• higher services prices (prices of air tickets, tourism and accommodation rose over the summer holiday season) dragged CPI up from its negative return in the previous month
• neverthelss CPI came in lower than the surveyed consensus of expectations from economists
• food prices fell 1.7% y/y in the month, the same as in July
• nonfood prices +0.5% y/y

China’s core CPI excludes volatile food and energy prices, it jumped 0.8% y/y in August

• prior also +0.8% y/y in July

These numbers, while they overall differ from the consensus are still not much of a surprise. Officially reported inflation numbers are not high and not a concern for the People’s Bank of China. If the Bank wishes to ease policy further inflation rates won’t stand in the way.

The next MLF is due on the 15th, the LPR setting follows on the 20th.

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The PBOC’s MLF rate is a benchmark interest rate that banks in China can use to borrow funds from the People’s Bank of China for a period of 6 months to 1 year, medium-term liquidity to commercial banks.

The rate is typically announced on the 15th of each month.

The interest rate on the MLF loans is typically higher than the benchmark lending rate (more on these below), which encourages banks to use the facility only when they face a shortage of funds.

MLF loans are secured by collateral, which can be a wide range of assets including bonds, stocks, and other financial instruments. The collateral ensures that the PBOC can recover the funds if the borrower defaults on the loan.

The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting.

Current LPR rates are:

• 3.45% for the one year
• 4.20% for the five year

The PBOC’s Loan Prime Rate (LPR)

• It is an interest rate benchmark used in China, set by the People’s Bank of China each month. While set on the 20th, any new LPR takes effect on the first day of the following month.
• The LPR serves as a reference rate for banks when they determine the interest rates for (primarily new) loans issued to their customers.
• Its calculated based on the interest rates that a panel of 18 selected commercial banks in China submit daily to the PBOC.
  • The panel consists of both domestic and foreign banks, with different weights assigned to each bank’s contributions based on their size and importance in the Chinese financial system.
  • The LPR is based on the average rates submitted by these panel banks, with the highest and lowest rates excluded to reduce volatility and manipulation. The remaining rates are then ranked, and the median rate becomes the LPR.

This article was written by Eamonn Sheridan at www.forexlive.com.

• Canada August employment +39.9K vs +15.0K expected
• US July wholesale sales +0.8% vs -0.2% expected
• US July consumer credit outstanding +10.4B vs +16.0B expected
• US household net worth rises to record $154.28 trillion – Fed
• ECB rate hike odds rise to 38% as talk of a hawkish push continues
• Fed’s Barr says ‚a long way‘ from a central bank digital currency
• Manheim August used vehicle index +0.2% m/m
• Baker Hughes US oil rig count 513 vs 512 prior

Markets:

• Gold flat at $1918
• US 10-year yields flat at 4.26%
• WTI crude oil down 48-cents to $87.35
• S&P 500 up 0.2%
• CAD leads, JPY lags

The euro ends the day flat but it certainly wasn’t quiet as some hawkish ECB sources reports ahead of next week’s meeting, along with some lumpy flows led to a sharp rise to 1.0740 from 1.0700. However that was countered by a selloff in Treasuries later and the move fully retraced as USD steadily after Europe dropped off.

Earlier, the yuan fell to a 10-month low and that may have been behind some of the USD buying. The idea is that China may let the yuan go to boost manufacturing, knocking out one source of USD selling.

USD/JPY steadily rose throughout the day, hitting a session high of 147.86 late on rising yields. That was right in line with the highs of the past two days so there’s some resistance forming ahead of 148.00.

Cable tried to make a move above 1.2500 but was quickly beaten back down and finished 40 pips below the figure.

The biggest headline of the day came from Canada, which posted an upside surprise in the jobs department. CAD had fallen to the lowest since March yesterday but came back strongly on the headline in a 50 pip move. Later some of that was pared as the dollar strengthened broadly but the loonie still managed to hang onto some gains.

The pop in CAD initially spread to AUD and NZD in a sign of a thin market but those moves later reversed and both slumped in NY trade.

The Fed blackout starts at midnight so that takes away one source of uncertainty next week but the ECB decision is building up to be a big one. I don’t think anyone in Frankfurt knows how it’s going to go.

Greg will be back late next week; have a great weekend.

This article was written by Adam Button at www.forexlive.com.

Closing changes:

• S&P 500 +0.1%
• Nasdaq Comp +0.1%
• Russell 2000 -0.3%
• DJIA +0.2%
• Toronto TSX Comp -0.3%

This week was a dud. Summer isn’t over yet.

This article was written by Adam Button at www.forexlive.com.

Shares of TSLA are down 1.3% after earlier rising while shares of NVDA and Boeing are also a drag.

In any case, the range today is narrow and it’s an inside week. Sometimes you get fireworks in the first week of September but not always.

This article was written by Adam Button at www.forexlive.com.

• Prior was +17.85B (revised to +14.02B)

This article was written by Adam Button at www.forexlive.com.