Via Kit Juckes at SocGen;
August seems set to end without 10year Treasury yields breaking from their suffocating 15bp range. They’re a couple of basis point lower this morning, although that has stopped the post-Jackson Hole mood persisting with the yen a little softer, the dollar a little stronger pretty much across the board. A fall in Japanese unemployment to 3%, a pick-up in Japanese retail sales to -0.2% y/y, and very strong Australian building permits (+11.3% m/m, +3.1% y/y) make up the main Asian headlines. Oil prices aren’t really going anywhere, Asia equities are up with the exception today of the Nikkei, down marginally.
I’ll get excited about USD/JPY if I get excited about 10s
The day ahead sees EC confidence surveys, German and Spanish CPI data, UK money supply figures, and US consumer confidence. I suspect all eyes will be on the size of the fine imposed by the EU on Apple and an interview of Fed vice-Chair Stanley Fischer on Bloomberg TV this morning.
As for markets, month-end looms and with Friday’s non-farm payrolls following on hard behind, we may see a reflective mood rather than dramatic action. But it’s the tiny Treasury range that catches the eye and suggests volatility will be kept firmly anchored, investors will struggle to resist the siren call of yield and emerging markets, and the dollar’s unlikely to fly TOO high. Short GBP/USD is my staple diet at the moment, but otherwise EUR/USD is just range-drifting, I haven’t had the fall in USD/JPY to buy so I’m just frustrated, and it will be the employment data on Friday that determine whether we can get broader G10 trends underway into Autumn, or just stay with the yield-hunt.
EUR/USD is increasingly erratically going nowhere
The FX markets default position at times like this, is just to look for carry. That was easier when there was more carry around, when the funding currencies didn’t include the majority of the G10 ones and a few more besides. But in this day and age, the result is pretty small ranges for most of G10FX and the market activity drifts naturally more and more towards EM. What I’m not sure of, is when, how and even if that will result in a significantly greater degree of intra-EMFX divergence. But for now, wariness about Asian currencies (KRW, TWD, SGD) and a preference to take advantage of MXN under-performance about sum it up for us.