Canada August CPI

US Vice President Kamala Harris understands natural gas prices will rise if fracking is banned, industry executives said on Tuesday, explaining their confidence that the Democratic candidate will not ban the production method if she becomes president.

Fracking, a major industry in battleground state Pennsylvania, has become a big issue in the presidential campaign. Harris opposed fracking as a US senator from California, but now, she says she would not ban it on federal lands as president.

"I think she is changing her views," Baker Hughes oil field services chief executive officer Lorenzo Simonelli said on the sidelines of the GasTech conference in Houston, when asked about Harris.

A spokesperson for Harris said she would not ban fracking, and referred to her comments in a recent debate where she said: "I was the tie-breaking vote on the Inflation Reduction Act, which opened new leases for fracking. My position is that we have got to invest in diverse sources of energy, so we reduce our reliance on foreign oil."

Harris' Republican rival, former president Donald Trump, supports fracking and says he believes Harris would seek to ban it.

The head of the largest US liquefied natural gas (LNG) exporter, in a separate conversation at GasTech, said Harris had to pivot to being more open to fracking, because natural gas prices would be much higher without it.

Cheniere Energy chief executive officer (CEO) Jack Fusco, whose Sabine Pass facility in Louisiana is the largest US LNG export plant, said he trusts Harris' support of fracking unless proven otherwise, and wants cooler heads to prevail on the energy transition debate.

Woodside CEO Meg O’Neill, whose Australian energy company is buying US LNG plant developer Tellurian, voiced the same rationale.

"If you stop fracking in the US, it will be devastating for the economy," O’Neill said. "I suspect the statements she made earlier were made without full understanding of the benefit and potential consequences."

Harris is locked in a tight race with Trump, and both are campaigning hard in Pennsylvania, one of the nation’s largest producers of natural gas.

Several executives at the conference also called on the Biden administration to make it easier for US companies to export LNG. The White House in January paused new LNG permits to consider the environmental impact.

"You gotta stop this crazy LNG pause from going forward," said ConocoPhillips CEO Ryan Lance. A debate over whether one is pro or against fracking "is not the right question", he added.

Source: Theedgemarkets

BoE will announce its rate decision on Thursday

The Bank of England is joining the chorus of the central bank meetings on Thursday. While the market will be digesting the first Fed rate cut since March 2020, Governor Bailey et al will announce their rate decision, after a meeting that does not feature the publication of quarterly projections and a press conference.

UK data flow is not conducive to another rate cut

Since the August 1 BoE rate cut, the data flow has been rather positive and has resulted in a significant decrease in the September rate cut expectations. Specifically, PMI surveys continue to point to underlying strength in the economy while the industrial sector continues to recover. Similarly, the labour market remains relatively tight as observed by the satisfactory growth in average earnings. Consumer spending remains under the weather even though housing prices have comfortably returned to experiencing positive yearly changes.

But August CPI and a more aggressive Fed rate cut could prove decisive

Therefore, economists are overwhelmingly expecting an uneventful gathering. That could potentially change though if:

(1) the Fed actually opts for a more aggressive start to its monetary policy easing cycle than originally anticipated. The market is currently pricing in 63% probability of a 50bps Fed rate cut on Wednesday following last week’s weaker producer and import prices indices, and a WSJ report that a 50bps move is being considered. And,

(2) Wednesday’s August CPI report shows aggressively weakening inflation pressures. The market is looking for an unchanged 2.2% annual growth in headline CPI figure, but the core indicator, which excluded energy and food prices, could accelerate to 3.5%. A significant downside surprise, partly on the back of lower oil prices in August, could put pressure on the BoE to act sooner rather than later. The market is acknowledging that there is a reasonable chance of a rate cut surprise since it is currently pricing a 37% probability for a 25bps move.

Uneventful meeting expected but voting pattern matters

Barring a major surprise, expectations for an unexciting meeting will most likely be confirmed as the BoE’s chief economist is expected to propose rates to be kept stable. The focus will then turn to the November meeting that includes the critical quarterly projections and the usual press conference.

A total of 50bps rate cut is currently priced in with the BoE seen announcing 25bps cuts in both November and December, thus adopting a slower pace compared to the Fed’s 120bps of easing currently anticipated.

The market will also be interested in Thursday’s voting pattern. The August decision was reached by the slimmest possible majority, and it would be important to see if the two members, Dhingra and Ramsden, that voted for a rate cut in June, continue to push for further easing.

Pound could benefit from a balanced meeting

Despite the overall negative newsflow for the eurozone and the evident divergence in the economic outlook, the pound has been failing to materially benefit against the euro. Going into the BoE meeting, market sentiment will be clearly affected by the Wednesday Fed meeting.

Assuming nothing groundbreaking comes from the other side of the pond, a unanimous BoE decision to keep rate unchanged and an overall balanced tone at the press statement could help euro/pound finally break below the 0.8401 and make a move towards the 0.8339 level.

On the flip side, a 50bps rate cut by the Fed could force the BoE to turn more dovish than widely expected, potentially leading to a small number of doves voting in favour of a BoE rate cut. In this case, euro/pound bulls will probably have the chance to target the 0.8487 level and recoup part of their summer losses.

The retail investor-exclusive 10-year and 20-year Korea Treasury Bonds (KTBs) have failed to meet the minimum subscription for the fourth consecutive month, strained by an overall downtrend in bond yields amid expectations of monetary easing by the central banks of the United States and Korea, according to market watchers Wednesday.

Some call for the addition of five-year bond products to the portfolio, coupled with an outright exemption of a financial income tax of 15.4 percent — an already-significant tax break from the previous rate of up to 50 percent.

However, the finance ministry — the issuer of the bonds — opposes the suggestion, since the shorter-duration products will fuel speculation, undermining the policy priority to bolster the post-retirement income source for bond holders.

Also out of the question is the tax exemption, the ministry says, for fear of enormous backlash from the vast majority of the public resentful of investors amassing wealth with the help of government tax relief.

According to Mirae Asset Securities, the competition ratios for 10-year and 20-year products came to 0.29 to 1 and 0.33 to 1, respectively.

The ratio for the 20-year bond stood at 0.76 in June, dropping to 0.59 in July and 0.27 in August.

The figure for the 10-year bonds peaked at 3.49 to 1 in June before declining to 1.94 in July and 1.17 in August.

The poor performance is notable since the June figures exceeded 126 billion won ($94 million), propelled by the promise of up to 108 percent held-to-maturity increases in return.

The disappointing September figures followed the ministry having applied add-ons of 0.22 percent for 10-year products and 0.42 percent for 20-year products.

The previous add-ons were 0.15 for 10-year products and 0.3 percent for 20-year products.

Market watchers say the long-term investment vehicle will no longer be able to draw many investors, weakened by imminent rate cuts by the U.S. Federal Reserve and the Bank of Korea.

“Many bond investors will be inclined to seek short duration gains, rather than having up to 200 million won locked in for decades,” an industry watcher said.

The government introduced the two duration bonds to grant retail investors equal access to the vibrant market sector, long been limited to large institutional investors.

Changes in Treasury ownership midway through is restricted, making short-term scalping impossible. Scalping is an investment technique where an investor makes a small profit by holding a buy or a sell position for only a brief period.

Also, early redemption will remove the benefit of the flat rate, along with the high rates of returns. Funds redeemed will not be immediately available.

Source: Koreatimes

Where We Stand –

Look Ahead –

The much-anticipated FOMC day has finally arrived, and the financial world is eagerly waiting to see if Fed will opt for a 25bps or a more assertive 50bps rate cut. With market expectations split nearly down the middle, and likely some internal divergence within FOMC itself, the outcome is poised to trigger significant market volatility across asset classes. The key question is whether US equities will soar to new records, or face a harsh selloff afterwards.

On the currency front, Dollar is trading slightly softer but remains largely range-bound against major rivals, as traders hold back ahead of Fed’s announcement. But, Japanese Yen and Canadian Dollar are struggling as the weaker performers. On the flip side, Australian and New Zealand Dollars are standing out with relative strength. If today’s announcement triggers risk-on sentiment, these two currencies could see further upside. European majors are mixed in the middle.

Another key event to monitor today is UK inflation data. While Although a downside surprise is unlikely to influence the BoE’s expected decision to pause rate cuts tomorrow, an unexpected upside in inflation could reignite doubts over whether BoE will indeed proceed with another cut in November, giving a boost to Sterling.

Technically, EUR/GBP is still stuck consolidation from 0.8399. While strong recovery cannot be ruled out, upside should be limited by 38.2% retracement of 0.8624 to 0.8399 at 0.8485. On the downside, break of 0.8417 minor support will argue that fall from 0.8624 is ready to resume through 0.8399 to 0.8382 support.

Fed to cut 25 or 50? Stocks, bonds and Dollar await impact

FOMC’s upcoming decision on interest rates is shaping up to be one of the most anticipated in years, with markets still uncertain whether Fed will opt for a 25bps cut or go bolder with a 50bps reduction. As of now, futures markets are pricing in a 65% chance of a 50bps cut, while the remaining 35% lean toward the more traditional 25bps move. Despite this, many economists believe Fed will take a more measured approach, but the decision is likely to reveal a split within the FOMC, with intense debates expected between the hawks and doves on the committee.

Beyond the size of the rate cut, this meeting will offer much more insight into Fed’s thinking. Alongside the decision, markets are eagerly awaiting updates on future rate cut projections, revisions to the closely watched “dot plot,” and new economic forecasts. And together they will create a complex picture for traders to digest.

As for the broader markets, Dollar may likely follow overall risk sentiment, while the Japanese Yen will likely move in response to US Treasury yields.

The stock market is holding its breath after S&P 500 briefly touched a new intraday record before closing with only a slight gain of 0.03%. Technically, decisive break of 5669.67 will confirm up trend resumption. Next target for the rest of the year will be 61.8% projection 4103.78 to 5669.67 from 5119.26 at 6086.98. In case of a pullback, outlook will still be cautiously bullish as long as 5402.62 support holds.

In the bond market, 10-year yield’s down trend from 4.997 is still in progress for 100% projection of 4.997 to 3.785 from 4.737 at 3.525. Some support could be seen there to bring rebound, but outlook will stay bearish as long as 3.923 resistance holds. Decisive break of 3.525 will pave the way to next long term support level at 3.253.

Turning to currency markets, USD/JPY is now sitting close to a key long term fibonacci support, 38.2% retracement of 102.58 (2021 low) to 161.94 at 139.26. Break of 143.03 minor resistance should confirm short term bottoming, and bring stronger rebound back to 55 D EMA (now at 147.71).

However, decisive break 139.26 will suggest that deeper medium term correction is underway. Next near term target is 61.8% projection of 161.94 to 141.67 from 149.35 at 136.82. Next medium term target is 61.8% retracement at 125.25.

Japan’s exports rise for ninth month, but auto sector weighs on growth

Japan’s export growth continued in August, rising 5.6% yoy to JPY 8,442B, marking the ninth consecutive month of growth. However, this increase fell significantly short of market expectations of 10% yoy growth. The weaker export performance was largely driven by -9.9% yoy decline in auto exports.

In terms of regional performance, exports to the US fell -0.7% yoy, marking the first decline in nearly three years, with auto sales slumping -14.2% yoy. Exports to Europe also suffered, falling -8.1% yoy. In contrast, exports to China were a bright spot, rising by 5.2% yoy.

On the import side, Japan saw 2.3% yoy increase, reaching JPY 9,137B, but this was also far below the expected growth of 13.4% yoy. Despite this, the import figure was the second-largest on record for the month of August.

The country’s trade balance recorded a deficit of JPY -695B, remaining in the red for the second consecutive month.

In seasonally adjusted terms, both exports and imports declined on a month-over-month basis. Exports dropped -3.9% to JPY 8,759B, while imports fell -4.4% to JPY 9,354B. This left Japan with a seasonally adjusted trade deficit of JPY -596B.

BoC’s Rogers: Cooling inflation is “welcome news” but challenges remain

BoC Senior Deputy Governor Carolyn Rogers emphasized the importance of continued vigilance in combating inflation, even as cooling price pressures brought some relief.

Speaking at an event overnight, Rogers noted that while the recent decline in inflation to 2% is “welcome news,” it is still too early to declare victory. “There’s still work to do,” she stated, adding that policymakers need to “stick the landing” to ensure that inflation returns sustainably to target levels.

The comments come in yesterday’s data which showed that inflation had decelerated to BoC’s 2% target in August—the slowest pace since early 2021. The two key core inflation measures also eased, with the average annual pace falling to 2.35% from 2.55% in July.

Recently, there is growing focus on preventing a deep economic slowdown, while rising unemployment became critical concerns for policymakers. Rogers acknowledged the shift in risk perception, saying, “It’s not an absolute tilt to the downside risks, but definitely we’re in a period where the risks are more balanced.”

Looking ahead

UK CPI and PPI will be released in European session, then Eurozone CPI final. Later in the day, US will release building permits and housing starts. BoC will publish summary of deliberations. Then FOMC rate decision and press conference will follow.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6742; (P) 0.6755; (R1) 0.6770;

Intraday bias in AUD/USD stays neutral for the moment. On the upside, decisive break of 0.6766 resistance should confirm that corrective pullback from 0.6823 has completed at 0.6621 already. Intraday bias will be turned to the upside to resume the rally from 0.6348 through 0.6823, and then 6870 resistance. On the downside, however, below 0.6691 will turn bias back to the downside for 38.2% retracement of 0.6348 to 0.6823 again.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with rise from 0.6269 as the third leg. Firm break of 0.6798/6870 resistance zone will target 0.7156 resistance. In case of another fall, strong support should be seen from 0.6169/6361 to bring rebound.

Source: ACTIONFOREX