The dollar index (DXY00) Tuesday climbed to a 2-week high and finished up +0.16%. The plunge in stocks Tuesday prompted some liquidity demand for the dollar. However, gains in the dollar were limited by Tuesday’s weaker-than-expected US ISM manufacturing and construction spending reports.
The US Aug ISM manufacturing index rose +0.4 to 47.2, weaker than expectations of 47.5. The Aug ISM price paid sub-index unexpectedly rose +1.1 to 54.0 versus expectations of a decline to 52.0, which was hawkish for Fed policy.
US July construction spending unexpectedly fell -0.3% m/m, weaker than expectations of a +0.1% m/m increase and the biggest decline in 1-3/4 years.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 38% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.28% and posted a 2-week low. The stronger dollar Tuesday weighed on the euro. Also, lower 10-year German bund yields Tuesday undercut the euro’s interest rate differentials.
The Eurozone Aug S&P manufacturing PMI was revised upward by +0.2 to 45.8 from the previously reported 45.6.
German May retail sales fell -1.1% y/y, weaker than expectations of -0.7% y/y.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.83%. The yen posted moderate gains Tuesday on hawkish comments from BOJ Governor Ueda, who said the BOJ will continue to raise interest rates if the economy and prices perform as expected. Gains in the yen accelerated Tuesday after weaker-than-expected US manufacturing news knocked T-note yields lower.
Japan's Q2 capital spending rose +7.4% y/y, weaker than expectations of +10.0% y/y. However, Q2 capital spending ex-software rose +9.1% y/y, stronger than expectations of +8.3% y/y.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +15% for the October 30-31 meeting.
December gold (GCZ24) Tuesday closed down -4.6 (-0.18%), and December silver (SIZ24) closed down -0.799 (-2.74%). Precious metals posted moderate losses on Tuesday, with gold falling to a 1-week low and silver falling to a 2-week low. Tuesday’s rally in the dollar index to a 2-week high was bearish for metals prices. Also, hawkish comments from BOJ Governor Ueda weighed on precious metals when he said that the BOJ will continue to raise interest rates if the economy and prices perform as expected. Silver prices have carryover weakness from a -2% fall in copper prices after Chinese manufacturing activity in August contracted by the most in 6 months and the US Aug ISM manufacturing index rose less than expected, negative factors for industrial metals demand.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
