· Dollar climbs against yen as Fed's inflation shift drives yields higher
The dollar hit a two-week high against Japan’s yen on Friday, supported by U.S. bond yields, which rose on the Federal Reserve’s aggressive new strategy to lift employment and an increased tolerance for higher inflation.
Investors in Asia are also keenly awaiting a briefing from Japanese Prime Minister Shinzo Abe later in the day, as worries about his health fuelled wider concerns about his leadership and what that might mean for economic relations with the United States.
The safe-haven yen fell against the dollar, dropping 0.26% to 106.695 per dollar JPY=, its lowest since Aug. 14 and edging near this month’s low of 107.05.
Speaking at the Fed’s Jackson Hole symposium, which was held virtually this year, Chair Jerome Powell said the central bank will seek to achieve 2% inflation on average, so that periods of super-low inflation would likely be followed by an effort to lift inflation “moderately above 2% for some time,” and to ensure economic recovery and job creation.
“Since FOMC meeting in June, the treasury yields have declined and the dollar fell, but I think that will not be the case for the time being, especially after the Fed’s speech. The market is more likely to see higher treasury yields,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
The benchmark 10-year US10YT=RR yield, which rises when bond prices fall, rose to 0.7700% in Asian trade, a level unseen since June 16.
“It’s clear we saw a ‘buy the rumour, sell the fact’ play out, notably in U.S. Treasuries, which have led broad market moves,” said Chris Weston, Head of Research at brokerage Pepperstone in Melbourne.
“The move higher in Treasury yields post-Powell did promote a USD rally, although we find it flat on the day, with a mixed picture across the well-traded FX pairs.”
Following Powell’s comments, the dollar initially fell sharply against the yen and the euro, but reversed as longer-term U.S. Treasury yields bounced back to their highest levels in months.
The yen also fell against the euro EURJPY=, the Australian dollar AUDJPY= and the New Zealand dollar NZDJPY= on higher U.S. Treasury yields.
The euro changed hands at $1.18565 EUR=, after almost hitting last week’s low of $1.17545 overnight.
Against six major currencies, however, the dollar index =USD edged down 0.23% to 92.817, erasing its earlier gains.
Traders in the yen now shift their focus to Japanese Prime Abe’s news conference.
· Trump, Republicans attack Biden amid coronavirus crisis, street protests
President Donald Trump attacked Democratic rival Joe Biden in front of a large crowd on the South Lawn of the White House on Thursday, as Republicans warned of a lawless and dangerous America if Biden wins the November election.
Trailing in national opinion polls, Trump accepted his party’s nomination on the Republican National Convention’s final night with a speech asserting that a Biden victory would only worsen the crises besieging the country.
· Trump promises tariffs on companies that leave U.S. to create jobs overseas
U.S. President Donald Trump said on Thursday that if he was re-elected, his administration would impose tariffs on any company that leaves the United States to create jobs elsewhere.
Trump portrayed himself as having been willing to challenge China on trade during his speech to the party faithful and asserted his Democratic rival in the November election, Joe Biden, would not be as tough.
In May, he threatened to impose new taxes on American companies that produce goods outside the United States, another move his administration could make to push supply chains away from China and raise new trade barriers.
· Weaker German consumer morale casts some doubt on strong recovery
German consumer morale worsened heading into September, casting some doubt on whether household spending in Europe’s largest economy is powerful enough to drive a strong recovery from the COVID-19 shock, a survey showed on Friday.
The GfK institute said its consumer sentiment index, based on a survey of around 2,000 Germans, fell to -1.8 heading into September from an upwardly revised -0.2 in the previous month.
The drop followed three consecutive increases from June to August. The reading missed a Reuters forecast for a rise to 1.2.
GfK consumer expert Rolf Buerkl pointed to a recent rise in new coronavirus infections and fear of another round of lockdown measures to slow down the spread of the disease, both of which were causing uncertainty and depressing the mood.
· China's factory activity likely grew at slightly faster pace in August: Reuters poll
China’s factory activity likely expanded at a slightly faster pace in August, fuelled by rising infrastructure spending and improving global demand, a Reuters poll showed on Friday, as the Chinese economy continues to recover from the coronavirus crisis.
The official manufacturing Purchasing Manager’s Index (PMI) is expected to pick up moderately to 51.2 in August from July’s four-month high of 51.1, according to the median forecast of 16 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.*******
China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy early this year. Pent-up demand, stimulus-driven infrastructure and surprisingly resilient exports have been the main drivers propelling the rebound, but private consumption is lagging as consumers remain cautious about spending.
Profits at China’s industrial firms last month grew at the fastest pace since June 2018, official data showed on Thursday.
· Japanese Prime Minister Shinzo Abe intends to resign, reports say
Japanese Prime Minister Shinzo Abe intends to resign for health reasons, local media reported Friday.
Abe plans to step down to deal with a health problem, national broadcaster NHK reported citing sources close to the prime minister. Kyodo News also reported that Abe plans to resign, citing a source from the ruling Liberal Democratic Party.
Reuters reported that a source close to a senior party official said Abe’s resignation was “a done deal.”
CNBC has not independently confirmed the reports.
Abe had been scheduled to hold a press conference at 5 p.m. local time.
· Japan automakers post 12% slide in July global vehicle sales
Global sales at Japanese automakers slipped 12.2% in July from last year, the fifth straight month of losses, as demand for cars remains sluggish after factories and dealerships reopened following coronavirus-related lockdowns earlier this year.
The country’s seven major automakers, including Toyota Motor Corp (7203.T) and Nissan Motor Co (7201.T), sold a combined 2.01 million vehicles last month, according to Reuters calculations based on sales data released by the companies on Friday.
The decline in monthly sales has slowed significantly since a 50% drop posted in April, and compared with a 21.3% fall in June. Sales in China increased on the year for most automakers, while Toyota, the country’s biggest automaker, also saw growth in Europe.
Total global production at Japan’s seven major automakers fell 14.4% year-on-year to 1.99 million units last month, improving from a 26.1% tumble in June.
· Japan PM Abe says aims to secure coronavirus vaccine for all citizens by mid-2021
Japanese Prime Minister Shinzo Abe announced new measures to fight the coronavirus pandemic on Friday, including boosting testing capability to 200,000 tests per day and aiming to secure enough vaccines for all citizens by mid-2021.
Abe also said that Japan will allow foreigners with residence status to enter the country from the start of next month.
· South Korea stops short of toughest coronavirus measures despite case rise
South Korean authorities stopped short of shifting the country up to the highest level of social distancing measures on Friday, despite recording another triple-digit increase in daily new coronavirus cases.
Prime Minister Chung Sye-kyun instead said the government would extend the current Phase 2 social distancing, which was due to expire this weekend, for at least another week.
After using aggressive tracing and testing to contain a large outbreak earlier this year, South Korea suffered a setback this month after a church cluster spread to a political rally.
· The Korea Centers for Disease Control and Prevention (KCDC) reported 371 new coronavirus cases as of midnight Thursday, bringing the country’s total to 19,077, including 316 deaths.
· Recovery hopes dashed for India's recession-hit economy: Reuters poll
India’s deepest recession on record will linger through the rest of this year and begin to lift only in early 2021 as a rapid surge in the coronavirus spread squelches a nascent rebound in consumption and business activity, a Reuters poll showed.
The coronavirus is spreading faster in India than anywhere else in the world, with more than 3.3 million people already infected and related deaths at over 60,000. COVID-19 has kept tens of millions of people shut indoors and made many millions jobless in the world’s second most populous country.
With business activity completely stalled for the most part in the previous quarter owing to a nationwide lockdown to contain the virus’ spread, the Indian economy likely shrank 18.3% during that period, according to the August 18-27 poll of over 50 economists.
While that was slightly better than the 20.0% contraction predicted in the previous poll, it would still be the weakest rate by far since official reporting for quarterly data began in the mid-1990s.
The economy is forecast to contract 8.1% in the current quarter and 1.0% in the next - a downgrade from 6.0% and 0.3% contraction, respectively, predicted in a July 29 poll, dashing hopes of a recovery this year.
Asia’s third-largest economy is expected to grow again in the first three months of 2021, by 3.0%.
But that will still leave it down 6.0% for the fiscal year that ends in March, which would be the worst 12-month performance on record, blowing out -5.2% for calendar year 1979, during the second Iran oil crisis. That latest forecast was revised down from a median forecast of -5.1% last month.
Asked when Indian GDP would reach pre-COVID-19 levels, over 80% of economists, or 30 of 36, said it was likely to take more than a year, including nine who predicted it to take more than two years.
· India reports record daily jump of 77,266 coronavirus infections
India reported a record daily jump of 77,266 coronavirus infections on Friday, taking its total to 3.39 million, as cases surged across the country, data from the federal health ministry showed.
India has reported the highest single-day caseload in the world every day since Aug. 7, a Reuters tally showed, and is the third-most affected country behind only the United States and Brazil.
Deaths in the same period went up by 1,057, taking the total toll to 61,529.
· Oil steady as U.S. producers, refiners avoid worst of storm
Oil prices inched higher on Friday, clawing back narrow losses earlier in the session as a massive storm raced inland past the heart of the U.S. oil industry in Louisiana and Texas without causing any widespread damage to refineries.
Brent crude LCOc1 futures for October, set to expire on Friday, rose 5 cents to $45.14 a barrel as of 0628 GMT, heading for a 1.8% weekly gain. The more active November contract LCOc2 climbed 7 cents to $45.67.
U.S. West Texas Intermediate (WTI) crude CLc1 futures were up 1 cent to $43.05 a barrel. The contract is on track to rise 1.7% rise this week, for a fourth straight week of gains.
Reference: CNBC, Reuters
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