Headlines

*Dollar stands tall as focus swings back to the Fed

*Yen steadies as traders weigh impact of Japan intervention threat

*Australia’s jobless rate climbs for first time in 10 months

*Ray Dalio does the Math: Rates at 4.5% would sink stocks by 20%

*Asian stocks mostly higher after wobbly gains on Wall Street

USD was mixed but is consolidating near Tuesday’s highs. The DXY remains above the mid-July swing high/support at 109.29. EUR is currently sitting just above that equivalent level at 0.9952. GBP gained 0.42% to push back above 1.15. USD/JPY extended the decline but found a base above 142.50. USD/CAD is hovering just below recent highs above 1.32. AUD held above the month-to-date low at 0.6698.

US equities ended the session higher, though in choppy fashion. The broad S&P500 closed up 0.34% and the tech-heavy Nasdaq 100 was higher by 0.84%. The Dow closed marginally higher by 30 points after falling more than 200 points at one point. The index had plunged over 1,000 points on Tuesday. Asian stocks are mixed while US futures are marginally in the red.

Day Ahead – Don’t fight the Fed?

After torrid Tuesday and the shock US CPI core numbers, markets calmed down somewhat yesterday. But the rebound in risk assets didn’t exactly change momentum. The Vix, Wall Street’s fear gauge, edged slightly lower, off recent highs around 28. Global long-dated yields were relatively volatile but ended unchanged. Real yields in the US remained elevated. They are pushing gold lower as it looks to be falling to major support at $1677.

The US “terminal” rate – that’s the peak where markets price the Fed funds rate – is now above 4.3%. “Don’t fight the Fed” is a long-held mantra in markets. This would mean risk assets may have another leg lower. But the contrarian would say a lot of supportive news for the dollar is out there and we haven’t made new highs (or lows in stocks). The Fed is in a blackout period so a surprise could come from the WSJ journal who revealed the previous 75bp rate hike shock in June. Consensus looks for a 0.5% increase in US retail sales later today.

Chart of the Day – EUR/JPY upside halted by resistance

Yesterday saw Japanese authorities crank up their warnings over a drop in the yen. It was reminiscent of the old days in the 1990s as the BoJ called traders to quiz them about market conditions. The so-called “rate check” signals a high level of alarm. This has historically meant direct intervention by the MoF follows to control the exchange rate.

Japan is trying to buy time until the Fed changes course in some way and rate rise expectations ease. The BoJ doesn’t seem to be in any hurry to change it yield curve control policy. History also tells us that unliteral intervention is also rarely that successful as it needs to be done jointly. Among the yen pairs, EUR/JPY has challenged major resistance at 144.25 several times recently. But prices have pulled back to 143. Support below is 142.32/30. The recent high if we break June resistance is 145.63.