North American Summary and Highlights 19 August

North American session

The USD broke lower early in the session as the US Treasury responded to long end weakness by announcing that it will double the size of its ‘liquidity support’ buyback operations for longer dated coupons to at least $4bn from $2bn each. The operations help dealers shift off-the-run stock and while the overall size of the ops cumulative may not be massive across the quarter, the increase does add up moderately. More importantly this responsive move gives the market a sense of the Treasury being hyper sensitive to yields at these highs and still very much focused on active interventions and signaling to backstop. 

There was no significant data. FOMC minutes in the afternoon generated little FX response, but there was a modest dip in front end UST yields which had picked up while long end yields slipped on the Treasury announcement earlier. The minutes suggested that tightening might become necessary if inflation did not fall, but with importance given to inter-meeting data, which has been mostly subdued, fears of a September tightening were not revived.

EUR/USD bounced to 1.1670 from near 1.16 while USD/JPY fell to 158.15 from above 159. EUR/GBP bounced to .858 from .856 but EUR/CHF fell to .9320 from near .94 as USD/CHF fell below .80 from .81. AUD/USD picked up to .7120 from .7080 and USD/CAD fell to near 1.38 from near 1.3875.

European session

Oil prices continue to slowly leak out higher, Brent +$1 to $92, with US-Iran digging in and Trump suggesting no talks ongoing or scheduled. Refined products also still in focus, much nearer the Mar-Apr highs.

After a rough Asia regional session, equities have steadied on the morning, S&P and Nasdaq back to flat, as long end bond yields have also tempered the recent push out, JGBs 30s -5bp filling into Monday’s small gap overnight, and US30s now off the session yield lows but still 5bp off Tuesday’s highs. Lots of back-and-forth feedback between bonds and equities on show in recent sessions highlighting the sensitivities up at these post-2007 yield highs.

Trump announces a 3-day extension on the Canada tariff deadline, suggesting a deal subject to finalisation, Carney more reserved: ‘substantial progress has been made, although there is important work still to be done’. CAD proving reluctant to count chicken yet, slightly ahead of antipodeans on the day, but generally little changed and in the pack. Skew is still towards short covering outperformance if relief is eventually confirmed, particularly given recent macro recovery for Canada.

UK CPI data was largely as expected with the headline back up to 2.9% from 2.6%, as a result of the energy cap lift, though with core also inching to 2.6% from 2.5%. GBP little moved.