Asia overnight Further rises in UST yields and concerns about inflation and even stagflation weighed on investor sentiment in the Asian session. The approach of another interest payment on Evergrande’s debt is also weighing on sentiment. Fed Chair Jerome Powell indicated that only decent jobs growth is needed next week to trigger the Fed’s tapering of its asset purchases in November. Scenes of queues for basic necessities in the UK and newswire reports of electricity rationing in some provinces in China, have raised concerns about stagflation. Evergrande is selling a stake in a regional bank to free up cash flow. While most Asian bourses were trading in the red at the time of writing, S&P 500 futures were trading in the green. G10 FX was trading in tight ranges. Rising Covid infections in NZ led to a short squeeze in AUD/NZD. So, the AUD was the outperformer during the Asian session and the NZD the underperformer. In Japan, the LDP Presidential election will go to a second round of voting between the two lead candidates, Taro Kono and Fumio Kishida. Both candidates failed to garner a majority of votes in the first round. The JPY has been steady during the vote.
SEK: Eyes on data, but Riksbank still far from changing tone Like the EUR, the low-yielding SEK appeared less vulnerable than other G10 currencies to the hostile risk environment. We’ll keep an eye on some domestic factors possibly affecting SEK today. In particular, September’s Economic Tendency Survey, which will be released along with consumer confidence data. Like in the eurozone, it will be worth monitoring how much drag to business confidence has been generated by the combination of supply disruption and the spread of the Delta variant. We’ll also have two Riksbank speakers today (Breman and Floden). Markets are awaiting any slight shift-away from the very dovish tone at the central bank, but our suspicion is that tone this will hardly change by end of the year. We think we’ll continue to see EUR/SEK oscillate within a tight range (10.12/10.22) in the coming days.
Asia overnight Despite mixed China PMI data, it was a stable day for sentiment in Asia. While China’s manufacturing PMI data slipped below 50 and into contraction territory on the back of power cuts, the services PMI increased further above 50 and showed a rebound in activity post-Covid lockdowns, according to our China economist. There was good news from the US, with Democrat Senate Majority Leader Chuck Schumer announcing that a deal had been made to avert a US government shutdown at the end of this week, with government spending being extended to 3 December. Admittedly, this amounts to just kicking the can down the road. A statement by the PBoC said that it had told financial institutions to help local governments stabilise the housing market. Most Asian bourses and S&P 500 futures were trading higher at the time of writing. A rebound in iron ore prices as Chinese buyers build stocks ahead of a week-long holiday as well as a dip in UST yields helped the AUD outperform the rest of G10 FX in the Asian session. The USD and JPY were the weakest performers during the session.
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