Eyes on PMI data for some clarity on global economies.

Headlines

* US Treasury yields pull back after hitting 16-year high on rate outlook fears

* Markets dial back expected Fed rate cuts as recession risks ease

* Dollar hovers near two-month high, as yields climb further   

* Asian stocks mixed as China rebound fizzles out

* Oil holds two-day loss on demand woes before US stockpile data

FX: USD remained firm making fresh nine-week highs at 103.71. The June and July top is at 103.54/57. The 10-year yield made new highs at 4.36%. It has pulled back to 4.30% this morning. That peak was last seen in November 2007. The 2-year yield advanced for a third day in a row trading above 5%. The year-to-date high is at 5.11%. Higher yields are generally seen as a headwind for (tech) stocks and gold.

EUR rose to 1.0930 before plummeting to a new cycle low at 1.0832. European yields fell whereas US yields remained steady.

GBP popped up to 1.28 before closing lower at 1.2732. The 50-day SMA is at 1.2796. UK data indicated that July finances were in better-than-expected shape. Government borrowing so far in the fiscal year was lower than forecast. This could allow it to offer some tax cuts in the November Autumn Statement.

USD/JPY traded in a relatively narrow range. The major settled at 145.88. US-Japan long-term yield differentials marginally narrowed.

AUD is bid for a third day on a technical rebound. A much firmer-than-expected CNY reference rate helped. USD/CAD continued to consolidate near recent highs above 1.35.

Stocks: US equities ended mixed. The benchmark S&P 500 lost 0.28% to close at 4387. The tech-heavy Nasdaq slipped 0.19% finishing at 14,908. The Dow finished down 0.51% at 34,288. Banks led the declines as investors assessed recent ratings downgrades. S&P lowered ratings on five regional banks late Monday citing tough operating conditions. Weak earnings from US retailers also weighed. Nvidia reports after the US close tonight.

 Asian stocks traded mixed and rangebound amid a slew of earnings. Chinese stocks were indecisive as investors awaited results from China’s big banks.  The Nikkei 225 upside was capped by the 32k level after mixed PMI data.

US equity futures rebounded and are in the green. European equity futures pointing higher (+0.1%). The Euro Stoxx 50 closed up 0.8% yesterday.

Gold is moving higher for a third day this morning. It remains below the 200-day SMA now at $1908. Easing Treasury yields have helped. Fed Chair Powell is expected to have a slightly hawkish leaning tone in his Jackson Hole speech. If he highlights concerns around the banking sector or economic momentum, then gold could catch a bid.

Day Ahead- PMIs to grab the spotlight

We get Augst flash PMIs for the euro zone, as well as the UK and US today. They will provide further input on how activity levels are developing through this quarter. Expectations are for euro zone manufacturing PMI to slip to 42.4 from 42.7. Services is forecast to fall to 50.4 from 50.9, leaving the composite at 48.4 from the prior 48.6. Focus will be on whether the services sector follows manufacturing into contraction territory. That would mean it dips below 50. This is a major concern with Germany, the region’s economic engine, now again being labelled as the “sick man of Europe”.

From a policy perspective, a soft release will likely add to fears over the euro zone’s growth prospects. That potentially sees a bit of an unwind in bets for a September hike by the ECB. These are currently around 50/50. However, markets will likely turn towards the August 31 release of flash Eurozone CPI data before further cementing calls over what to expect next month.

Chart of the Day – EUR/USD pointing lower

There’s a slightly negative look to the chart of the world’s most popular major currency pair. The pair has undergone three corrections this year. This has largely been due to heavy one-way positioning. The previous ones saw falls of between 4 and 5%. The current drop from the high at 1.1275 in July is nearing 4%. We note consensus end-of-year forecasts are still around 1.12.

Yesterday, gains stalled again around the 100-day SMA at 1.0928. Last week’s low at 1.0844 then got taken out. The July and June lows around 1.0833/35 reinforce this support zone. If we lose this, then the 200-day SMA sits below at 1.0797. Better-than -expected PMIs would shift the dial for a rate hike. But any reversal needs to get above 1.0928 to slow the downtrend.