The last couple of Asian sessions before today’s had generated considerable unease in global markets, but overnight, Asian markets took a breather from the recent heavy selling impulse after a wildly positive US session driven by a massive ramp in Apple stock after positive earnings announcement that took the stock’s market cap above $1 trillion.
(Update: after writing the above and most of the rest of today’s article, Chinese stocks plunged suddenly by about a percentage point to a new low closing level for the cycle.)
The USD is also firm as we look around for drivers, the most prominent among which at the moment may be the ongoing rise in USDCNY, which is drawing nearer the 7.00 level that could represent a game-changer for the market’s complacency if breached.
Emerging markets did not take kindly to the combination of a stronger USD and stronger JPY and the negative spiral for TRY continues as well.
The market is itching to get a peek at China’s FX reserves next Tuesday after the recent fall in the CNY, which got under way in earnest only in mid- to late June if we look at the CNY basket. In the 2015-16 experience, the falling CNY was accompanied by large draws on reserves as capital flight was a major driver and China had to mobilise its reserves to slow the yuan’s depreciation.
Is that the same case this time around? If so, it would look less nefarious from the US’ perspective than if China accumulated reserves to drive a weaker CNY.
Today is US payrolls and average hourly earnings day, but it feels from past experiences that the bar is very high for surprises from average hourly earnings, which have gone nowhere in recent months. A miss to the downside, given the evidence of still strong economic activity elsewhere (Atlanta GDPNow for Q3 suggesting 5% annualised growth) might be brushed off as a statistical anomaly. An upside surprise might prompt more trading interest. The payrolls data, meanwhile, are largely uninteresting barring enormous surprises.
Next week’s US economic calendar has the Friday July CPI data as the only data point of real interest. But the US Treasury auction will also look to auction a decent chunk of new Treasuries, with auctions of three-, 10-, and 30-year debt Tuesday through Thursday.
According to the Wall Street Journal, the US Treasury's borrowing needs will be a staggering 63% higher for the rest of this year relative to 2017.
EURUSD finally showing signs of momentum development and yesterday’s session saw the break of the line of consolidation – though a real break lower requires a takeout of the 1.1500 level.