Notable Events on August 24 and Points to Watch ~With a Recap of Yesterday~

8/24 (Friday)

Turkish market holiday (Sacrifice Feast)
Kansas City Fed-hosted Jackson Hole Meeting
Note: Powell, Fed Chair, to speak

07:45 NZD New Zealand Trade Balance
08:30 JPY Japan CPI (Consumer Price Index)
15:00 EUR Germany GDP
16:30 SEK Sweden PPI
21:30 USDDurable Goods Orders
22:00 MXNMexico GDP
23:00 USDPowell, Fed Chair, to speak(Jackson Hole address)

8/25 (Saturday)

Kansas City Fed-hosted Jackson Hole Meeting

02:00 USD Baker Hughes Rig Count

◎ Yesterday’s recap and today’s points of focus

1)Australia - Turnbull, Prime Minister

Prime Minister Turnbull of Australia was re-elected on the 21stin a tight margin.But there was internal opposition, and ministerial resignations occurred.

The current government is

seen as likely to change in the next election!?

Currently,Australian politics is unstable and opaque, leading to confusion.

There are rumors that Turnbull’s unpopularity stems from over-reliance on China.

China’s slowing economy appears to be contributing to Turnbull’s falling support.

China’s slowdown is linked to Australia’s slowdown.

The Australian dollar used to be attractive due to high yields, but with rate hikes in the U.S. and Canada, the appeal of high-yield currencies has diminished.

The AUD is also a risk-on currency, so it falls significantly when risk is in play.

Originally,Oceania currencies were already weakening, and yesterday’s news triggered further selling pressure and declines.

Current support is around “0.7200”; the previous 1.5-year low around0.7170.

Focus is whether these two levels can hold or break.

・Concerns about a leadership change in next year’s Australian election

・Interest rate gap widening due to U.S. rate hikes

Personally, I think these two points will drive a longer-term breakout.

AUD/USD Weekly Chart

AUD/USD Daily Chart

AUD/USD Intraday Chart

2)Jackson Hole Symposium

Tonight at 23:00, Powell’s speech at the Jackson Hole Symposium is scheduled.Attention will be on future rate hikes and balance-sheet reduction.Also, Trump’s pressure on the Fed, tariffs/trade wars, and emerging markets are in focus.

Additionally, this Jackson Hole symposium will feature appearances by Governor Kuroda of the Bank of Japan’s Governor and Vice Governor ``Watanabe`` (note context).

Also, this Jackson Hole Symposium has BOJ Governor Kuroda absent and Deputy Governor Wakatabe attending.

Perhaps to probe changes since the last BOJ meeting?

At Jackson Hole, not only Powell but many central bankers and economists gather, so speeches require cautious interpretation.

3)U.S.-China relations, U.S.-South Africa relations, Trump administration

Yesterday, $16 billion in additional tariffs were imposed.The U.S. is also considering another $200 billion in tariffs next month.

China responded by filing a WTO complaint.

From yesterday morning’s U.S.-China trade talks (official-level), no major breakthrough appears to have been achieved.

U.S.-China relations are deteriorating.

Moreover, President Trump has made statements that could be seen as interfering in South Africa’s internal affairs.“The South African government is trying to seize land from white farmers.”

In South Africa, land is being distributed more equitably.

White ownership of land is high, and the plan is to distribute to everyone (black population)..

Trump, who advocates white supremacy, likely found this intolerable.

There are rumors that attention to Cohen/Manafort issues may be diverted elsewhere.

Comments on China and South Africa are likely to continue; stay cautious.

Within the U.S.,Demos against white supremacy and similar protests should be watched.

4)European politics and long-term interest rates

In Europe, Brexit negotiations with the U.K. are reaching a climax.

If the U.K. ends up with a no-deal Brexit, not only the U.K. but Europe will face budget and movement of people and goods issues.

We will watch headlines about the negotiations.

Within the U.K., besides Brexit, the Ireland border issue and Scotland’s potential independence are being mentioned.There are talks of redoing a referendum, though not likely.

The focus for the U.K. remains Brexit-related headlines.

Yesterday also, headlines about potential No-Deal Brexit sent the pound sharply lower.

GBP/USD Intraday Chart

There were moves in the euro area as well.

Italy said it would not submit its budget unless the refugee issue is resolved..

Italy’s fiscal issues were a concern.

For the upcoming budget submission deadline, attention was on whether the EU could approve a budget.

Here, Europe intends to leverage the refugee issue to avoid submitting a budget!

Recently, Italy’s credit rating was postponed in October, which made Italy more confident!?

Whether Europe and the EU approve this remains to be seen.

5)Canada and Mexico

NAFTA negotiations are entering a final phase.

Mexico and Canada appear to be making considerable concessions.

For now, progress toward a negotiated agreement would be a positive factor.

6)Turkey and emerging markets

Turkey is closed this week for the Sacrifice Feast. The lira has stabilized somewhat.

However, currency weakness is spreading from Turkey to South Africa and Brazil.

Bloomberg information shows the following:

SonyF.H reference

Focus on current account, inflation, and foreign exchange reserves, which have commonalities with emerging-market currency weakness.>

This focus is most evident in emerging markets, amid U.S. dominance.

Other than EMs, I will continue to watch closely.

Also,long-term yields rising rapidly is a common theme.

Monitor long-term yields across countries.

7)U.S. Treasuries, end-of-month cash flows, real fifty days

Today is the weekend and it is effectively the fifty-day period.

Watch the on-shore basis, option cuts, FIX, and closing times..

This month, with U.S. Treasuries maturities and coupon payments, extra caution is advised.

About U.S. Treasuries maturities and coupons

Weekend position adjustments should be done carefully.

◎Positions held and today's strategy

CAD/JPY long remains, if it breaks above “85.500”, consider adding positions.

Stop at”84.700”

CAD/JPY Daily Chart

CAD/JPY Intraday Chart

Yesterday, USD/Euro fell and euro rose, aligning with my view, so I entered a Short on EUR/USD..

Italy budget-related statements.

Germany’s Bundesbank President Weidmann’s remark about the next ECB presidencybeing delayed.

These Euro negatives contributed to a short EUR/USD at 1.1580”.

Stop at”1.1750”

EUR/USD Daily Chart

EUR/USD Intraday Chart

While writing this blog, a sudden statement emerged.

RBNZ Governor Orr:
“Do not rule out cutting interest rates.”
“NZD moves are very satisfactory.”

Last time, there was a comment about possible rate cuts.

Additionally, dual mandates with employment,RBNZ reformsand NZD selling pressures are increasing.

Australia and New Zealand currencies face multiple downside factors.

Please refer to today’s AUD/USD chart for focus.

NZD/USD Daily Chart

NZD/USD Intraday Chart

AUD/NZD to watch for new lows!

Especially if the U.S. dollar strengthens further.

USD/JPY developmentThe U.S. dollar turned out stronger than expected..

From yesterday’s read, I expected resistance around 110.800, but it broke through.Next targets are around 111.80 and 112.20.

Today, Powell’s speechwill be watched closely.

Personally, I expect the yen and the dollar to strengthen.

USD/JPY Daily Chart

USD/JPY Intraday Chart

◎Important to monitor

Top 8 currency strength/weakness graph for the 23rd

Note: AUD is the sole weak currency and the dollar is the sole strong currency.
Yesterday was the day for Short on AUD/USD!

USD/CNH Intraday Chart

Nikkei Average Intraday Chart

Dow Jones Intraday Chart

U.S. 10-Year Treasury Yield Chart

Japanese 10-Year Treasury Yield Chart

German 10-Year Bond Yield Chart

Italian 10-Year Bond Yield Chart

Spanish 10-Year Bond Yield Chart

Greek 10-Year Bond Yield Chart

Brazil 10-Year Bond Yield Chart

South Africa 10-Year Bond Yield Chart

Turkey 10-Year Bond Yield Chart

◎Yesterday’s key figures and statements

Donald Trump, U.S. President
“The South African government is trying to seize land from white farmers.”
“If I were impeached, the markets would crash.”

Ministry of Commerce of China
“We strongly oppose the U.S. additional sanctions and will retaliate,”
“We will file a WTO complaint about U.S. tariffs.”

Labour Secretary of the UK-EU (Brexit担当相)
“The possibility of a no-deal Brexit is increasing.””

Bundesbank President Jens Weidmann
“The ECB should start dialing back stimulus as inflation is back on target.”

George, President of the Kansas City Fed
“Neutral rate is considered around 2.50% to 3.00%.”
“This year’s GDP is expected around 3.0%.”

ECB Governing Council, Minutes (July 26 meeting)
“Policy stance remains unanimously accommodative”
“Protectionism is a major risk”
“Inflation outlook uncertainty has decreased”

Sturgeon, SNP Leader
“No-deal Brexit would be a disaster.”

France’s Foreign Minister
“Ready to participate in NAFTA renegotiations”
“Two-country talks between the U.S. and Mexico are important for NAFTA’s modernization”
“Canada is very positive about NAFTA renegotiation.”

Di Maio, Italian Deputy Prime Minister (Five Star Movement leader)
“If the immigration issue is not resolved, Italy will not contribute to the EU budget.”

Kaplan, Dallas Fed President
“Trade wars will impact the economy.”
“We will work independently of politics.”
“We expect 3 to 4 rate hikes over the next year.”
“We will raise rates toward the neutral level.”

White House
“U.S.-China trade talks have concluded”
“Trade talks include structural issues in China”
“U.S.-China discuss how to achieve fair trade.”

RBNZ Governor Orr
“Do not rule out cutting interest rates.”
“NZD moves are very satisfactory.”