Overactive Underachievement

The US president’s comments on Friday afternoon sent shockwaves around the markets as equities sank and the JPY and Gold charged higher. I won’t go into the detail of all that Trump said, but in short he lambasted China and the Fed again. The fallout of those remarks eventually sent the USDJPY below 105.00 and pushed gold to a fresh 6year high of $1555.10 as markets opened in Asia yesterday.

The USDJPY also posted a fresh 3year low of 104.46, surpassing its January low of 104.87 as long USD stops were flushed. The dollar more generally suffered too with the GBPUSD spiking back towards 1.2300 again as the EURUSDlifted to a high of 1.1164. All helped by UST 10year yields sinking more than 20bp to as low as 1.44%. That yield is currently around 1.51% this morning.

However, since then the US president has pushed back somewhat in respect of his Chinese comments, but not so in his latest condemnation of the Fed. Its pretty obvious what Trump is doing in that regard, in seeking to blame the Fed for a recession if and when it comes. Naturally, this is all about hedging his re-election chances in 2020 and deflecting any personal responsibility.

At the same time his agenda remains as it was when he was elected in 2016, to try to get the dollar down and to reduce America’s trade deficit and maintain the equity market rally. It sure looks increasingly like he’s ‘underachieving’ on all three fronts despite his ‘overactive’ determination quite frankly.

In the meantime, the markets will have to bear the brunt of his rhetoric, perhaps until such time as they no longer take him seriously and disregard his incendiary comments- not likely I fear and certainly not in the short term anyway.

Nevertheless, the ship has steadied over the past 24hours (but not before the S+P 500 posted a fresh interim low around 2,810 and Nikkei dropped below 20k) and that’s helped the JPY give back its weekend gains with the USDJPY rebounding to as high as 106.41 at one stage yesterday afternoon.  The move back up from 104.46 to that high yesterday does certainly suggest, at least a hint of some ‘semi-official’ USD buying from the land of the rising sun- more on that another time perhaps, but one thing is for sure; we know that the BOJ and the MOF are not comfortable with price below 105.00.

Likewise, Gold also has drifted back to below $1530 yesterday and that’s where it is again early this morning too. I said last week that I thought we might see a retest of the previous $1480 low and I am sure that would have unfolded had the markets not been so rattled by Trumps comments on Friday. As for the chances of that happening in the short term now- clearly not high to be honest.

The data releases this week look rather tepid generally, but there is probably enough there to have an impact if there areany real surprises, especially from the US and German numbers due out. Anyway we shall just have to see what shows up as the week progresses.

So, with London markets closed yesterday their return to digest all that has happened since Friday afternoon might be interesting. However, many will surely still be absent this week anyway with much of the UK still basking in what must count as one the finest August bank holiday weekends’ as far as the weather is concerned- more so in my view from a Cricketing perspective- arise Sir Ben Stokes!

Earlier today the markets received final confirmation that the German economy did contract in the second quarter and barring a miracle that country is almost certainly technically already in recession, but we will have to wait and see Q3’s data for final confirmation of that fact. For that reason alone, the EURUSD is struggling to make any headway, not helped in the short term by conflicting Reserve management interest either side of 1.1050-1.1150.

As far as the pound is concerned the rebound is still vogue, but without much upside traction yet on the GBPUSD or GBPEUR. As the for levels I noted last week in regards to both, I see no reason yet to look beyond any of those just yet. Having said that the situation is developing both sides of the channel and with Parliament set to return next week this is all very much in the balance. Consequently, it’s surely wise not to make any assumptions just yet.

Important Economic Releases/Events Due This Week

27/08- 3.00pm US- August Consumer Confidence Index

29/08- 8.55am German August Unemployment Report

29/08-1.00pm German Annualized August CPI Estimate

29/08-1.30pm US- Annualized Q2 GDP and Personal Consumption Revisions

30/08- 10.00am Eurozone August Annualized CPI Inflation Report

30/08- 1.30pm Canada Q2 and June Annualized GDP Estimates

30/08- 1.30pm US- July Core Annualized PCE Report

30/08- 2.45pm US- August Chicago Purchasing Managers Index

30/08- 3.00pm US- Final Reading of August University of Michigan

Consumer sentiment Index