Articles

The Japanese political situation has been high drama in the past week.

On Friday, Japan’s LDP opted not to pick a dovish leader of their party, causing a big drop in USD/JPY. That was followed by a snap-election call from incoming PM Ishiba.

The vote will take place on October 27 as he tries to ride a honeymoon phase.

“It is important that the new government be judged by the people as soon
as possible,” Ishiba said.

The timeline will make for volatile trading in the yen throughout the month ahead. The dollar is also notable as risk assets improve on Fed rate cuts and China stimulus. US 10-year yields are up 3.8 bps today and have chopped higher since the Fed’s 50 bps cut as it’s seen removing tail risks around a rough recession.

The next move in this pair is likely to be driven by US economic data, particularly Friday’s non-farm payrolls report.

This article was written by Adam Button at www.forexlive.com.

Oil has been ratcheting up today but it’s not clear if that’s China or war worries, though it’s certainly not hurting crude.

Just now Hezbollah also claimed an attack on Israel using a ballistic missile for the first time. It’s a ‘nour missile’.

This article was written by Adam Button at www.forexlive.com.

CNN reports that Israel could imminently launch a ground incursion into Lebanon. However the report says that following discussions with the US, the incursion could be more-limited than what Israel initially planned.

I would take this all with a grain of salt as many of these headlines have proven false in the past and very few of the leaks about Israel actions have been correct.

The US leaks what it wants to leak and very, very few things are actual leaks rather than plants.

This article was written by Adam Button at www.forexlive.com.

As promised last week, China has lowered the downpayment ratio for first-time home buyers to 15% while the ratio for second homes has been lowered to 20%.

This isn’t a new announcement, it’s the confirmation of government reports from last week.

This article was written by Adam Button at www.forexlive.com.

• Prior was -9.7

• Output (production) -3.2 vs +1.6 prior
• New orders -5.2 vs -4.2 prior
• Employment +2.9 vs -0.7 prior
• Outlook -6.4 vs -9.6 prior
• Prices paid for raw materials +18.2 vs +28.2 prior
• Prices received +8.4 vs +8.5 prior
• Wages +18.5 vs +22.0 prior

This is a neutral reading overall. There are some positive indications on the outlook and inflation but some drags from output and new orders. I’m surprised it was as strong as it is given the decline in oil prices.

All the sub-indexes are within recent ranges except this one:

Comments in the report:

Chemical manufacturing

• Increased imports [is an issue affecting our business].
• Regulation [is an issue affecting our business].

Computer and electronic product manufacturing

• We are seeing signals of the market inflecting up, but near-term, things remain muted.
• We look at the possibility of a [Kamala] Harris administration
  with great concern. It will almost certainly lead to a reduction in our
  general business activity. We sell into many industries, so while
  “green” industries will be favored, we expect others (e.g., oil and gas)
  to be politically disfavored, leading to reduced investment.

Fabricated metal product manufacturing

• Our system business has slowed, while our shop work is very
  strong. We usually see large system work hold or decline in an election
  year.

Food manufacturing

• Now that the Federal Reserve has started to lower interest rates,
  I feel better about the overall direction of the economy. After the
  presidential election, we will have a clearer perspective of what to
  expect in the next six to 18 months. Now, what will happen with oil and
  the Middle East?
• Interest rates coming down is having a positive impact on capital expenditure and interest payments.

Machinery manufacturing

• Business remains slow, which will hopefully change after the election.
• The reality of a Democrat victory is disconcerting for our
  customer base who have a legitimate fear of declining business
  conditions going forward. That jeopardizes our forecast and
  opportunities for success. It’s been quite a while since our customers’
  sentiment has been this negative.

Nonmetallic mineral product manufacturing

• Improvements are only due to a new product line introduced. We have not seen any business or industry improvements.

Paper manufacturing

• We saw a slight uptick in activity from last month. This was before the interest rate movement.

Primary metal manufacturing

• We are using capital expenditures to add new product offerings to
  offset dwindling legacy product. Oil and gas product demand is
  shrinking.
• All of the major markets we sell into continue to trend downward. That includes transportation and building/construction.

Printing and related support activities

• September will be slower with less billing than August, which is a
  drag as it’s the last month of this fiscal year. We have been feeling
  the slowness in estimating for a couple of months, and now we are
  seeing the results. We are optimistic that six months from now we will
  see better times, especially after the election.

Transportation equipment manufacturing

• The outlook is totally controlled by the November election.
• We are seeing constraint from large customers being practiced,
  [with them] only ordering what’s needed immediately, not providing
  forecasts and not sharing insight. Major customers have been impacted
  by cyberattacks and ransomware incidents, shutting down operations in
  August and September.
• We are tied to the trucking/transportation industry. The market
  continues to soften, with fleets holding onto cash. All other suppliers
  to the market are seeing the same thing. Overall, the market is down
  50 percent year over year.

This article was written by Adam Button at www.forexlive.com.

Gold is a laggard today, falling $27 to $2630.

It’s only a 1% drop and comes after a massive rally but it’s worth considering gold right now in light of what’s happening in China.

I’ve made this point a couple times in the past week or so: China has been the big buyer of gold this year. The central bank stopped buying in May (at least officially) but the torch was quickly picked up by retail. Gold volumes in China have been soaring.

When I wrote about the very simple case for buying gold in August, the basis of the trade was that Chinese investors had turned away from real estate and equities so gold was the winner, partly by default.

With the stimulus news last week and the huge equity rally, that could change. So do the people who have bought gold sell it and buy equities or real estate instead? I think there is plenty of money on the sidelines that could boost both and it’s not just China buying gold but it’s a point worth considering.

The good news for gold bulls is that the seasonals run very strong from November through January so any dip might be a buying opportunity, but I think it’s worth waiting for a larger dip than this one.

This article was written by Adam Button at www.forexlive.com.

The major US stock indices are trading mixed to start the weekend and the third quarter.

The snapshot of the market 10 minutes into the open is showing:

• Dow industrial average -194.71 points or -0.46% at 14 118129
• S&P index -4.54 points or -0.08% at 5733.63
• NASDAQ index +27.93 points or 0.15% at 18147.52

The small-cap Russell 2000 is trading down -4.93 points or -0.22% at 2219.77

For the third quarter, the major indices are all higher:

• Dow industrial average +7.7%
• S&P index up 4.98%
• NASDAQ index up 2.29%
• Russell 2000 up 8.50%

This article was written by Greg Michalowski at www.forexlive.com.

• Will increase loan placement for ‘white list’ projects, met reasonable financing needs of real estate projects

This isn’t much but it’s another note highlighting that China is trying to turn on the growth taps. It’s another excuse to look at the insane chart of the Shanghai Composite, which rose another 8% today.

This article was written by Adam Button at www.forexlive.com.

There are reports of long lines as Chinese brokerages as stock market fever quickly grabs China. The moves have been epic, including another 8% rally in the Shanghai Composite today.

The early verdict from the stock market reaction seems to say that the government has found the right combination of monetary and fiscal stimulus. With China, you never really know but I would have loved to see more on the fiscal side.

What makes this stock move less-convincing than usual is this chart:

I talked about this chart extensively in last week’s webinar and there is a big short squeeze ongoing here, that’s exaggerated the moves.

The thing is, rallies from major bottoms always start with violent short squeezes. So there is no dismissing it out of hand, but it should soon morph into a normal bull market with the usual pullbacks and whatnot.

What could could that for a few weeks is the Chinese calendar. Chinese markets are closed for the remainder of the week so we will have to watch US ETFs as a sign of what’s to come. I wouldn’t say those are particularly good at highlighting what’s coming though and I imagine there will be a buzz building domestically in China for markets to reopen. That could create some real drama next Monday.

Finally, here are a pair of charts that make a better case that we’re early cycle in the global growth trade:

1) Caterpillar shares hit an all-time high (weekly chart)

2) AUD/USD rises to the highest since Feb 2023 (daily chart)

This article was written by Adam Button at www.forexlive.com.

Americans are cleaning up from Hurricane Helene and it looks like it will be a long rebuilding effort in some parts of the country. The respite might be short for hurricane watchers as a late-starting hurricane season looks like it stay busy.

There are a couple of harmless storms turning north in the mid-atlantic but there are also a pair of disturbances worth watching. One is just off central American and the other just off Africa but both are on a track that could bring them into the Caribbean.

The percentages on the chart show the possibility of turning into a tropical depression (or more) over the next week.

This article was written by Adam Button at www.forexlive.com.

Headlines:

• EUR/USD runs up to test the 1.1200 mark again
• Chinese stocks stay hot ahead of the holiday break
• Weekly update on interest rate expectations
• SNB data shows Swiss central bank was hardly active in FX markets in Q2
• SNB total sight deposits w.e. 27 September CHF 472.2 bn vs CHF 465.3 bn prior
• Germany August import price index -0.4% vs -0.3% m/m expected
• Bavaria September CPI +1.9% vs +2.1% y/y prior
• Italy September preliminary CPI +0.7% vs +0.8% y/y expected
• UK Q2 final GDP +0.5% vs +0.6% q/q prelim
• UK September Nationwide house prices +0.7% vs +0.2% m/m expected
• UK August mortgage approvals 64.86k vs 64.00k expected
• Japan incoming prime minister Ishiba proposes 27 October date for snap election

Markets:

• EUR leads, JPY lags on the day
• European equities lower; S&P 500 futures down 0.3%
• US 10-year yields up 2.2 bps to 3.771%
• Gold down 0.6% to $2,641.32
• WTI crude down 0.7% to $67.73
• Bitcoin down 3.1% to $63,780

And just like that, another month has almost come and gone. Markets are looking mixed so far today as we are just about to say goodbye to September and the third quarter of the year.

The dollar is trading more mixed on the day with some light flows keeping things interesting in European morning trade.

Chinese equities rallied strongly once more with both the Shanghai Composite and CSI 300 indices closing over 8% higher. That led to some minor gains in the antipodeans but there was no stronger follow through during the session.

The dollar gained back a little there while lost ground against the euro and pound. EUR/USD pushed up by 0.3% to once again test the 1.1200 level while GBP/USD is up 0.2% to nudge back above 1.3400.

Meanwhile, USD/JPY was up early in Asia to 142.95 but fell back to 142.00 after before keeping just a little higher around 142.55 now. That is helped by higher bond yields during the session. Both US and European yields are up even though there were softer inflation numbers out of Germany and Italy on the day.

In the equities space, there wasn’t any spillovers from China’s surging run higher. European indices are down across the board with month-end flows looking to be weighing. And US futures are also down slightly now after a more flattish showing for the most part earlier in the day.

It’s all about getting these month-end and quarter-end shenanigans out of the way, before we move on to a clean slate again in October tomorrow.

This article was written by Justin Low at www.forexlive.com.

• Prior +1.9%
• HICP +1.8% vs +1.9% y/y expected
• Prior +2.0%

The softer headline figure was more or less expected after the state readings earlier here. Core annual inflation is expected to come in at 2.7% though, just marginally lower than the 2.8% reading in August. So, there is still more work to be done there to convince of a much stronger disinflation trend in Europe’s largest economy.

This article was written by Justin Low at www.forexlive.com.