- Yesterday’s session on Wall Street closed with solid gains in the indices, and today Nasdaq 100 (US100) futures continued yesterday’s upward movement from the cash session. The Nasdaq 100 gained more than 2% yesterday buoyed by a 6% rebound in Nvidia shares, the S&P 500 rose more than 1%, and the DJIA was up relatively little; by 0.2%
- Yesterday’s U.S. CPI data for August came in mostly in line with expectations, with inflation falling y/y to 2.5% vs. 2.9% in July; the 0.3% monthly increase in core inflation was a minimal surprise, with markets expecting 0.2%.
- The surprise to the upside was from the shelter, which is not demand-driven. Services inflation ex shelter was the second lowest this year; also fuel prices contributed strongly to the lower reading, and the reading could be interpreted as a signal to the start of the Fed’s policy easing, starting in September, with a plenty of space for the rate cuts
- Chinese market gains were mixed; the Hang Seng rose more than 1.2% led by gains in Hong Kong-listed tech giants, but the mainland CSI index gained less than 0.2%, indicating that weak sentiment around domestic companies persists
- On the back of a rebound in the US Nasdaq 100, Japan’s Nikkei rose by more than 3%, and the Topix gained 2%. South Korea’s benchmark KOSPI also posted solid gains. In the effect, MSCI Asia-Pacific Index increased most in nearly a month, while Nikkei stopped 7-session losing skid
- The Japanese yen is losing to the dollar despite hawkish comments from Tamura of the Bank of Japan, who indicated that rates in Japan should rise to 1% by 2027, and this is likely to be the level at which the neutral interest rate currently sits
- According to Tamura, the markets are pricing in a very quiet pace of BoJ rate hikes, and if the bankers decide to do so, they will risk raising rates too quickly and will likely be forced to raise rates sharply later. Tamura is known for his hawkish stance on bank policy.
- Tamura believes that the trend of wage growth in the economy is steady, while Japanese companies are passing on more , than usual costs resulting from imports, to consumers.
- The BoJ member also stressed that the country is facing labor shortages in the labor market, creating additional inflationary pressures
- BOJ data show that the rate of growth in corporate goods prices in Japan slowed for the first time in eight months. Japan’s corporate goods prices rose 2.5% y/y in August, compared to 3.0% y/y in July.
- The USDJPY retreated nearly 600 pips, following Tamura’s comments from 142.9 to 142.3, but the move has now been erased and the pair continues its gains
- Among agricultural commodities, wheat is the strongest gainer this morning. Sentiment in the precious metals market remains upbeat, with gold gaining 0.3%. The Eurodollar is up a modest 0.04% and is trading slightly above 1.10
- Goldman Sachs CEO Solomon indicated that his baseline forecast is a 25bp US rate cut in September, as a 50bp decision could come under slightly more ‘extreme’ circumstances for the economy
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