Weekly FX Market Recap: Aug. 29 – Sept. 2, 2022

With the turn of the month, the economic calendar was heavy inflation, employment, and growth updates this week. Inflation concerns and central bank moves remained the dominant themes, with the euro taking the lead among the forex majors as European Central Bank hawkishness grew.

Notable News & Economic Updates:

The EIA reported on Wednesday that U.S. oil inventories fell by 3.3M bbl in the previous week, below analysts forecast of -400K bbl

ECB’s Villeroy de Galhau said that a “significant” rate hike is needed in September and a return to neutral (around 1% – 2%) by the end of the year.

Fed’s Mester sees benchmark rate above 4% and no cuts at least through 2023

On Wednesday, China’s Shenzhen enters new four-day lockdown over COVID-19 outbreak

China August Manufacturing PMI 49.4 (exp 49.2) & Non-manufacturing 52.6 (exp 52.2)

China Markit Manufacturing PMI falls into contractionary conditions: 49.5 in August vs. 50.2 forecast

On Friday, the U.S. called Iran’s latest response to the nuclear negotiations a non-encouraging and a step backwards

U.S. Non-Farm Payrolls came in just above expectations, unemployment rate ticked higher to 3.7% in August as more return to the workforce

J.P.Morgan Global manufacturing PMI fell to 50.3 in August (a 26-month low) vs. 51.1 in July; Price growth slowed while employment remained stable.

Intermarket Weekly Recap

We got a very busy economic calendar for the week, filled with fresh (and somewhat mixed) updates on global inflation, employment, and growth conditions.

On the front end of the week, the main market theme seems to have been a continuation of pricing in risk aversion and higher interest rate expectations, which was originally sparked by last Friday’s hawkish speech from Fed Chair Powell from Jackson Hole.

We also likely had traders pricing in concerns with China’s economy, likely on renewed COVID concerns and signaled by weakness in the yuan, so much so that the People’s Bank of China had to set its fixing stronger than expected to stem yuan weakness. These concerns were later flamed with Chinese manufacturing PMI updates that signaled contractionary conditions and headline that Shenzhen (the world’s largest electronics market) would be shut down for four days.

Inflation concerns, as usual, was a very strong theme and we got plenty of updates from around the world that high prices are here to stay for now.  Most notable was the 9.1% y/y read from the Euro area thanks to the sharp rise in energy prices, although there were price updates from various PMI reports that prices may be stabilizing.

Overall, though, the continued outlook of high prices once again resulted in another strong week for bond yields,  with the U.S. 10-year yield breaking previous week levels to touch the 3.27% level.  This of course likely supported sentiment that the central banks will mostly have to stay aggressive with monetary policy tightening to bring prices down, especially the Federal Reserve. This was confirmed with various commentary this week from Fed members, who pushed back on thoughts of potential cuts in 2023 and re-iterating price stability as their main focus.

Aside from inflation and PMIs, the monthly U.S. employment update was another big event this week, which showed that the net jobs change came in slightly above expectations at 315K. But more notable was that the unemployment rate ticked higher to 3.7%, likely due to a rise in labor participation rate to 62.4% vs. 62.1% in July. This seems to have been taken as a mostly positive report, giving a bit of life to risk-on assets like equities and crypto before that final dump right before the close.

In FX, the euro was the leader almost the entire way, likely driven by a ramp up in rhetoric from European Central Bank officials that a strong rate hike is needed in September. The euro was followed by the U.S. dollar and the Canadian dollar. The biggest loser was the the Japanese yen (likely due to the BOJ’s continue easy policy stance), followed by the British pound who has seen bearish pressure pick up due to rising odds of a recession ahead (sentiment sparked by a very weak PMI report from the U.K. this week).

USD Pairs

S&P Home Prices Index rose by 18% y/y in June vs. 19.9% in May

U.S. consumer confidence index jumped to 103.2 in August vs. 95.3 July

Federal Reserve Bank of New York President Williams pushed back on market expectations of a rate cut next year

Chicago PMI for August: 52.2 from 52.1 in July

ADP payrolls report showed that employment grew by 132K in August vs. +268K in July

U.S. jobless claims totaled a seasonally adjusted 232K for the week ended Aug. 27 vs. 250K forecast and 237K previous

Federal Reserve Bank of Dallas President Lorie Logan say number one priority is price stability

U.S. Challenger job cuts fell 21% m/m in August, but up 30% y/y

ISM Manufacturing PMI for August: 52.8 vs. 52.8 in July; New orders Index: +3.3 to 51.3; Prices Index: -7.5 to 52.5; Employment Index: +4.3 to 54.2

The U.S. added a net 315K (vs. 526K previous) jobs and unemployment rate ticks higher to 3.7% as more workers join labor force

U.S. Factory orders fell by -1.0% to $548B in July

GBP Pairs

The Bank of England said UK credit card debt grew by 13% m/m, the highest rate since 2005. Mortgage interest rates jump to the highest level since 2015

U.K. Mortgage Approvals in July increased to 63.7K vs. 63.1K in June, both below the pre-pandemic average of 66.8K

U.K. Manufacturing PMI for August: 47.3 vs. 52.1 in July, new orders and business indexes contracting sharply

U.K. house prices rose by +0.8% in August vs. +0.2% in July – Nationwide

EUR Pairs

Governing Council member Martins Kazaks said that the ECB needs a ‘resolute’ hike of at least 50 bps

ECB Governing Council member Olli Rehn said that that it’s important to continue a consistent and orderly normalization of monetary policy

The European Union is ahead of schedule as it nears its goal to fill up to 80% of its gas storage reserves by November.

Euro Area Flash CPI: +9.1% y/y in August vs. +8.9% previous

Germany unemployment rate increased in August to 5.5%, a one-year high

Germany import price index for July: +1.4% m/m vs. +1.5% m/m forecast; +28.9% y/y

S&P Global Eurozone Manufacturing PMI: 49.6 in August vs. 49.8 in July; price pressures continue to subside

Germany manufacturing PMI for August: 49.1 vs. 49.3 in July; the downturn in new orders remains sharp; price pressures continue to improve

Eurozone producer price inflation was 37.9% y/y in July, a new record high. June was revised higher to 36% from 35.8%

Germany Trade Balance in July: 5.4B euros vs. 6.2B euros previous

CHF Pairs

Swiss KOF economic barometer dropped from 90.5 to 86.5 in August, below 88.3 consensus

procure.ch Swiss PMI for August: 56.4 vs. 58.0 in July

Swiss retail sales in July: +2.6% y/y vs. a downwardly revised +0.7% y/y in June 2022

CAD Pairs

Canada’s current account surplus Q2 2022: $2.7B surplus, below $6.9B forecast

Canada GDP for Q2 2022: +3.3% y/y vs. 4.0% BOC expectations & 4.4% market forecasts

Canada building permits in July: -6.6% m/m vs. -0.6% m/m in June; lead by a fall of -8.6% in the residential sector

Canada’s manufacturing PMI dropped to 52.5 to 48.7 vs. 53.6 expected in August

Canadian labor productivity rose by 0.2% q/q in Q2 2022, the first rise in seven quarters

NZD Pairs

NZ new housing consents jump back up from -2.2% to 5% in July

NZ ANZ business confidence improves from -56.7 to -47.8

New Zealand Overseas Trade Index for Q2 2022: -2.4% q/q vs. 0.6% q/q previous

AUD Pairs

Australia’s retail sales up by 1.3% in July, the fastest in four months

Australian building approvals slumped by 17.2% vs. projected 3.1% decline

Australia Private Sector Credit: +0.7 m/m in July vs. +0.9% m/m in June

Australia’s AIG manufacturing index slipped from 52.5 to 49.3

S&P Global Australia Manufacturing PMI for August: 53.8 vs. 55.7 in July

JPY Pairs

Bank of Japan Kuroda re-iterated that high prices are caused by commodities and will be transitory, needs to maintain easy monetary policy

Japanese unemployment rate unchanged at 2.6% as expected

Japanese consumer confidence improves from 30.2 to 32.5 in August

Japan Housing Starts: -5.4% y/y in July vs. -2.2% y/y previous

Japan Finance Minister Suzuki says the government is prepared to take action to stabilize yen

This post first appeared on babypips.com