September 26, 2024

“A big list of US data comes this afternoon alongside an enormous number of central bank speakers that will keep traders busy today. In Europe, the Swiss National Bank’s 25bp rate cut came with some strong concerns about the franc’s strength, meaning that there may soon be some key developments on the intervention side.”

Sam Cornford – Head of Trading

USD

The dollar index rose nearly 0.7% without an obvious catalyst yesterday, particularly after New York traders came online in the afternoon. Some combination of rising yields at the long end, quarter-end rebalancing, and better-than-expected August home sales was likely behind the move, but this upward momentum appears to have fizzled out already this morning. There is a lot to watch out for this afternoon, beginning with the third and final Q2 GDP estimate, durable goods orders, and unemployment claims at the US open. Durable goods orders are a good proxy for capex, but it’s a notoriously volatile data point and July’s 9.8% gain is expected to turn into a 2.7% contraction. Jobless claims have mysteriously returned to the 210-220k since a period of considerable cooling a few months back, and that does hint that layoffs are not yet picking up. There is also a cacophony of Fed speak that includes speeches from Collins, Kugler, Bowman, Powell, Williams, Barr, Kashkari, and Cook. The main thing that has become clear from rhetoric so far this week is that there is certainly no unanimity about the path forward. Bowman wants to be gradual and Bostic cautioned against a ‘mad dash’, but Goolsbee warned that the Fed cannot risk being behind the curve.

CHF

The Swiss National Bank cut rates by a further 25bps to 1.00% this morning whilst also significantly reducing its inflation forecasts across the entire horizon. Inflation is now expected to be at 1.2% this year, 0.6% in 2025, and 0.7% in 2026. It put the blame for the significant decrease in inflationary pressure firmly on the franc’s recent appreciation, and it also raised concerns that this was weighing on the Swiss economy. But there was no new language hinting at market intervention, retaining its stance that it would intervene if necessary. With other central banks beginning to cut rates at a much quicker pace, however, risks are growing that the SNB once again becomes an important driver for the franc. The market is expecting another two rate cuts at the next two meetings, which would take the policy rate to 0.50%.

GBP

The pound has cooled to half a percentage point below its two-and-a-half year high against the rising dollar from early yesterday morning. A speech on the high-save, low-spend UK consumer from BoE hawk Megan Greene was the only domestic event yesterday, where she argued that ‘a cautious, steady-as-she-goes approach to monetary policy easing is appropriate’. Of course, that sort of rhetoric is exactly why sterling has been smashing through levels not seen since 2022 this week.

EUR

The euro’s China policy boost faded way and its return to 1.12 was particularly brief yesterday. It seems strange to be talking about a one-month high in EUR/USD at the same time that the growth outlook is deteriorating so rapidly in the eurozone, and it is more indicative of a broad dollar decline rather than any domestic strength. There is growing discussion about whether the ECB will truly be able to keep up its cautious, quarterly pace of rate cuts for long, and a Reuters report this morning points out that the inflation swaps market is currently pricing sub-2% price growth next year given the weak consumption outlook. Pricing for an October rate cut has moved from 25% to 68% in less than a week, despite several ECB policymakers arguing that the probability was near zero. The September CPI inflation data begins to roll out tomorrow morning with the French and Spanish data, both of which are expected to cool significantly.

Markets

Western stocks broadly fell as the boost to optimism on global growth from Chinese stimulus faded, but there was no pass through into Asian markets overnight, which shot higher. Japan’s Nikkei 225 rose 2.8%, at least in part because of a continued rebound in USD/JPY. And a 3% surge in Hong Kong’s Hang Seng Index dragged up the two-week gain to 15%. In the commodities world, gold touched a fresh record high as bets on further half-point Fed cuts inched up once more, and oil has settled at around $73 now that concerns about Libyan supply troubles have cooled.

Main Economic Events (All Times CET)

8:00am: German GfK Consumer Confidence
9:30am: Swiss National Bank Rate Decision
2:30pm: US Final Q2 GDP q/q
2:30pm: US Durable Goods Orders
2:30pm: US Unemployment Claims
3:20pm: Fed Chair Powell gives pre-recorded speech

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