North American Summary and Highlights 30 September
Overview - Despite softer than expected US PCE price data and stronger than expected price data in Europe, the USD ended firmer after a brief dip on the data, as upside pressure persisted on UST yields.
North American session
The USD saw an early dip on softer than expected core PCE price data but ended firmer with a dip in front end yields being erased while longer end yields pushed to fresh highs.
August core PCE prices rose by 0.2% and downward back month revisions saw yr/yr growth in July revised to 3.0% from 3.3%, where it remained in August. Q2 core PCE prices were revised to 3.3% annualized from 3.6%. August personal income rose by only 0.2%, well below a 0.9% rise in spending, but revisions to income were positive. August’s savings ratio fell to 4.1% from 4.6% but July’s was revised up significantly from 3.0%. GDP revisions were also positive, Q2 to 2.2% from 1.5% and Q1 to 2.5% from 2.1%.
The advance August goods trade deficit rose sharply to $132.6bn from $118.9bn on surging imports, and this assisted a downward adjustment to the Atlanta Fed’s GDP now estimate for Q3 to 3.7% from 5.0%. Shortly earlier September’s ADP employment report came in stronger than expected with a rise of 90k, while later September’s Chicago PMI bounced to 58.8 from 47.1.
USD/JPY dipped below 157 on the data before rebounding to 157.35. EUR/USD returned to its lows near 1.1330 after bouncing to 1.1375. EUR/GBP is sifter near .8540. USD/CAD bounced to 1.4230 after slipping to 1.4160 while AUD/USD slipped below .6950 after nudging above .6980.
European session
Period end (FY-half) demand lifts the yen overnight, with a USD/JPY low of 156.35, and new lows on crosses, dropping through the Tokyo fix, before paring. Pair back to 157, where options expiries are today.
Australia CPI comes in below market, trimmed mean 0.2% vs mkt 0.3%, albeit 3.6%y/y as expected. Goes with the grain of the corrective tone continuing through the RBA, AUD/NZD off 40-50 ticks.
UK Q2 GDP revised up to 0.5%q/q from 0.4%, and 1.4%y/y from 1.2%, bolstered by strong business investment. Sterling continues to try and base out, cable up 30 ticks. EUR/GBP easing back further from the failed 0.86 test, back to 0.8550~.
Eurozone national inflation figures continue to come in strong. France up to 3.4% vs mkt 3.1%, Italy 4.1% from 3.2% vs mkt 3.8%, German state figures typically accelerating by 0.3 to 0.5pp, a sharper pick up than the consensus for the national CPI figure which later picked up to 3.3% from 2.9% versus consensus of 3.1%, with HICP matching the CPI. ECB Oct odds nudge back to around 40%, albeit with Lagarde’s earlier week ‘measured response’ comments still tending to keep the market leaning to Dec.