The firm says that hedge funds have dropped short trades on US regional banks as of the end of August and instead have now turned bullish on the broader US financial sector in general. The note is from Goldman’s prime brokerage desk, which serves hedge funds, and says that US financial services companies – including banks – were among the most sought-after stocks last week.

Meanwhile, they find that the ratio of long trades compared with short positions on US regional banks has risen by 26% since the low of the year at around mid-July.

This article was written by Justin Low at www.forexlive.com.

UPCOMING EVENTS:

• Monday: US
  and Canada Holiday.
• Tuesday: China
  Caixin Services PMI, RBA Policy Decision.
• Wednesday:
  Eurozone Retail Sales, US ISM Services PMI, BoC Policy Decision.
• Thursday: China
  Imports/Exports data, Switzerland Unemployment Rate, US Jobless Claims.
• Friday: Japan
  Wage data, Canada Jobs Report.

Tuesday

The RBA is expected to keep the cash rate
unchanged at 4.10% as the economic data heading into the meeting surprised
to the downside. In fact, the jobs
report showed a jump in the unemployment rate (although still within the
1-year range), the wages
and the inflation
data missed expectations, and the PMIs
remain in contraction.

Wednesday

The US ISM Services PMI is expected to
tick lower to 52.5 vs. 52.7 prior. The S&P
Global US Services PMI released two weeks ago missed expectations by a big
margin and the comments from the Chief Business Economist do not look rosy on
the outlook as he stated that: “A near-stalling of business activity in
August raises doubts over the strength of US economic growth in the third
quarter. The survey shows that the service sector-led acceleration of growth
in the second quarter has faded”.

The BoC is expected to keep rates unchanged
at 5.00%, although there’s a good chance that they decide to raise rates by 25
bps. In fact, the Canadian underlying inflation measures, which is what the
central bank is currently focusing on, beat expectations in the latest inflation
report, while the labour
market report showed a big jump in average hourly earnings, although it was
accompanied by another increase in the unemployment rate. The BoC might even want
to skip this meeting and see more data before deciding whether another rate hike is needed.

Thursday

The US Jobless Claims remains a key labour
market report as the Fed and the Market are particularly focused on the jobs
data. Last week, we saw a beat in Initial Claims but a miss in Continuing Claims,
which lag Initial Claims by a week and show how fast people are able to secure
jobs after getting unemployed. The consensus this week sees Initial Claims at
235K vs. 228K prior and Continuing Claims at 1715K vs. 1725K prior.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Week Ahead 4th-8th September

• Mon: US & Canadian Labour Day; German Trade (Jul), Swiss GDP (Q2), EZ Sentix (Sep)
• Tue: RBA Policy Announcement; Final Composite & Services PMIs (Aug), EZ Producer Prices (Jul), US Factory Orders (Jul)
• Wed: BoC Policy Announcement; German Industrial Orders (Jul), EZ & UK Construction PMIs (Aug), US ISM Services PMI (Aug), Canadian Trade Balance (Jul
• Thu: Chinese Trade Balance (Aug), Swiss Unemployment (Aug), German Industrial Output (Jul), EZ Final Employment & Revised GDP (Q2), US IJC (w/e 28th Aug)
• Fri: Japanese Revised GDP (Q2), German Final CPI (Aug), Canadian Labour Market Report (Aug)

NOTE: Previews are listed in day order

RBA Announcement (Tue): The RBA is expected to maintain its Cash Rate Target at 4.10% at its September meeting, a view reinforced by 24 out of 29 respondents polled via Reuters. The consensus is also backed by market pricing (ASX 30-Day Interbank Cash Rate Futures) showing an 86% chance of a hold and only 14% probability of a 25bps rate hike. Data conforms with a hold as well, with Aussie July CPI printing sub-5% at 4.9% vs. Exp. 5.2% (Prev. 5.4%), and in turn tilting pricing a touch more dovish. Labour market metrics were also cooler than expected – Unemployment Rate printed at 3.7% vs. Exp. 3.6% (Prev. 3.5%) and Employment at -14.6k vs. Exp. 15.0k (Prev. 32.6k). Whilst a rate hold is widely expected, the RBA is unlikely to declare victory on inflation, but with a marked cooling in the monthly figures, it will be interesting to see whether the Governor will reiterate that “some further tightening of monetary policy may be required”. Analysts at ING “expect the RBA to hold rates while looking for more signs that inflation is under control.”

BoC Announcement (Wed): The consensus view is for the BoC to hold rates at 5.00%, according to a Reuters poll, and ahead, economists generally expect the Bank to keep rates at current levels up to the end of March 2024. Some still see risks that rates could be lifted, given that inflation rose by more than expected in July, while the housing market has recently shown some signs of a revival; a minority of those polled look for a 25bps rate hike. However, analysts note that the Canadian economy is expected to slow as the impact of previous rate rises continue to filter through, and the rise in joblessness also gives the BoC scope to stand pat on policy. Furthermore, it might be more prudent for the central bank to wait until October to make any tweaks to policy since it will have two further sets of jobs and inflation data to consider before that meeting.

US ISM Services PMI (Wed): Analysts expect the Services ISM will be little changed in August, with the consensus expecting 52.6 from 52.7, according to Refinitiv. As a comparison, S&P Global’s flash PMI noted that US Services Business Activity eased to a six-month low of 51.0 in August (vs 52.3 July), as high interest rates and inflationary pressures were seen to have weighed on customer spending. „A near-stalling of business activity in August raises doubts over the strength of US economic growth in Q3,“ S&P Global wrote, „the survey shows that the service sector-led acceleration of growth in Q2 has faded.“ S&P also said that companies were warning that demand was looking increasingly lethargic in the face of high prices and rising interest rates, adding that a resultant fall in new orders received by firms in August could tip output into contraction in September as firms adjust operating capacity in line with the deteriorating demand environment.“ On inflation, S&P said that „rising wage pressures as well as increased energy prices have meanwhile pushed input cost inflation higher, which will raise concerns over the stickiness of consumer price inflation in the months ahead,“ but said that one upside was that „weak demand is starting to limit pricing power, which should help keep a lid on inflation around the 3% mark.“

Chinese Trade Balance (Thu): The Chinese trade figures will be closely watched for a diagnosis of foreign and domestic demand. Last month’s release painted a grim picture of the health of the Chinese economy, with imports and exports falling faster than expected, and the latter seeing the steepest fall since the onset of COVID-19 in February 2020. There are currently no expectations for next week’s release. In terms of the July data, Exports printed at -14.5% vs. Exp. -12.5% (Prev. -12.4%), while Imports came in at -12.4% vs. Exp. -5.0% (Prev. -6.8%). Since then, China has unleashed a slew of stimulus measures to help bolster domestic demand, alongside the unveiling of property and stock market support. The desk at ING suggests “For the export side, weakness in global demand is likely to continue to weigh heavily. For imports, domestic demand has not shown any meaningful signs of improvement, so they are also likely to remain weak.”

OPEC+ (Tbc): Russia announced that OPEC+ will unveil the “new main parameters” of the supply deal next week. The next official JMMC meeting is slated for 4th October and the 36th Ministerial meeting is due on 26th November 2023, according to the OPEC+ statements. Russian Deputy PM Novak, the de-facto oil head of the nation, said Russia may extend its September export reduction (300k BPD) into October. Desks also expect Saudi to further extend its voluntary 1mln BPD support curb into October, with the Bloomberg poll suggesting 20 out of 25 traders expect an extension of at least one month. Bloomberg also suggests several OPEC delegates have privately predicted an extension by Saudi. Earlier this month, Saudi warned it could extend and deepen the cuts. That being said, it is not clear which parameters could be revealed, whilst the timing of the announcement is also not known at this point.

This article originally appeared on Newsquawk.

This article was written by Newsquawk Analysis at www.forexlive.com.

• US August non-farm payrolls +187K vs +170K expected
• US August ISM manufacturing PMI 47.6 vs 47.0 expected
• Canada Q2 GDP -0.2% vs +1.2% expected
• Baker Hughes US oil rig count unchanged this week
• Atlanta Fed GDPNow steady at 5.6% after ISM manufacturing report
• US July construction spending +0.7% vs +0.5% expected
• Fed’s Mester: Inflation still too high, but sees progress
• US August final S&P Global manufacturing PMI 47.9 vs 47.0 prelim
• Canada August S&P Global PMI 48.0 vs 49.6 prior

Markets:

• Gold flat at $1940
• US 10-year yields up 8.8 bps to 4.18%
• WTI crude oil up $2.25 to $85.88
• S&P 500 up 0.1%
• USD leads, CAD lags

The initial market reaction to the non-farm payrolls report was about what you would expect — USD selling, bonds bid — but then it got complicated. The initial moves reversed and bonds sold off, leading to a strong bid in the US dollar. The moves grew increasingly aggressive with USD/JPY slumping to 144.45 then soaring to 146.16 — nearly 180 pips.

The dollar roared elsewhere as well with EUR/USD tumbling to levels just above the August lows. That wiped out what had been a promising rally this week for the euro bulls.

Cable rose to 1.2713 on the US jobs report then dropped 1.2580 before trading sideways into the US long weekend.

The only currency with a relatively straightforward move was CAD as a poor GDP report sank the loonie initially and then USD strength did the rest. The result was a 90-pip rise in USD/CAD to 1.3600, also wiping out some decent progress that had been made earlier in the week.

The big question left to answer is: Why the sudden jump in bond yields on what was a dovish jobs report? Some pointed to modest strength in the ISM survey along with the energy price rise but that’s hardly compelling. Other talk centers around rate lock selling and I can’t help but wonder if Chinese bond sellers were looking for liquidity. There isn’t an easy answer and the long weekend along with the turn of the calendar were also cited.

The lack of a clear explanation puts the US dollar rally on a shaky foundation. We’ll have to sort it out next week — enjoy the weekend.

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

Closing changes:

• S&P 500 +0.2%
• DJIA +0.3%
• Nasdaq Comp flat
• Russell 2000 +1.0%
• Toronto TSX Comp +1.2%

Weekly:

• S&P 500 +2.5%
• DJIA +1.4%
• Nasdaq Comp +3.2%
• Russell 2000 +3.6%
• Toronto TSX Comp +3.5%

There were some larger divergences with energy leading the way today behind a 2.0% rise in the XLE ETF. Banks were also strong to help pace the gain in the Russell 2000.

The weekly chart sets up a showdown with the July high but we’ll have to wait until Tuesday as North American markets are closed for a holiday.

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

The September dot plot is always the most-interesting one of the year because it’s the closest thing to forward guidance that the FOMC offers.

Officials are required to place a year-end dot but there are only two meetings left so it basically says what they expect to happen in the next two meetings. Now that’s far from set-in-stone but with Sept hike odds down to 7% after the non-farm payrolls report, it will offer some intrigue at the Sept 20 decision.

Here’s what the fixed income team at BMO is looking for (note that the current rate is 5.25-5.50%):

In terms of the
looming dotplot revisions, we anticipate the 2023 funds estimate will remain
unchanged at 5.6% (implying a 5.75% upper bound) and 2024 will be nudged higher
to 4.9% (signaling 75 bp of cuts next year). These expectations are relatively
consensus at present and predicated on the August CPI report confirming this
summer’s benign inflationary backdrop.

So the thinking is that the dot plot will still signal one more hike because that will be easier for Powell to walk back later than it would be if no hike was signalled and they had to later reverse course and indicate a hike.

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

Goldman Sachs maintains its recommendation for a short position in EUR/CAD with a target of 1.42 and a stop at 1.50. The rationale behind this trade is largely based on the resilience of the U.S. economy and the potential for upside in the Bank of Canada’s monetary policy.

Key Points:

• Strategic Focus: Goldman Sachs is focused on tactical, relative value opportunities that are likely to be resilient against further volatility in the U.S. dollar.

• Pair Selection: EUR/CAD is the preferred G10 currency pair for this strategy.

• Resilient U.S. Economy: The U.S. economy continues to show resilience despite various market uncertainties. This strengthens the CAD as it is closely tied to the U.S. economy due to trade relations.

• Bank of Canada’s Upside: There is scope for the Bank of Canada (BoC) to tighten its monetary policy further, which would benefit the Canadian Dollar (CAD).

• Target and Stop: The firm is targeting a move towards 1.42 in the EUR/CAD pair, with a stop at 1.50. This implies a negative view on the Euro relative to the Canadian Dollar for the period ahead.

Implications:

For Traders:

• Trade Structure: Those interested in following Goldman’s guidance might consider entering a short position in EUR/CAD, keeping an eye on the target and stop levels.

• Risk Management: Traders should be cautious of the risks involved, especially considering the various global macroeconomic factors that can affect currency valuations.

For Policymakers:

• Monetary Policy: The positioning suggests an expectation that the BoC may be more hawkish in its monetary policy compared to the European Central Bank (ECB), which may influence rate decisions.

Conclusion:

According to Goldman Sachs, the EUR/CAD pair offers a high-conviction short opportunity mainly based on the strong U.S. economy and the potential for hawkish monetary policy from the Bank of Canada. Traders interested in tactical, relative value plays might find this analysis and the subsequent trade idea valuable. However, it is crucial to consider risk factors and keep an eye on macroeconomic indicators that may affect the trade.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.

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

Monday is Labor Day in the United States and Canada so the stock, bond and futures markets will be closed while the FX market will be severely thinned. The economic calendar is bare and I wouldn’t expect too much drama.

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

Headlines:

• Major currencies subdued awaiting US jobs report
• ECB’s Villeroy: Our options are open at the next and upcoming rate meetings
• ECB’s Vujčić: We won’t know in Sept, October or even November where the terminal rate is
• BOE’s Pill: We have not seen a downturn in core inflation which would reassure us
• RBA to keep cash rate unchanged next week – poll
• China reportedly to take more action in order to try and revive property sector
• Eurozone August final manufacturing PMI 43.5 vs 43.7 prelim
• UK August final manufacturing PMI 43.0 vs 42.5 prelim
• UK August Nationwide house prices -0.8% vs -0.2% m/m prior
• Switzerland August CPI +1.6% vs +1.5% y/y expected
• Italy Q2 final GDP -0.4% vs -0.3% q/q prelim

Markets:

• JPY leads, AUD lags on the day
• European equities higher; S&P 500 futures up 0.4%
• US 10-year yields up 0.6 bps to 4.096%
• Gold up 0.2% to $1,943.79
• WTI crude up 1.1% to $84.53
• Bitcoin up 0.1% to $26,050

It was a quiet session for FX as traders are waiting on the US non-farm payrolls later today before firming up their convictions.

The dollar is steady across the board as narrow ranges prevailed during the session and in general, is trading little changed across the board now. The bond market was also in a similar mood, with traders keeping their attention on the jobs report to come.

Equities did nudge a little higher though, gradually advancing during the session. However, I’d argue the gains are tentative as investors are holding out some hopeful optimism – which may end up being dashed by the key risk event later today.

In terms of data, we got manufacturing PMIs which just solidified the notion that factory activity in the euro area continues to be stuck in a rut. And that downturn isn’t improving well enough to suggest a change in the worsening outlook ahead of Q4.

Welp. Now over to the much awaited non-farm payrolls data before the long weekend in the US.

This article was written by Justin Low at www.forexlive.com.

• 34 of 36 economists see the RBA leaving the cash rate unchanged next week
• 21 of 35 economists see the RBA hiking to 4.35% or higher by year-end
• The remaining 14 economists forecast no more rate hikes for the year

Among Australia’s „big four“, ANZ, CBA, and Westpac are not seeing any more rate hikes by the RBA for this year while NAB is the only one forecasting one more rate hike to 4.35% in November.

This article was written by Justin Low at www.forexlive.com.