The Day of Reckoning

The key European and US equity benchmarks have closed flat overnight as Traders take to the sidelines ahead of tonight’s Non-Farm Payroll. The DAX had traded up 1% in early European time, spurred on by a much better-than-expected China manufacturing PMI report and the tail wind from the active UK PMI, only to reverse gains on a destitute US Manufacturing Ism.

The 3.2 point decline in the manufacturing ISM to 49.4 – the lowest reading since January – was a huge downside miss. The surprising drop prompted the Chairman of the ISM survey committee into action, who told reporters that the weak month could be an ‘anomaly’, adding that the index did not seem to square with the comments made by purchasing managers (1).

Position adjustment ahead of tonight’s critical NFP should dominate today’s FX landscape.

British Pound

The Pound’s rise from the ashes continues after the UK PMI dealt another blow – the post-Brexit short Sterling trade coming in at 53.5 vs. 48.2 in August. Chalk up the GBP gains to this amazing print, which has traders deliberating if the BOE will need to add further stimulus. The UK economic data prints post-Brexit have been nothing short of stellar. Given the short Sterling positioning, the market is primed for a short squeeze.

Australian Dollar

Australia’s Retail Sales were betrayingly flat in July – the least since September 2013. Chalk this to some seasonality forces, but it also highlights the deflationary issue the RBA is struggling with.

Traders are still kicking the can from news event to news event, as evidenced by the Australian dollar’s bumpy ride overnight.  After trading lower on the back of the tepid domestic retail sales print, investors took shelter in the AUD after the surprisingly poor USD ISM data.

We are likely to emerge for US monetary no man’s land after tonight, as this week culminates with the release of the US Non-Farm Payroll statistics. We will soon find out if the Fed’s putting the market on notice that the FOMC intends to raise interest rates was for a good cause.

Japanese Yen

USDJPY remains supported from Fed expectations underpinning the dollar and pressure on Kuroda to keep the pedal to the metal on stimulus rhetoric. Also, the weaker Japanese data adds to the momentum helping the USDJPY to consolidate above ¥103.00.

The market appears to be adjusting the prospects of a September hike call and with growing chatter among dealers on the possibility of Japanese foreign asset buying in the wake of comments earlier in the week from PM adviser Hamada, there continued to be good dollar buying interest overnight, until a potentially ominous warning from the US ISM report.

Fasten seatbelts we are in for a bumpy ride tonight. 

Yuan

The PBOC Vice Governor Yi Gang held a press conference where he introduced China’s position and propositions on G20 strong, sustainable and balanced growth, and reform of the monetary and financial system. Yi says G20 consensus is not to target competitive devaluation and G20 policies aim for continuous economic growth.