• UAW strikes expand strikes against GM an Stellantis
• China considers easing foreign stake limits to attract foreign investment
• US Flash PMIs show manufacturing rebounds while the composite reading fell to lowest levels since Jan 2023
• BOJ didn’t deliver much of anything. Ueda notes distance to removing negative rates hasn’t moved greatly

The BOJ kept its monetary policy unchanged and refrained from delivering a clear sign of a shift in its policy stance, disappointing some traders who were expecting improving odds of a near-term interest Rate hike.  King dollar is clearly in hear to stay, unless a de-risking moment occurs from further higher-for-longer jitters. ​ Yen weakness is not going away yet and that will soon force Japanese officials to act. ​

The end of a week filled with diverging Central Bank rate decisions is ending and the economy that is clearly in the best shape remains the US.  The Norges and Riksbank each delivered quarter-point rate rises, while Turkey posted a massive 500bps rate increase.  The Fed delivered a hawkish skip, while the BOE, South African central bank (SARB), Philippines bank, and BOJ kept their respective rates steady.  The Brazilian central bank cut the Selic rate by 50bps and is likely only getting started with aggressive easing as policy got extremely tight over the past two years.

The big takeaway from this week is that Wall Street is anticipating that higher-for-longer is not going away anytime soon. Stocks are going to struggle with this backdrop of higher rates, a weakening global outlook, and potential risk of $100 oil.  The 10-year Treasury yield surged to as high as 4.50% and the 2-year Treasury yield peaked at 5.195%.  Friday’s bond market recovery is more likely profit-taking.  It should be fairly clear that rates are going to remain high until inflation has a clear trajectory towards the Fed’s target.  Surging oil prices and a resilient labor market will likely keep rates higher and hurt growth.  Adding to the laundry list of risks to the economy are the rising odds of a government shutdown and the UAW strike, which will undoubtedly provide a boost to wages.

USD/JPY

The dollar-yen Bullish Trend has been firmly in place since mid-July.  While the bullish trend is firmly intact, it might be too early for dollar-yen to have the momentum to make a run for the 150 level. A mixed outlook from the US PMIs suggests services, the largest part of the economy is heading towards a contraction while manufacturing is stabilizing. The US outlook is going to get messier given a possible government shutdown and intensifying UAW strike. Weaker US economic data points will support slower dollar strength.

Dollar momentum will be met by Japanese jawboning, but until a policy change emerges, the yen will remain vulnerable.