fight Strong USD Without Backing by BoJ U-Turn

Currently, we’re back around 149.25, adding strength to our case that Japanese officials won’t be able to fight a strong USD without backing by a BoJ policy U-turn. Stock markets were wacked again with key European indices losing over 1% and Wall Street losses ranging between -1.3% (Dow) and -1.9% (Nasdaq).

As US Yields Surge, How High Can They Go?

Yields on government bonds are flying again as central banks are all singing from the same hymn sheet lately, flagging that interest rates will stay high for a longer period of time. This isn’t exactly a new revelation for investors but more recently, the message has started to sink in deeper as the combination of persistent price pressures and resilient economies has taken everyone by surprise.

Sunset Market Commentary

Yesterday’s sudden drop in USD/JPY remained talk of town. The pair breached last year’s intervention-threshold (150) following stronger US JOLTS job openings before suddenly sinking to 147.50. While top officials declined to say if they had intervened, Finance Minister Suzuki did tell media that they are watching FX with a high sense of urgency, that excessive FX moves are undesirable and that it is important that currencies move stably.

EUR/USD: Dollar Follows Bond Market and Hits Ludicrous Speed

Wall Street is waking up to more FX and bond market chaos.  Overnight, the 30-year Treasury yield surged to 5%, the highest level since 2007.  With hedge funds aggressively riding this bond market selloff, Treasury yields blew right by ‘ridiculous’ speed and entered ‘ludicrous speed’.

ISM Index Shows Services Sector Expanded in September

The ISM services index gave back some of its August gains, but still remains above the soft patch from this past spring. However, signs are pointing to increasing headwinds for the sector. New orders growth continues to trend lower, while order backlogs have contracted in six of the past seven months.

Down Under Central Bank Low Down

At their respective monetary policy meetings this week, central banks in Australia and New Zealand remained relatively comfortably on hold.The Reserve Bank of Australia (RBA) held its Cash Rate at 4.10%, while the Reserve Bank of New Zealand (RBNZ) held its Official Cash Rate at 5.50%.

Earnings Data on Schedule as Yen Intervention Dominates Sentiment

The market is still digesting Tuesday’s rumoured intervention, and it is trying to evaluate the likely next steps from Japanese authorities. The yen has been left unprotected with the market continuously favouring the US dollar due to the massive yield differential. Despite this yen suffering, the Bank of Japan needs sufficient economic evidence in order to start scaling back its policy accommodation, starting with an abandonment of negative rates that have been in place since February 2016.

Bond Market Sell-Off Takes a Break

FI: The bond market sell-off stalled yesterday as weaker US macro data supported the sentiment. 10Y Bund yields declined by 5bp to 2.91% throughout the day, while the 10Y UST yield ended the day 7bp lower at 4.73%. The 5y5y EUR inflation swap rate was close to unchanged implying that a decline in real yields was behind yesterday's move.

Saudi's Commitment is Not Written into a Law

Rising suspicions that the global economy is headed straight into a wall didn’t spare oil bulls yesterday. The barrel of American crude dived almost 6%, slipped below the 50-DMA ($85pb), and below the positive trend base building since the end of June. The 6.5-mio-barrel build in gasoline stockpiles last week helped bring the bears back to the market even though the data also showed a more than 2-mio-barrel draw in crude inventories over the same week.

Bearish Bond Momentum Can Be on Hold

After yesterday’s move, we believe that bearish bond momentum can be on hold with for some time with consolidation kicking in (rebound on stock markets and further correcting USD). Especially so, if tomorrow’s US payrolls report would show signs of a less robust labour market as well. The consensus bar (+170k) seems on the high end.